Skift Take

Many U.S. airlines and their employee unions are concerned about Norwegian's rapid growth — and for good reason. With its low cost, long-haul model, Norwegian is a threat to legacy airlines.

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Few competitors concern legacy U.S. airlines and their employee unions as much as Norwegian Air, a low cost carrier flying Boeing 787s across the Atlantic, connecting cities like New York and London and Los Angeles and Stockholm.

Norwegian is using a model perfected over two decades by several airlines in Europe and the United States, including Southwest, Ryanair, and EasyJet. The others, however, generally have stuck with what they know works — selling relatively cheap fares for short flights. Southwest, Ryanair, and EasyJet do not fly widebody aircraft across oceans.

Norwegian is different. Long a short-haul European operator  — it flies Boeing 737s, just like Southwest and Ryanair — it started flying to the United States in 2013, launching with flights between Scandinavia and New York. It has expanded rapidly, adding routes from several European destinations, including London, Stockholm and Paris, to many large U.S. cities. Except for the first months, Norwegian has been flying new Boeing 787s.

In part because the 787s have low operating costs, Norwegian can undercut legacy airlines on fares, and this winter, it is selling $450 roundtrips between the West Coast and Europe. Like many discounters, Norwegian charges many travelers for advanced seat assignments, meals, and checked bags.

Norwegian has an unusual model, and its approach concerns some U.S. interests, who have tried to block it from expanding in the United States. The airline travelers call Norwegian is actually four different carriers — two based in Norway, one in the UK, and one in Ireland.

Norwegian’s CEO Bjørn Kjos said the airline needs multiple operating certificates for one key reason — access to international routes. Norway is not a member of the European Union, and airlines based in the country don’t have access to as many international routes as carriers headquartered elsewhere. The Norway-based airline can fly as much as it wants from anywhere in Europe to anywhere in the United States, but it is limited on some routes to Asia and Africa.

For now, the U.S. only permits one of Norwegian’s airlines to fly to the United States — the company’s long-haul Boeing 787 operation based in Norway. But the company also wants all its airlines based in Ireland and the UK to have the same U.S. flight rights. Kjos said this will allow the airline to operate more efficiently. It would allow, for example, Norwegian to use the same aircraft on New York-London as it might on London-Johannesburg, a route it does not now fly.

U.S. legacy airlines have been relatively quiet recently in their opposition, but many airline employee unions have been more publicly critical. The Air Line Pilot Association, which represents pilots at United Airlines and Delta Air Lines, argues Norwegian only wants its UK and Irish subsidiaries to fly to the United States so it can “… evade Norwegian tax and labor laws.” Kjos disputes this assertion.

Skift spoke with Kjos in early September in London at the Global Aviation Festival, and we asked him about politics, competition, Boeing 787s and the future of low cost, long haul airlines.

Note: This interview has been edited for length and clarity.

Skift: After first adding flights to London, Paris, Stockholm, Oslo and Copenhagen from the United States, you announced you’ll soon fly to Barcelona from Fort Lauderdale, Los Angeles, Newark Liberty and Oakland. Why Spain?

Kjos: Spain is the largest operation we have outside of Scandinavia, and we also fly domestically in Spain, so it was natural for us to start flying long-haul out of Spain. And especially since Barcelona is not being served [nonstop from another airline] from the West Coast, that made it quite natural. It’s a huge catchment area, and of course [Barcelona] has the cruise harbor. Barcelona in my mind has always been one of the top five destinations for tourists in Europe.

Skift: Most European legacy carriers have U.S. partners. The partners help feed passengers, so flights between Los Angeles and Europe can have many travelers who start or end their journey in Fresno, or Portland or Phoenix. But you don’t have partners. You focus only on the biggest U.S. cities. Does that work?

Kjos: Yes. In the U.S, we fly to big cities. Los Angeles is an end destination, so is Oakland. And with New York, the catchment area is so big that it’s enough to be an end destination. In Europe, you need a feeder system. The cities in Europe are much smaller than in the U.S. The catchment areas are much smaller. You have London, and then the next biggest city is [the] Madrid [metro area] with six million people. That’s even less than the Boston area. So all the cities in the U.S. are different than in Europe. In Europe, you need the feeder network.

Skift: You essentially have four airlines, all called Norwegian. Two are based in Norway, another in Ireland and another in the UK. Since the U.S. Department of Transportation is not yet permitting your Irish and UK-registered airlines to fly to the United States, you’ll operate the new Spain flights on the Norway certificate, right?

