20110818 Thursday MarCom Shoot OSL

SEATTLE — Airways Magazine Senior Partner and Managing Editor Chris Sloan sat down with Bjørn Kjos, CEO of Norwegian Air Shuttle, onboard the delivery flight of airline’s first Boeing 737 MAX on June 29, 2017. Kjos provided great insight into the rise of Norwegian Air, challenges he and his company face, and what the future holds for his controversial and disruptive carrier. 

AW: Can you describe the business case you are undertaking here with the 737 MAX connecting the secondary markets on both sides of the pond between Europe like Glasgow, Shannon, Newburgh, Hartford, and Providence. Is there a concern that this will cannibalize your primary 787 long-haul Transatlantic service?

Kjos: We couldn’t attempt these smaller markets with a wide-body aircraft, but the narrow-body 737 MAX has the range to do it. It’s incredibly good flying at low operating costs. That allows us to serve smaller airports with much lower costs than it is to fly into JFK and Newark and at the same time, you can have a much faster turnaround. So the operation is much more effective and you have a much lower cost. And if you if think about an average of seven hours flying time, that gives you fourteen hours a day of utilization and two hours of turn around. You’re talking sixteen hours a day. And if we chose, there are still eight hours left in the day to utilize the aircraft to do something else like add on daytime service within Europe.

BONUS: Onboard Norwegian’s First 737 MAX Delivery Flight

AW: Why were the Stewart, Hartford, and Providence gateways setup to serve Ireland, Northern Ireland, Norway and Scotland versus your more mainstay gateways like London Gatwick or Paris Orly?

Kjos: Gatwick and Paris are slightly too far away in terms of range to allow (non-stop flights in both directions without taking payload restrictions).

AW: But if the MAX did have that capability, would that be preferable to operate between a secondary US market and a primary European market?

Kjos: It might be ok but the best thing you should do is fly from smaller catchment areas into small catchment areas. With smaller airports on both sides, you have quicker turnaround times and lower costing on both ends.

AW: What are the catchment areas for the three US markets? Will Providence flyers come from Boston? Will Hartford attract passengers split between Boston and New York / Newark? And Stewart from New York City?

Kjos: They are all included in the catchment area. You can establish a [totally] new market for people who will drive or take public transportation for a couple of hours and be at the airport for close to nothing and then fly for close to nothing. So the cost for a day trip would be practically much lower than if it is flying out of JFK or Newark.

AW: Do you see your new secondary markets cannibalizing your existing primary markets?

Kjos: Yes. We are disrupting ourselves like we are disrupting everybody else. That’s a good thing.

AW: You are launching this new 737 MAX service concept on a significant scale and quick timeframe. Within a month’s time, it will hit critical mass. It’s only been four years since you first began flying long-haul transatlantic. As of today, you’re offering 58 transatlantic flights from 15 U.S. airports to Denmark, France, Ireland, Italy, Northern Ireland, Norway, Spain, Sweden and the United Kingdom, as well six routes to the French Caribbean, totaling 64 routes out of the United States. Why such a rapid ramp up?

Kjos: I acknowledge it is a big ramp up. It’s a huge flow of passengers as well over the Atlantic that hasn’t been stimulated for decades. The transatlantic market has been subject to much too high fares so I think this market can be stimulated a lot and we can have many, many more people flying.


AW: Will the 737 MAX only be used for Transatlantic? Are you going to use it within Europe? I mean, what effect do you believe this is actually going have on the bottom line in the corporation?

Kjos: It can be used all over. You can use it within Europe, domestic, transatlantic. It’s cheaper to fly than the 737 NG and besides that, it has the range where you can easily go from as an example from Stockholm to India. So the aircraft can do long haul overnight and during the daytime, you can operate it in Europe.

AW: Do you considering sending the MAX to Asia?

Kjos: Yeah, they can do Stockholm daily.

AW: Why did you choose to honor Freddie Laker on your first 737 MAX?

Kjos: I think he paved the road for a lot of new thinking, so I think he is a good man to have on the tail. He tried to do a lot of things that were good for passengers and I like that.

AW: Norwegian is obviously a lightning rod for controversy. Many complain you are raising capacity considerably on the North Atlantic and bringing down yields hurting everyone. How do you respond to all those who view you as a threat?

Kjos: It’s always good to try to disrupt the market. We have seen it so many places where it is. Take how Apple then Spotify disrupted the music industry, Netflix disrupted film and television, Airbnb the lodging industry, and how Tesla is disrupting the automobile market. This is the type of disruption I really like. If we can disrupt the market to be better for our passengers, we should always do that.

AW: And what do you say to your critics who consider you pirates who skirt work rule and government regulations, finding loopholes, exploiting agreements like Open Skies, creating flags of convenience and new AOC’s to suit your needs? With all due respect, you all have been compared to plundering pirates.

