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Kjos and Norwegian’s backers are making a big bet that they can disrupt trans-Atlantic traffic. You need a bit of chutzpah to make that happen.
In his remarks for the Norwegian Air Shuttle ASA 2013 Annual Report, Bjørn Kjos CEO, blames an unseasonably warm winter and “teething problems with the Dreamliner,” for the 30% dip in profits.
Says the consistently confident CEO in his opening remarks to stockholders:
“Amid growth and change, we marked our seventh consecutive year of net profit. However, given the eight percent reduction in unit cost we had hoped to report better margins. Profit was set back by teething problems with our Dreamliner aircraft, while a warm and sunny Nordic summer reduced bookings in the important months of July and August. Similarly, profits were hampered by capacity investment and increased competitive pressure during the second half of 2013.”
Kjos takes on all arguments against the airline from the press, competitors and governments head-on; ribbing local competition by stating: “Big is not necessarily beautiful,” and pointing out Norwegian’s “significant expansion” in existing markets across the board in Nordic countries, with the highest growth, at 56%, in Finland.
He also points out that “though Scandinavians are statistically among the most frequent travellers in the world, they are in limited supply,” using that point to explain the airline’s drive for “global operations with a global cost structure.”
Arguments of unfair employment practices and low staff salaries are addressed directly:
- “Recruitment for new bases takes place locally to offer competitive and favourable local terms of employment.”
- “The salary levels are aligned with the competition.”
- “Our American and Asian operations follow the same strategy.”
Under a section of the remarks appropriately entitled “Battle of the Atlantic,” Kjos states:
“Contrary to common belief, the transatlantic market is tightly controlled by three global alliances that have a combined market share of 87 percent. The member airlines of each alliance legally cooperate by sharing costs and agreeing on prices.”
He takes on the alliances by saying:
“The alliances and trade unions organising the crews that staff the alliances’ aircraft have used polemical terms and slogans in the PR stunt against Norwegian – e.g. ‘flag of convenience,’ ‘race to the bottom,’ and ‘social dumping’ to suggest that Norwegian’s business model, country of incorporation and hiring practices are inconsistent with ‘fair wages and working conditions,’ ‘high labor standards’ and ‘safety culture.'”
“The goal of the alliance airlines’ allegations and persistent lobbying is clear: to delay and impede Norwegian’s market entry and to protect their high-fare oligopoly.”
Kjos defends Norwegian’s strategy to establish global operations by stating:
“The restructuring [of Norwegian] has included the establishment of new legal entities, the reorganisation and relocation of key personnel together with their decision-making authority, rights and assets to the relevant entities and their respective legal locations.”
About the problematic Dreamliner, Kjos states:
“The introduction of the Dreamliner caused more problems than we could reasonably have expected. The first two aircraft were delivered several months late, and when they arrived their dispatch reliability was too low. During the first months of operation, delays were inevitable and passengers flew more often on replacement aircraft than the Dreamliner. This was not the product we wanted to offer our passengers.”
Even so, Kjos describes the Dreamliner in favourable terms as well; highlighting it as an “eco-friendly aircraft,” and “the best available asset,” then crediting Boeing with putting in “considerable effort into improving the performance of the aircraft.” In a sidebar quote, he adds: “The reliability has improved dramatically since the aircraft first entered service and they are now performing beautifully.”
By the Numbers
Overall, the airline reported a 21% increase in operating revenue for 2013 at 15,580 MNOK up from 12,859 MNOK the previous year. The ASK (million) were up 32% to 34,318 in 2013 versus 25,920 in 2012; and RPK (million) increased to 26,881 from 20,353.
By the end of 2013, Norwegian had increased their fleet to 85 aircraft up from 68 at EOY 2012. They served 125 destinations at EOY 2013, up from 121 EOY 2012, and increased their routes operated during the year to 391 compared to 308 in 2012.
Kjos concludes with an assurance that Norwegian is “Going forward,” stating:
“There will also be considerable capacity investment in 2014, particularly during the spring, with a large number of new routes both in the transatlantic and inter-European markets.
“We continue to open more bases, both for European and overseas traffic, and with our two new bases in Spain – Barcelona and Madrid – we are well positioned for taking a share of the rapidly-growing leisure markets. Our bases in Fort Lauderdale and New York allow for the efficient operation of our transatlantic route portfolio, reaching a large number of European destinations while avoiding excessive crew layovers.
“Heading into autumn, we will retire all of our leased 737-300s and the oldest 737-800, helping us both to reduce unit costs and reduce capacity growth in the seasonally slower months. As we enter 2014, we will have one of the world’s most efficient fleets and an effective base structure covering most of the leisure markets in Western Europe, hopefully allowing us to reap the rewards of our capacity and fleet investments in 2013 and 2014.”
He does not say, “It’s on.” But it is.
Marisa Garcia has worked in aviation since 1994, spending 16 years on the design and manufacturing of cabin interiors and cabin safety equipment. She shares insights gained from this experience on Flight Chic and Tweets as @designerjet.