Kjos: Yes, if we do not have DOT approval, then it will be served by the Norwegian [certificate]. Whether it is one or the other, it will served by the Barcelona crew base, or New York or Fort Lauderdale or London. Most of the time [it will be] Barcelona crews.

Skift: Why do you need Irish and UK-based airlines, along with the Norwegian one?

Kjos: It depends on where we are flying. For example, [with the certificate from Norway] we can get access from Spain to the U.S. But we cannot get access from Spain to a lot of places outside the U.S. [The Norway certificate] limits our abilities to fly to other places than the U.S.

We have a base in Barcelona, and it’s not only to serve Europe and the U.S. We have a larger continent just south and that’s Africa. We can’t go into Africa with the Norwegian [operating certificate.]

Skift: Are there any examples of place you can’t fly with the Norway certificate but can fly from the UK or Ireland?

Kjos: We need the UK traffic rights in order to fly into India and South Africa. But we cannot start flying into these areas, without having the possibility to fly the same aircraft that we do to the other destinations. It limits our possibilities.

Skift: Irish and UK regulators have approved your subsidiaries. Usually, once that happens, U.S. regulators quickly follow. But that has not happened. Why not?

Kjos: I think they are afraid of competition. That’s the only answer to it.

Skift: The Air Line Pilots Association, which represents pilots for United Airlines, Delta Air Lines, says you only want your UK and Irish airlines to fly to the U.S. so you can “evade Norwegian tax and labor laws.” Is that not true?

Kjos: We have to pay the crews, otherwise they wouldn’t work for Norwegian. We have to pay the pilots the same going rate. I think we are the only European airline with American crew bases.

Skift: Your Norway-based airline can’t fly to South Africa or India, but it has unlimited rights to fly between the EU and U.S. Does that mean we should expect more U.S. routes from Norwegian?

Kjos: From Norway, that’s the only place we can expand, so that’s why we continue to fly more and more to the U.S.

[On the Norway certificate] we can’t even serve Canada [from the EU]. That is the crazy thing about this. It has nothing to do with labor. They are trying to limit our abilities to compete in the U.S., but exactly the opposite thing is happening. Now we can only compete into the U.S.

Skift: You now only fly Boeing 787s to the United States, but you’ll soon take delivery of your first Boeing 737 Max. It should have range to fly from the U.S East Coast to Western Europe. How do you plan to use the aircraft?

Kjos: There are so many opportunities that it’s incredible. The Max has the range to go cross the Atlantic. But you shouldn’t go trans-Atlantic with a Max into JFK in New York. You should do it from secondary airports in Europe to secondary airports in the U.S. At these smaller airpots, there are much less taxes to pay. If you fly it for six and a half hours – [the Max] actually has a lower seat cost than the Dreamliner. It is incredibly fuel efficient, and if you fly it all night, you can have a high utilization on it.

Skift: If it’s cheap for you to fly, does that mean ticket prices will be cheap, too?

Kjos: You should easily find tickets below $100 for a one-way ticket, everything included.

Skift: Are you surprised so many politicians in the United States have taken stances to try to keep Norwegian from expanding?

Kjos: Competition is good. Politicians should understand that what’s good for the consumer is good for the country. It might not be good for airlines, but then again if you cannot tolerate competition, then you are in the wrong business.

Skift: Many low cost airlines fly short-haul routes, but relatively few cross oceans. For a long time, other airlines seemed to think that what works on shorter routes — charging low fares, while also assessing fees for food, seats and checked bags — wouldn’t work for long-haul. Why did you see an opportunity?

Kjos: They do it on the short haul. It works on the short haul. That’s what people want for the short haul. Why shouldn’t it work on the long haul?

Skift: Yet for so long, the conventional wisdom said it couldn’t be done.

Kjos: That’s because you have all these experts. They [said the same thing] when we started out in 2002. They said we would never survive, and they said EasyJet and Ryanair were just a flop. That was the saying over there at that time. And now the largest carrier in Europe is Ryanair so experts aren’t always right.

Skift: Could your long-haul model work without the Boeing 787?

Kjos: No. [Before] we set it up, we did the calculation with the [Boeing] 767 and the [Airbus] A340, because those were the ones that were available. The [Airbus] A330s were good, but they didn’t have the range that we needed. We couldn’t get the figures to add up. In order to have low costs, you have to have high utilization. You have to [fly] close to 18 hours [a day] on [each] long-haul aircraft. Needless to say, dividing your costs by 18, you get a lower figure than when divided by 14. We were aiming for 18 hours utilization in order to get low enough costs. Most aircraft couldn’t do it.

Skift: Is the Boeing 787 reliable enough to fly it 18 hours per day? At first, airlines reported that that the aircraft had some reliability issues.

