Transport Airlines

Interview: Norwegian Air’s CEO on How Low-Cost, Long Haul Flights Can Make Money

Feb 05, 2014 6:00 am

Skift Take

Norwegian’s CEO is taking a page out of O’Leary’s Ryanair handbook: Focus on price and don’t worry about who you may offend along the way.

— Jason Clampet

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Heiko Junge/Scanpix  / Reuters

CEO of Norwegian Air Shuttle, Bjoern Kjos, poses at a news conference where he spoke about the low-cost airline's plans to buy 222 new aircraft in Oslo 25 January 2012. Heiko Junge/Scanpix / Reuters


As a former fighter pilot, Bjørn Kjos, 67, was long ago trained to spring surprise attacks. The tall, craggy Norwegian Air Shuttle boss swooped into Gatwick last year as an upstart rival to easyJet and Ryanair – now already he has his sights trained on other targets, with plans to start flights to New York this July for as little as £389 return.

Flying low cost across the Atlantic overturns accepted industry wisdom – similar BA flights are currently priced upwards of £800 – but with Gatwick’s owners desperate to break Heathrow’s dominance of long-haul, Kjos, also at various times a lawyer and thriller writer, thinks he can make this seemingly unlikely plot work.

The scale is tiny – so far. Having started linking Bangkok, Oslo and New York last year, the airline will only be running three Gatwick-USA flights a week until its fleet of three 787 Dreamliners doubles.

Norwegian Air Shuttle itself has grown from similarly small beginnings – Kjos claims to have become the boss by default: having left the air force he was working as a lawyer for friends at what was a small domestic airline, until he found himself the major shareholder when not enough other employees fancied investing in the business. Twenty years on, Norwegian has a short-haul fleet of 80 planes – and that new Gatwick base.

Michael O’Leary, Ryanair’s boss, dismisses the new operation as insignificant. But others have pinned significant hopes to Norwegian’s success: Gatwick boss Stewart Wingate, pushing the claims of his airport for a second runway against Heathrow, described Norwegian’s long-haul launch as a “game-changing event”.

But how would low-cost long haul work? Kjos said the bets have been changed by three things: more fuel-efficient planes, the internet and a shift in global economic power.

The Boeing 787 gives a greater range and guzzles less fuel than previous comparable models; Kjos also financed the purchase of his planes at favourable rates due to export guarantees not available to rivals based in the US or EU countries where the aircraft are manufactured. The internet, he said, does away with marketing costs and circumvents the problems that made past ventures such as Freddie Laker’s fail. “He might have had a chance if the digital world had existed, but he had to rely on the travel agents, which strangled him. Now you Google and you find the cheap tickets.”

Flying a short-haul low-cost operation is a prerequisite, he said. The lessons to be implemented in long-haul include intense aircraft utilisation: the schedule and routes, with hops to LA and Florida, mean his 787s will be in the air for 18 hours a day rather than the average of 12, with swift turnarounds wherever they land.

He is relocating his bases to places with large catchment areas, Bangkok and American cities rather than Oslo – and hiring local crews at a fraction of Norwegian salaries. Kjos insists the reasons are more strategic and operational than purely the wage bill – while he admits that there are “lower social costs” in Bangkok, he said they pay the same, low salaries to American and Thai crew.

Kjos has more than a touch of the O’Leary when discussing controversies around his airline, which has jettisoned Scandinavian terms of employment, set up bases abroad and now officially operates under an Irish licence, partly to benefit from open skies agreements with the US. In Norway, there have been complaints that it is no longer really a Norwegian airline. “We don’t give a shit about that. We go where the passengers go. Norway is just too small to survive.”

The future, he said, will see not just millions of Europeans, let alone Norwegians, seeking out a holiday bargain, but Chinese, Indian and other customers with disposable income. “It’s obviously the leisure market that will travel. Do they go for price or comfort? They go for price.” London, he reckons, will prove the biggest draw. “It’s the capital of Europe. We anticipate it will get most of the incoming traffic from the far east. A few people will go astray and end up in Norway.”

