It's unlikely the DOT will be able to stall Norwegian Air International's foreign air carrier application for much longer, and then we'll see how much fare disruption is really in the carrier's arsenal.
Bjørn Kjos, the founder and CEO of Norwegian Air Shuttle, is getting impatient for what he believes is inevitable — the U.S. Department of Transportation’s granting subsidiary Norwegian Air International a foreign air carrier license.
The parent airline, Norwegian Air Shuttle, has been flying from Oslo to the U.S. since 2013, but the low-cost subsidiary, Norwegian Air International, set up shop in Ireland and applied to the DOT in February for the foreign air carrier license which would enable it to fly to the U.S., Europe and Asia.
In September, the DOT ruled that it would need more time to make a decision, a move that Kjos declares is “purely political” and a concession to U.S. carriers and the U.S. Airline Pilots Association, which have argued that Norwegian Air International is stocked with crew from Thailand and other Asian countries who receive sub-par wages, and thus the airline resorts to anticompetitive practices.
Kjos pledges to disrupt the transatlantic market with $240 Gatwick-New York and $320 Gatwick-London fares, and argues that under the EU-U.S. framework, the DOT has no legal grounds to further mess with the application.
Kjos visited Skift’s offices in New York City and we asked for an update on the airline and the DOT application.
Skift: You’re here to disrupt the U.S. aviation industry?
Bjørn Kjos: Well, you are admitting that it is the most conservative the industry you will find on the globe?
Kjos: So we have to put some new ideas into so many minds. That’s what we are here for, explaining what we are doing and why we are doing it. Our goal is to have affordable fares for everybody, not only within Europe or within the U.S., but also transatlantic.
Skift: And the current transatlantic system is sort of a monopoly in some ways, isn’t it?
Kjos: The three alliances control around 85% of all the travelers across the Atlantic. There might be competition, but the fares have steadily been rising since these alliances have controlled the traffic.
Skift: Why do you think that you can change all that?
Kjos: We fly in a different system. We don’t fly in a hub and spoke system. We take the principles of short-haul and we are low-cost operation in Europe. We fly with new aircraft, short turn-arounds, point to point, and also a high efficiency operation.
Skift: So tell me about your application. Why don’t you think it’s been approved at this point, what are you asking for, and what do you think is going to happen?
Kjos: It is delayed because there are wrong allegations. They are caving in on a lot of things to the unions. We, of course, have the license to fly through Open Skies. Norway is part of Open Skies and we can fly as much as we want flying west. What we have applied for is to have a license also under the EU regime and have chosen Ireland for a different reason that has nothing to do with the labor laws there, nothing to do actually with the tax laws. The reason why have chosen Ireland is it is part of the EU and that opens up the possibility for us to fly also with the same aircraft flying west as we are flying east.
As Norway is not part of the EU we can only fly in and out of Norway. We can fly everywhere to the west, wherever we like to fly in the U.S., but when we fly to the Far East, for instance to India, we can only fly in and out of Norway. We can’t fly Copenhagen-India, we can’t fly Stockholm-India or London-India because that’s part of the EU and Norway’s not part of the EU. That’s why we need also to be able to have a license in the EU regime.
Skift: What do you think is going to happen with your application, though? Do you think the DOT will ultimately not approve it?
Kjos: No, I think they will approve it. First of all it doesn’t make any sense to deny it because we need the EU approval not to fly west. We can do that as much as we want to. I figure when we get the approval for the EU license, we will fly the same aircraft, the same the crew. We have a New York base. We have a Miami base, a Fort Lauderdale base. So we will utilize the same crew and the same aircraft and will fly the same routes, and you’ll see the aircraft will even have the same registration.
So it’s only actually a formality, but that formality gives us access to fly east. We have access to fly east today but on the same aircraft we cannot fly west. It’s total stupidity because obviously you should utilize the same aircraft to fly east as you do to fly west.
Skift: When do you think this approval is going to come? Is the DOT going to drag it out for as long as it can? What’s going to happen?
Kjos: It’s illegal to actually drag it out.
Skift: Will you file a lawsuit if they don’t … ?
Kjos: That might be. We haven’t actually thought about that, but that might be because they are not entitled to do it. They have to give it without any unreasonable delay. It’s purely political. They allege that we fly with pilots that we don’t pay …. First of all, we fly with brand new aircraft. We fly with 787s. We probably have the most experienced pilots because we need experienced pilots to fly the 787.
For example, our average commander time is 13,000 hours. Probably the highest in the world.