Kjos: Norway is part of Europe, but not the European Union. It is not Africa or some obscure country. You have a lot of large companies and with the salaries of the pilots and captain is sort of different from where they are hired and in many other places in Europe. So I can’t understand why this is an argument and on the top of it, the people that we have on board flying for us, they’re United States citizen so how is it that we are trashing Americans? I mean we really have to provide salaries and benefits that are competitive to everybody else.

BONUS: Norwegian Air Takes Dual-Delivery of 737 MAX 8; Becomes 2nd MAX Operator

AW: How many jobs have been created by Norwegian in America?

Kjos: Around 600 across four bases so far, so I don’t understand the market their argument at all. And we will double that soon. We have more US-based crew than any other foreign airline.

AW: How has demand been so far for the advanced bookings for the new Stewart, Providence, and Hartford service?

Kjos: It has been enormous. We have never seen such high bookings in such a short time. It’s going to be very interesting to see how they perform because we have such low costs that we can offer really low fares to people.


AW: Can you be specific on load factors?

Kjos: We should be at 95 percent.

AW: To be profitable?

Kjos: We are profitable at least but that should always be the goal. You should have a high load factor when you have a lower cost. You have to be profitable in order to run any kind of airline like this.

AW: Now speaking of profitability, your operating margins are not only low to nonexistent on long haul compared to many legacy carriers but below par as compared to your European LCC competitors like Ryanair, Easy Jet, and WizzAir.

Kjos: Ryanair has been in the market for along time. They have paid down their aircraft so of course their operating costs will be very low and the margin will be high. We will get there, but we launched after them, so we are naturally a little behind them, and on top of that we are opening a quite new market. The market had to be stimulated which comes at an initial cost.

AW: Can you offer any comparison between the margins on long haul versus short haul? I would think your short haul margins are higher in more developed markets.

Kjos: Of course, the European and domestic margins are actually higher but once long-haul settles in we will have a very good margin overall.

AW: Ok, veering off a little bit in the future, your airline is only 15 years old, where do see you see yourself in five years?

Kjos: It’s very difficult to say.

AW: OK, where did you see yourself in 2017, five years ago?

Kjos: Five years ago we started to study how people would fly in the future. We saw that they would move pretty much across continents because of the migration and all. People live in one continent and they are studying in another continent and they might even work in [the] third continent. That’s how people’s lives are today so they will fly much more intercontinental. So, at this rate, it is much easier to compete inter-continentally than it is to compete within Europe.

AW: To that end, can you elaborate on the motivation behind some of your other non-European centric operations like the U.S. – Caribbean, Asia long-haul, the new airline in Argentina, and your unconventional frequent flyer program and established your own bank? You are fighting many battles on many fronts it seems. Are you stretched too thin from a resource and bandwidth perspective?

Kjos: You have to look forward and forget about how can you break your feet in the early days? In Europe, you shouldn’t take a break during the off-season with excess aircraft when you can deploy them elsewhere like the Caribbean or Argentina in the winter.

Kjos: You have to think when we started our frequent flier program. The company that benefits most from frequent flier programs are the banks. So we thought “Okay, let’s create a bank.”

Airlines can be a highly profitable business but it’s like this, think about how you can set up another type of business and that can contribute to the financial success of the airline. The bank contributes to the frequent flier program and the frequent flier program does contribute to the airline operation, so why shouldn’t we do it?

And with other markets, why should we just sit and do just what’s good for Norway or Spain, for instance, when there are other places that can benefit from low-cost flying. And what areas can you really grow and connect continents? Look to South America and especially Argentina. They have a new and very professional government and the country is a hidden jewel. It has enormous potential as a tourist magnet. So why shouldn’t we set up a system in Argentina? They don’t have a low-cost airline down there.

AW: Are there other similar opportunities around the world you are looking at?

Kjos: You should look for opportunities wherever they are. You shouldn’t be restricted to the certain area. There are no fences there and you shouldn’t put up fences for yourself.

AW: You’ve been called a swashbuckler, a modern day Viking, and pirate. As a disruptor, you’ve compared to the so called Gulf 3 for good and bad. Critics say those airlines are a house of cards and now Norwegian falls in that camp, over-expanding, entering markets it doesn’t belong particularly long-haul LCC services that few have made work. What are you going to do differently?

Kjos: I think one of the issues of why long haul LCC’s didn’t work out was that in the past the internet didn’t exist. Booking on the internet is so much cheaper. And 85% of our passengers book on the internet. Another thing they didn’t have access to were new, fuel-efficient airplanes like the 737 MAX and 787.

AW: When you look at your legacy competitors launching LCC’s like IAG’s Level, Lufthansa’s Eurowings, and Air France’s Boost (now known as Joon), they are coming for you, they are responding to you. With fuel prices and capital low, what are your advantages besides low operating costs?

Kjos: I think they will ramp up the volume, but if you think about it in Europe, this isn’t new. Scandinavian Airlines created a Snowflake and it melted when the summer came. KLM invented started Bus and it was a bust within a short time. British Airways started Go and it is long gone.