He claims politicians have yet to wake up to the opportunities that cheap air travel can bring: he thinks the numbers of incoming tourists add up to millions of jobs to be created in Europe. That far outweighs any race to the bottom in a few thousand airline employees’ jobs, he said. “If I was a politician, I wouldn’t give a shit about the airline side.” In Europe, he said: “We’ve exported all our industry to the far east. At least we have a very good museum to show them, they will have to come spend money in our museum.”

Yet whether Kjos’s double-edged vision of Europe’s prospects holds true or not, some are sceptical whether a truly low-cost, long-haul offering can flourish. Air transport consultant John Strickland said: “It’s being over-egged. There have been several failures so far. I’d say Norwegian has a better chance than most – it has learned the ropes of low-cost efficiencies. But it has got to go through all sort of hoops to make it work now.”

The economics are daunting, he said. “Other airlines have got 787s as well, Kjos is not going to have a unique cost advantage.” The kind of money airlines have made through ancillary revenues on short-haul, he said, cannot necessarily be replicated on long-haul: passengers can rarely avoid either eating or taking baggage on intercontinental flights and so the cost-conscious will be aware that the headline fare savings won’t stack up.

Fast turnaround and high utilisation of planes is a strategy fraught with risk. “If you constantly schedule minimum turnarounds you risk delays. And if you don’t fulfil your schedule, there’s a loss of reputation and credibility in the industry and with disgruntled passengers.”

In Scandinavia, Norwegian’s nascent long-haul service has been deluged with complaints. Almost half of its summer departures were delayed, while hundreds of passengers were left stranded over Christmas in New York after problems with the Dreamliner.

Goodwill is in short supply for Norwegian in parts of the US, and pilots have threatened to strike. As one observer said, Kjos has found nifty, entrepreneurial ways to cut costs, but they may come back to bite him: on a small fleet, there is little slack when things go wrong.

At Gatwick in the summer, with no alternative airline on hand to rebook US-bound passengers, could have unpleasant repercussions for the airline and the airport’s credibility.

Others have tried and failed to make the business work. Zoom Airlines, a Canadian operation linking Gatwick and North America, had a brief existence in the last decade.

Air Asia X, the long-haul branch of Malaysia’s successful budget airline, also couldn’t make the sums work from London. Three years after launching direct flights from Kuala Lumpur to Stansted, later switching to Gatwick, the service was pulled in spring 2012.

Air Asia’s chief executive Tony Fernandes said that service could restart “as soon as Airbus gives us a plane that makes sense” economically. He is awaiting delivery of a revamped A330 whose passenger volumes, capital costs and fuel consumption can serve Europe – but on a limited basis, namely London.

“It’s the only long-haul route, along with Paris, that we would consider. Everyone wants to go to London,” he said.

But even with his airline’s growing reach, carrying an estimated 46m passengers in 2013 to routes including Sydney, eight hours away, he doubts whether there is demand for much more than a couple of prime destinations. Fernandes said: “Ultra long haul is a struggle. Marginal revenues drop off rapidly after five or six hours. The O’Learys of this world have looked at it and shied away from it.”

O’Leary, the Ryanair boss, has said he could only make it work with the right plane and enough of them – and the kind of bargain O’Leary might hope to drive for a fuel-efficient long-range fleet cannot happen in the foreseeable future with Boeing and Airbus’s books backlogged with megabucks orders from the Middle East.

Yet the notion is now compelling enough for the man tasked with deciding where Britain’s next airport is built to reference Norwegian in parliament. Sir Howard Davies, the chair of the airports commission, told the Commons transport committee: “Are we going to see low-cost long haul? If that were to happen that would alter the balance between what we have traditionally thought of as hub capacity and point to point.”

The choice laid out so far for airport expansion in the UK – the Heathrow hub or Gatwick alternative – to a large part rests on those kind of competing visions of the future. “You can produce a very plausible argument that air traffic will develop low-cost long haul,” Davies said.

Strickland is to be convinced. “Is this something that we can really hang our hat on in terms of airport strategy? Low-cost short-haul flights are the classic Norman Tebbit bikes for people migrating for work – Moroccans going to France, Poles to Britain – but long haul is a different story.”

This article originally appeared on guardian.co.uk

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