Budget carrier Norwegian has significantly increased its Scandinavian footprint with the acquisition of Finnair low-cost subsidiary FlyNordic.
The deal will see Finnair obtain a 5% stake in Norwegian, with an option to increase this to 10% by the end of 2008. Finnair says the decision to take a stake in Norwegian was a financial one: "We thought the share price was undervalued. It was a win-win situation. We have no plans to take over Norwegian."
Norwegian chief executive Bjorn Kjos says there are no plans for Finnair to go beyond 10%. "The first 5% is effectively for the FlyNordic deal and the next 5% because they want to co-operate with us," he says, adding the possibility of Finnair having a seat on the Norwegian board hasn't been discussed.
Finnair and Norwegian will also start interlining on Finnair's Far East routes. "From Finnair's point of view, FlyNordic has fulfilled the strategic goals originally set for it," says Finnair chief executive Jukka Hienonen. "We now want to proceed to the next phase."
Kjos says that it has yet to be decided whether Norwegian or Finnair will operate the Helsinki-Oslo route under a co-operative agreement, but says lower operating costs suggest that Norwegian is more likely.
Per Haagensen, financial analyst at Norwegian investment bank Fondsfinans says the deal opens up the Stockholm and possibly the Helsinki markets for Norwegian. He adds though that the danger of Norwegian's low-cost business model becoming blurred by its interlining role with Finnair "is a worry". Kjos, however, says that transfers will effectively be do-it-yourself type arrangements and points out that Norwegian already interlines internally on its domestic routes.
The acquisition of Stockholm Arlanda-based FlyNordic gives Norwegian a major boost in its battle for dominance in the Scandinavian low-cost market. Combined, the two carriers carried 6.3 million passengers 5.1 million for Norwegian and 1.2 million for FlyNordic. Kjos says he plans to keep the FlyNordic brand, and to strengthen its position in the Swedish market. "We will continue to have focus on low fares for business and leisure travellers. We will also further develop our IT solutions with focus on website, direct to gate and automated check-in, and will also continue to focus on high efficiency."
Meanwhile, Norwegian is to lease 11 Boeing 737-800s. It will issue a bond of NKr300 million ($50 million) to finance aircraft and cover increased working capital linked to its expansion.