MIAMI — On Wednesday, September 4th Scandinavian low cost carrier (LCC) Norwegian Air Shuttle, the third largest LCC in Europe, held a press briefing in New York City to celebrate the launch of their new long haul flights to the United States.
Norwegian – which already operates six weekly flights to the United (three flights per week from both Stockholm/Oslo to New York JFK) – is launching a massive expansion of its long haul operations to the United States over the next few months utilizing its brand new fleet of Boeing 787-8 Dreamliners. The airplane will help see the carrier expand its US operations with twenty-five new weekly frequencies and ten new routes by the summer 2014 season. See the slide below for a full list of Norwegian’s North American route network, planned and present:
Norwegian will be using a fleet of Boeing 787-8s seating 291 passengers in a two-class configuration (32Y+ / 259Y), with eight aircraft on order. Two 787s have already been delivered to Norwegian, with a third due later this year. Four more are due in 2014, and the last in 2015. The airline’s order book also includes 265 narrow body orders, including 65 Boeing 737NGs and 200 re-engined narrowbodies split evenly between the Boeing 737MAX and the Airbus A320neo.
As part of its long haul expansion plans the carrier – which serves 383 routes and 122 destinations from its three primary hubs (Oslo, Stockholm, and Copenhagen) along with nine other bases scattered around Europe – will be opening crew and operational bases in Bangkok, Fort Lauderdale, and New York City, creating about 100 new US jobs in the process. CEO Bjorn Kjos touted the lower labor costs in Asia and the US versus Europe as factors in the decision to create foreign bases:
If you want to compete with Asia, you have to compete out of Asia.
It is unclear whether Norwegian will succeed in the long haul low cost market, which is littered with the carcasses of failures the world over; Laker Airways in the 1980s and AirAsia X in modern times being just two prominent examples. Of course Australian LCC Jetstar has found some success on flying Australia-Asia (similar distances to Europe-US), and was recently joined in the market by Singapore Airlines’ venture Scoot. But by and large, low cost carriers have failed to match the massive inroads they’ve made into the short haul and domestic sphere.
Part of the reason why previous low cost long haul operations have struggled is that long haul routes typically require a core of high yield travelers paying thousands of dollars for first and business class seats to make a profit; economy class passengers by and large provide volume – the money is made up front.
This for example, is why Frankfurt-Bangalore is one of Lufthansa’s most profitable flights and sees the Boeing 747-8i (Lufthansa’s most premium aircraft) with 60% load factors, while Frankfurt – Hyderabad was cancelled despite occupancy rates that regularly exceeded 90% on the much smaller A340.
But Norwegian CEO Kjos is confident that his airline can overcome this disadvantage, stating that Norwegian’s new operation is “A Long Haul Revolution.” Part of his optimism stems from the fact that Norwegian Air Shuttle is the first LCC to launch long haul operations with the Boeing 787, the most fuel efficient aircraft of its size in aviation history. The 787 is perhaps the first aircraft that will be able to operationally support LCC yields, and Kjos touted the 787’s cost advantage against rival Scandinavian Air System’s Airbus A340s at the press briefing:
Why should I use an Airbus A340 to fly Oslo-New York when I use 50% more fuel on the Airbus than on a Boeing ? I might be an idiot if I don’t fly the Dreamliner. So why would I use an A340 on the route when I could fly a Dreamliner? Because you have to wait so many years to get a hold of one. The difference in the cost of the excess fuel used by the A340 pays for all of the lease or finance cost of the Dreamliner.
Norwegian had planned on launching its long haul services using the 787s this May, but in a fit of irony was forced to utilize leased Airbus A340s to launch its first long haul routes from Oslo and Stockholm to Bangkok and New York JFK as the carrier. Even as the carrier has transitioned to the Dreamliner, its dispatch reliability has been shaky. On more than one occasion the hiccups have required the airline to lease A340s from charter carrier HiFly for backup lift when the Dreamliner.
Regardless, the entrance of Norwegian into the market is certain to shake things up across the Atlantic. On the sidelines of the event, I spoke with a member of Norwegian’s investor relations team, who pointed out that average fares between Scandinavia and New York have declined nearly 30% since Nowegian’s entry into the market, putting a dent into the profitability of United Airlines and SAS, both of whom fly New York-Scandinavia routes together as part of the Star Alliance. And Kjos is confident that his airline will be able to continue competing on price, even stating that Norwegian would be offering $350 roundtrip fares between New York and Scandinavia.
According to Airbus, the share of long haul passengers that are leisure is 85% – we think that that 85% number will likely climb into the 90s. And what do leisure passengers make purchase decisions on? Price. And we [Norwegian] have the lowest costs of any airline in the market.