Norwegian Air Shuttle ASA’s expansion into long-haul flights linking Europe with North America is set to depress fares in the world’s most lucrative travel market, according to Virgin Atlantic Airways Ltd.
Virgin, which returned to profit in 2014, aided by a trans-Atlantic venture with shareholder Delta Air Lines Inc., is expecting a dip in pricing on services that make up about 70 percent of its entire operation as Norwegian extends its reach, Chief Executive Officer Craig Kreeger said in an interview.
“They’re someone we compete with aggressively,” Kreeger said, describing the Scandinavian carrier as “relatively small” right now but with “gigantic” growth plans. “We need to — and we do — take them very seriously.”
Virgin is analyzing Norwegian’s route choices as a carrier once limited to low-cost European flights expands its fleet of Boeing Co. 787 wide-bodies from 10 now to 42 by 2020. That growth will put the Nordic company on a par with its U.K. rival, which operates 40 aircraft including 13 787-9s, with four more due.
Kreeger said Crawley, England-based Virgin has become more efficient in the three years since Delta took its 49 percent stake and is better able to compete on price, though will continue trading on “a service advantage” conferred by the Richard Branson-controlled carrier’s reputation as an industry innovator.
Virgin is facing up to the challenge from Fornebu-based Norwegian after falling behind British Airways in the trans-Atlantic market following its local rival’s purchase of BMI to add scarce operating slots at London Heathrow airport.
BA owner IAG SA has also bought Ireland’s Aer Lingus, giving it the option of routing more U.S. services via Dublin.
Kreeger said Virgin is open to accords that would complement its North Atlantic venture with Delta, most likely focused on Asia and other eastbound markets where the carrier reduced its exposure after the U.S. deal. More immediately, it’s in talks on adding to its seven code-share partnerships.
A decision on a successor to Virgin’s aging Boeing 747 jumbo-jet fleet is “imminent,” Kreeger said, with the 777-300ER and the 787-10 under consideration from the U.S. manufacturer, alongside Airbus Group SE’s A350.
The European model is most likely to be chosen, people with knowledge of the contest said in January, though the CEO said that a proposed stretch version isn’t an option since it wouldn’t be available before 2021.
©2016 Bloomberg L.P.
This article was written by Benjamin Katz from Bloomberg and was legally licensed through the NewsCred publisher network.