Kjos: Today, it’s incredibly good. Actually, it’s at the same level as the 737.

Skift: And in the beginning?

Kjos: Oh, it was a nightmare. It was a real nightmare. There were the batteries on fire. It was everything. Then again, the Dreamliner is like a flying iPad. It’s so sophisticated compared to other aircraft. It’s not one or two or three years. It’s 10 years ahead. And the benefit of the composite makeup is that doesn’t weigh anything so the fuel efficiency when you get it to work is tremendous. But it was a nightmare. We had stranded passengers all over.

Skift: Do you expect you’ll have more low cost competitors flying trans-Atlantic soon?

Kjos: I hope so. Today ,there are way too high prices to fly over the Atlantic. More competition is exactly what happened in the early 2000s when Ryanair and EasyJet took over the [European] market. They lowered the prices and ramped up the volume. Now it’s cheap to fly and no one is making more money than Ryanair.

Skift: Europe’s strongest low cost carriers do not fly to the United States. Does this help Norwegian?

Kjos: It’s much easier to compete with the legacy carriers than to compete with EasyJet and Ryanair. We have to find the areas where we don’t meet them — where we can only meet the legacy carriers. [We need] to create a system over the Atlantic, like Easyjet and Rynaair created in Europe. It is is doable. We are talking about volume and low fares.

Skift: Don’t you expect legacy airlines eventually will implement strategies to try to compete with you?

Kjos: You have a lot of smart airlines. You have British Airways as an example. They took over Vueling. Vueling is a good Spanish [low cost] carrier. So yes, it’s doable. And why shouldn’t they do it?

Skift: Do you think consumers only choose airlines based on price?

Kjos: First, on top is fares — that we know. Second, you have to be a safe airline. Then it’s about, are you flying new or old airplanes? If [consumers] can fly new, safe airplanes with low fares, that would be their first choice.

Skift: You charge for food, advanced seat assignments and checked luggage. But you allow passengers to bring carry-ons, even larger ones, for free. Why not charge?

Kjos: You have to make the journey as hassle free as you can. I think asking, ‘have you paid for everything you are putting in the overhead bins’ might be a hassle to some passengers. That’s why we looked at it and decided not to do it — at least not for the timing being.

Skift: What do your economy class customers expect from Norwegian when they buy a $450 roundtrip ticket from L.A. to London?

Kjos: They want enough legroom, and they want a hassle free journey. That’s why it works so well for us to have our [food and drink] menu in the seat screen. You have your snack bar at the seat. You can order food and drink whenever you alike. That fits the passengers very well because they don’t have to wait for trolleys or anything. They get good service.

Skift: You talk about legroom, but Norwegian’s seat pitch isn’t exactly industry-leading.

Kjos: Well, if you have a new aircraft with new chairs, you can put in 31-inch pitch, and that’s much better than 33-inch pitch with old chairs. And if you have a 31 inch pitch with new chairs, you have a better economy class than most of the other legacy carriers.

Skift: You are still putting in-seat screens in coach. That’s a costly investment, since the embedded systems weigh more, which means planes burn more fuel. Why do you have them?

Kjos: We have debated a lot about it. I think in the future, we will not have them. Today, we have won four prizes as Europe’s best low cost airline. And we’ve won the second prize in a row for the world’s best long haul low cost airline. So we know the concept is working. We wonder, should we change it now? Or should we change it at a later time? I think it’s too early to change it. But believe me, we have calculated the cost of the weight of it.

Skift: What’s the cost?

Kjos: I could tell you to the second digit (laughs). The cost is actually the weight. The more weight you carry, the more fuel you are burning.

Skift: On the 787s, you don’t have business class, but you have premium economy with recliner seats. Why was this the right decision for Norwegian?

Kjos: To me, it’s about, ‘What do you think the passengers would like to have?’ Most of the New York flights are very short flights. You need a good rest, if you’re a business passenger. You don’t need a flatbed. We have 46-inch pitch. If you have a flatbed, you have to go to at least 60. That means you lose so many chairs. To me, it’s just a calculation. ‘Where do I earn the most money?’ I know that whether I provide a flatbed or premium economy, it’s a very good service. But you have to weigh what is most attractive for the passenger and what is most attractive to the airline. [It’s a] simple calculation.

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Tags: ceo interviews, fope, labor, norwegian air, open skies

Photo credit: Norwegian Air CEO Bjørn Kjos said his airline's low cost, long haul model would not work without the Boeing 787. "We couldn't get the figures to add up," with any other plane, he said. Norwegian Air

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