Skift: What does a Norwegian Air pilot with five or 10 years’ experience make in salary compared with a United pilot or an American Airlines pilot? What do they make?
Kjos: It depends on where they fly and where they are based. A pilot in Norway has a slightly higher salary than the pilot in the UK. The commander has about the same salary whether he’s flying in and out of a base in Scandinavia or out of a base in Asia. We have a base in Bangkok. They will have been flying out of New York. It’s a competitive level. If you set up a base in New York, OK, and you want to have a skilled pilots in New York you have to pay the salary level in New York. If you set up a base in London, you have to pay the salary level in London.
Skift: So you’re saying that the charges of the U.S. Airline Pilots Association you’re guilty of uncompetitive practices isn’t true?
Kjos: Yes, for the pilots it is because it’s very national. I haven’t checked the salary level for a Delta pilot, but I guess it’s not very much different from the the salary level that we have in London. We have a lot of American pilots. One of the most experienced pilots we have, he told me that he got twice as much in salary when he joined Norwegian as he had with an American airline. This is a long-haul pilot, a wide-body pilot.
Skift: You have a base in Florida and you’re hiring employees there?
Skift: Are they making competitive salaries?
Kjos: In Florida we have to compete with airlines that are hiring people in Florida. In New York, I have to compete with airlines hiring in New York. And in London.
Skift: But the key to your business model is low fares, low costs, right?
Kjos: The key factors in short haul is high efficiency. That means that you have to have short ground stops. You can’t fly a hub and spoke system. You are flying a point to point system. High utilization, short turn around times.
The same applies for long haul. We don’t fly hub and spoke. We fly point to point. We fly out of large catchment areas. When we fly out of New York to different places in Europe, we would set our crew base in New York. If we fly out of Bangkok to different bases in Europe, we would set it in Bangkok. We would not set it up in small catchment areas like Berg and Oslo and the other places. We set it in the large catchment areas.
Skift: You sound like you want to be the Southwest Airlines of the transatlantic market.
Kjos: Maybe. There are a lot of similarities. It’s actually not the salary level. You can’t compete with a low salary level because you have to have a salary level at your crew base comparable with whatever the competitor’s salary is.
Skift: How does flying Boeing 787 Dreamliners fit into all of this?
Kjos: It fits perfectly. It’s actually the only aircraft you can fly low cost and long haul with today because 45% of your costs, if you run it properly and very efficiently, is fuel.
Skift: Do you plan on charging for a lot of ancillary services such as bag fees, and what are your ideas on that?
Kjos: We charge bag fees, as all the other airlines actually are doing. We don’t charge for hand luggage and things. The luggage is weight and weight is cost.
Skift: In your most recent earnings call, you talked about the high cost of this DOT application process. How has this whole prolonged process impacted the airline and how has it distracted you from running the airline?
Kjos: It’s very costly. The problem is that it’s hitting the consumers. We want to fly with low fares. We don’t want to give our money away to the consultants and lawyers and all those things. We want to give it to the travelers.
Skift: OK. What happens next? What’s your game plan?
Kjos: The game plan is to commit to continue to provide the low fares for Americans, Europeans, Asians and everybody. We are trying to set up a network, not only for Americans, where we give them affordable fares and fly into Europe. We have 416 routes in Europe. We can fly them everywhere, but what about giving the possibility to fly Asians. They have a lot of ancestors that migrated to the U.S. Obviously they would like to go to the U.S. if they can afford it.
Skift: Are those affordable fares just the entry points? The kind of transatlantic fares that you’re talking about, are they sustainable over a long period of time, or is that just a gimmick?
Kjos: No it’s not a gimmick. Look at the low-cost industry. Fifty percent of all the travelers in Europe today fly with low-cost airlines. They do it because they are considerably lower priced, lower fares. Like Ryanair, it is one of the few profitable airlines in Europe. The same thing with EasyJet. Norwegian started in 2002. It is a profitable airline, contrary to a lot of loss-making other airlines, among the legacy carriers.
Skift: I assume you’re in discussions with the DOT about your application. What are they telling you? What are they asking you to do?
Kjos: No we cannot get into discussions with the DOT as long as they are doing this or handling this application.
Skift: When do you expect a decision?
Kjos: Well, it’s long time overdue. It should have been many months ago. They should have taken that decision.
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Tags: ceo interviews, dot, low-cost carriers, norwegian air, politics
Photo credit: Bjørn Kjos, CEO of Norwegian Air Shuttle, calls the U.S. Department of Transportation's delay in granting its foreign air carrier application 'purely political," characterizing it as caving in to the unions. Samantha Shankman / Skift