ANALYSIS: Where will expanding Norwegian fit in Europe?

London
Source:
This story is sourced from Pro
See more Pro news »

Norwegian Air Shuttle - to give it its full name - is an intriguing phenomenon. The Oslo-based low-cost carrier has been quietly expanding its operations over the past decade to the point where it has grown into a serious rival to Scandinavia's one-time powerhouse SAS and potentially threatens its very existence.

The airline carried 17.7 million passengers last year and its capacity is set to grow 25% more in 2013, while an 8-10% reduction in cost per available seat-kilometre is targeted. Its 74-strong fleet - currently an all-Boeing 737 affair - will expand to pass the 100-unit mark by the end of next year and include its initial batch of 787s. These widebodies will be used to establish the next phase of its expansion plan - long-haul, low-cost operations.

After a decade growing quietly, Norwegian really put itself on the global map a year ago when it revealed a huge order for re-engined narrowbodies: 100 Airbus A320neos and 100 737 Maxes with options for 150 more. The airline now operates 400 daily flights on 331 routes to 120 destinations in 36 countries. From April it will have 11 bases across Europe located in Norway, Sweden, Denmark, Finland, Spain and its first in the UK at London Gatwick.

norwegian bases 640 

"I remember when the head of SAS was asked a few years ago whether he felt threatened by Norwegian, he replied: 'Who's Norwegian?'" says chief executive Bjorn Kjos with a smirk.

Although it has in excess of 260 single-aisles on order, Norwegian's fleet expansion will be tempered - as is the case with other low-cost carriers - by its strategy of replacing aircraft after seven years. However the reality is that the airline's order book and expansion plan is set to pitch it on a collision course with Europe's other low-cost carriers and the short-haul businesses of the region's legacy carriers.

"We'll definitely have more European bases," says Kjos, and these could be located anywhere across the region. "And you'll see it in a wider perspective because in the future we might be flying from different positions in Asia to Europe, and where will the meeting points be?" he adds. "On the other hand there might be [long-haul to Europe] bases in the USA."

The long-haul services will mainly operate from bases outside Europe, says Kjos, predominantly in Asia. The first of these is in Bangkok.

"There is a shift in the way people travel and the wave will come from the East," says Kjos. "If you take say SAS flights to Beijing today, 90% are European people and 10% Asian people. Eight-to-ten years down the road it will be 50/50 and 20-30 years ahead, the mix will be 85-90% Asians."

Norwegian's own statistics rank it as Europe's third largest low-cost carrier in terms of inter-European seats behind Ryanair and EasyJet - although it excludes Air Berlin as it is viewed more of a hybrid airline. Norwegian's view of its position concurs with Airline Business, which placed the airline fourth in Europe (behind Air Berlin) in its 2011 low-cost carriers ranking.

Snapshot: European low-cost carriers

Airline

Passengers (2012)

Revenue

Fleet

Orders

Ryanair 79.6m $6.1bn (Mar 2012) 305 175
EasyJet 58.4m $6.1bn (Sep 2012) 207 16
Air Berlin 33.3m $5.6bn (Dec 2012) 107 68
Norwegian 20.4m $2.2bn (Dec 2012) 73 271
Vueling 14.8m $1.4bn (Dec 2012) 60 5

Source: Flightglobal Pro, data for most recent financial year available

"Our unit costs are between EasyJet and Ryanair - we will not get to the cost of Ryanair because we'll have to start flying to secondary cities. We have half the costs of SAS," Kjos says.

EasyJet chief executive Carolyn McCall "vehemently" challenges suggestions that Norwegian has lower unit costs. "Impossible [that Norwegian has lower costs]. Their load factor is a lot lower than ours," she tells Flightglobal Pro. "They're seen to be low-cost in Scandinavia because they're compared with SAS, which is the highest cost airline in the world."

Kjos indicates that the airline's expansion plan is likely to focus on organic growth rather than through acquisitions, partly in light of the difficult experience it had acquiring small Swedish low-cost carrier Fly Nordic. He also dismisses suggestions he could be tempted to sell-out to one of his bigger rivals: "Norwegian's not for sale," he says.

With Norwegian positioned for growth within Europe along with other low-cost carriers, Kjos expects many of the region's legacy carriers face a big headache over the next 10 years retaining their short-haul networks. "Some [legacy carriers] will go and some will still be flying [European services]," he says. "There's a big difference between the carriers. For example British Airways controls the slots at Heathrow and has a huge catchment area in London so they'll obviously have a good future.

"But I see problems in the future for some of the other carriers that don't have that protection or constraining of slots and don't have the huge catchment area. They'll be in a totally different position and most of the [legacy] carriers - except perhaps BA - have to do something with their cost structure."

EasyJet's McCall says she is "not complacent about any competition", but admits that she is not sure where Norwegian - and its low-cost short-haul/long-haul network model - will fit in the long-term European airline scene. "I can't work out what kind of airline they are," she says.

EasyJet, which is about to launch its first Norwegian excursion with services between Gatwick and Bergen, is the dominant player at the London airport with over 50% market share. "We'll give Norwegian a good run for their money at Gatwick and we will not let them have the market in any way," she says.