So I think it’s very difficult for a legacy carriage to create a low-cost short haul operation. First of all, they don’t like them to fly into their hubs. But that’s where the big traffic is. I mean London is, of course, a big market for British Airways. For Lufthansa, their second market area is Munich and are they allowed to fly it into these areas? No, they are not allowing themselves to fly into these areas.

AW: So you believe the fact that you are still willing to penetrate the heart of those key markets is an advantage as well as your cost?

Kjos: Yes.

AW: You are not concerned about them at all?

Kjos: I think it is good because they will ramp up the volume and you need to ramp up the volume on the North Atlantic. The fares have been too high but it is difficult to create a company within a company that’s totally different from the other company and I mean it has been tried so many times before.

AW: So let me ask you hypothetically if oil once again shoots to $90 or $100 a barrel, is that a good or a bad thing for you?

Kjos: I would say then it’s very good for our home country of Norway but honestly I don’t think about too much. I don’t think the OPEC countries can control the oil prices long haul.

AW: Do you believe the price of oil will remain depressed?

Kjos: If you think about the car industry, look at Tesla in the car industry. Are we sure we will run on petrol in the next years or we will run on electricity? I am not so sure that we need all this petrol that we are taking up. It might even be that we will see a, even a decline in the oil price.

AW: I was talking to a well-known CEO of an American low-cost carrier. I asked him: “What’s one of the worst things that could happen to your company?” Contrarily he responded that if oil prices remain low it would allow his competitors to take bigger risks, and price their fares lower to our levels and compete directly with us. This has how come to pass with American, Delta, United compete on a basic economy product. What do you think about that?

Kjos: You can also actually earn money on old aircraft with the lower fuel prices. Obviously, that will change if fuel prices rise. Today those who are flying with regional jet aircraft will have huge problems when the oil prices rise up. Still, I am not sure that the oil prices will skyrocket.

AW: So, is there anything that keeps you up at night? What are your concerns, whether its the travel ban with DHS, what’s happening in the Eurozone economy with Brexit, a long in the tooth global economic expansion? any existential threats or competitive threats?


Kjos: The thing that worries me is actually terrorism because that, if you cannot control it, might stop traveling.

AW: What did you think of the travel and security crackdowns that the United States instituted in the Middle East and that is spreading to other international destinations.

Kjos: Anything that limits people from traveling is bad. As for the ban, a lot of people in those countries are very good people. Terrorists in the countries that are banned make up only a very small group. It is sad in a way that it gives the hard liners in those countries leverage to get their way. Imposing such bans could bring the hard liners back again because they will say “I told you it didn’t work, the tourist didn’t come.”

But then again I must say that I fully understand that US wants to limit terror and in that respect I agree with President Trump. You should definitely do whatever you can do to limit terror, but the question is what type of actions should be taken?

AW: Switching gears a bit, let’s dive into what Norwegian is doing with RyanAir. about Ryanair, you are doing a co-chair right on Long Haul?

Kjos: We are in the process of discussing with Ryanair and EasyJet the concept to have the passengers to flow between our long haul and their short haul into their networks. But we need a low-cost software so the platforms can speak to each other. So that’s what we are in the process of doing.

AW: Why partner with a competing LCC? If Ryanair’s not willing themselves to take the risk do their own LCC long haul, it seems you all are taking the risk and potentially strengthening a competitor by testing the waters for them.

Kjos: Why should you treat them as enemies? Why not treat them as partners? I mean as an example Ryanair flies short-haul to Cork. We fly longer-haul from Providence into Cork and so why shouldn’t we utilize Ryanair as a partner there? Same at Gatwick where we feed long-haul from the United States, EasyJet has a lot of routes that we don’t have. So why not utilize them?

AW: Do you think one day, you’re going to teach best practices and then they will compete with you?

Kjos: No. The sky is for everybody.

AW: The Boeing New Model Aircraft has been a hot topic as of late. What configuration would you like the so called “797” Middle of the Market to take if you could spec that aircraft for Norwegian?

Kjos: They’re not building a lot of runways anymore, in order to grow capacity and you do that by building large aircraft. For us, it should have 250 seats and you need more range. But they have to be able to build it at a relatively low cost.

I think if you look at the Dreamliner, it is a credible aircraft. The fuselage is incredibly good and it’s light and that means that you can have a lower cost, longer range solution because it burn less fuel.

AW: If they build it with, is that an aircraft that you would be interested in?

Kjos: Yeah. I would be interested.

AW: Can you describe the sweet spot of your market? What is the profile of your target customer in economy and premium?

Kjos: We fly a lot of businesspeople, especially when we have high frequency routes domestically in Norway, Scandinavia, and parts of Europe. And we are strong in the leisure market but you also have to take care of the business person so that’s why we offer different products. We have a lot of business contracts actually, particularly in Scandinavia.

AW: So the last question is, in 5 to 10 years, what does this industry look like in your crystal ball? What do you hope for it?

Kjos: The airline industry has been so conservative. I really hope that we can disrupt the industry, even though it means that we disrupt ourself.