LONDON — In late 1940, the UK Royal Air Force (RAF) had just won the Battle of Britain, but was too weak to stage major raids on German-occupied territory across the English Channel. The best it could do was to mount sorties by relatively small numbers of aircraft. The head of RAF Fighter Command, Air Marshal Sholto Douglas, called it ‘leaning into France.’
Today, low-cost long-haul carrier Norwegian Air International (NAI) is blocked from operating transatlantic flights to the US. But other parts of NAI’s parent group are mounting increasing numbers of services across The Pond. ‘Leaning into the US’, one might say.
NAI’s problems are well-known. Its December 2013 application for a foreign air carrier permit to fly to the US stalled at the US Department of Transportation (DOT) following complaints from US (and some European) airlines, together with US trade unions that, by basing itself in Ireland, NAI was evading Norway’s tough labor laws in order to employ cheaper crews. Norwegian has always denied this.
Even though the DOT announced in April this year that it was granting tentative permission for NAI to fly into the US, it has still not given final approval, without which flights cannot start.
European authorities have lined up on NAI’s side, saying that under the terms of the Open Skies agreement between the US and the European Union (EU), there are no grounds for withholding permission. In July, the EU’s patience finally ran out and it informed the DOT it was launching formal arbitration procedures to resolve the problem finally.
But until the lawyers have argued their cases – rarely a swift process – NAI cannot get access to the US market.
Does this actually matter, however? Over the past two years, different parts of the Norwegian group of companies have quietly launched an increasing number of services to the US.
Since the arrival of its first Boeing 787-8s in 2013 Norwegian Air Shuttle has operated from the Scandinavian capitals of Oslo, Stockholm and Copenhagen to US holiday destinations such as Fort Lauderdale and Las Vegas.
Since then it has steadily opened up transatlantic routes from London Gatwick and Paris Charles De Gaulle and in September announced flights from Barcelona to Oakland, Fort Lauderdale, Los Angeles and Newark.
It can operate all these services using Norwegian Air Shuttle’s existing AOC and under the EU-US Open Skies agreement. Although Norway is not a member of the EU, it became a party to open skies in 2011.
And there’s more. In a quirk of international law, Norwegian can actually base several Boeing 737-800s in the US and has started flights from New York JFK, Boston and Baltimore/Washington to the Caribbean islands of Guadeloupe and Martinique. How? Because those islands are French possessions and thus come within the ambit of that same Open Skies agreement.
So, despite the ongoing objections of opponents, Norwegian is steadily pushing its way into the US. Norwegian CEO Bjørn Kjos is on record as saying he is seeking more bases there.
Not that it is having it all its own way, Earlier this year, another Norwegian subsidiary, Norwegian UK, was barred by the DOT from flying out of London Gatwick to the States under a temporary permit, with the DOT citing “novel and complex issues” in the application. This is despite Norwegian UK being a UK-licensed company and thus able to take advantage of the UK’s aviation treaty arrangements.
The arrival of the 787 has been the critical factor in Norwegian’s ability to launch Europe-US routes, says Saj Ahmad, lead analyst at UK-based Strategic Aero Research. Low fuel costs in the past two years have obviously helped, but it has been the Boeing twinjet’s operational capabilities that have allowed it to fill a gap in the market, he says.
“The airline clearly sees a void in a swathe of markets and has used its economies of scale to step in and offer not just a new product, but a new, cheaper and more flexible fare regime that has allowed it to grow its customer base,” says Ahmad.
Norwegian’s profits have been slim compared to many other airlines over the past two years. However, it has stayed in the black despite its major expansion drive.
“In the short term Norwegian may well be cross-subsidizing US operations and start-up costs from money earned from its presence in Europe. However, as Norwegian builds up its international portfolio, that financial assistance will dilute to the point where it is not needed. Indeed, look at the financial disaster that is AirAsia X, which is almost entirely alive because of money poured into it by parent AirAsia and still loses money hand over fist,” comments Ahmad.
“Every new route involves slender margins. And in a competitive landscape such as the Atlantic, building them up is hard. Will they grow margins? Of course. It will take time. Not a single other LCC on any side of the Atlantic has dared to operate a long-haul fleet like Norwegian has and still stay in the black.”
The North Atlantic run remains one of the most profitable batches of routes for the US (and European) legacy carriers using them. That perhaps helps explain the opposition to new operators such as Norwegian muscling their way into the lucrative business.
“If regulators can take their blinkers off and allow Norwegian to fully operate without restrictions, not only will competition increase, but so will customer choice,” argues Ahmad.