Why Norwegian Air’s Argentinian Move Makes Sense

Having already taken on legacy carriers with its cheap flights between Europe and the U.S., Norwegian Air has now set its sights on a less well served market.

After a number of heavy hints in recent months, the airline has finally confirmed the establishment of a new operation in Argentina.

No details or routes have been revealed yet, but given the company’s determination to keep its airlines in the air for 18 hours a day, you would expect a mixture of long and short haul flights.

Currently Norwegian offers flights to several destinations in Mexico but only through charter arrangements with U.S. tour operators Funjet Vacations and Apple Vacations.

“As an ambitious airline with a huge aircraft order, we have made no secret of our plans to expand our operation to other parts of the world, including the South American market which is characterised by little competition and high prices,” a Norwegian spokesperson said.

“As part of this we can confirm that a new company, Norwegian Air Argentina, has been established to allow us to explore opportunities to enter the Argentinean market, though this is at a very early stage and no routes are confirmed at present.”

If Argentina proves a hit, expect other countries in the region to follow.

Room for growth

South America has long been tipped as a potential growth spot for aviation.

If you include the Caribbean and Central America, the region has been described as the most urbanized region in the world with 80 percent of its population living in cities.

The long-haul market is dominated by legacy carriers located in Western European countries with Iberia, Air France and TAP Portugal occupying the top three positions.

And although British Airways is languishing down in ninth position, it has expanded its offering in recent years, starting flights from London to both Lima and Santiago.

When it does enter the market Norwegian will be looking to undercut its new rivals.

Direct fares from Europe to the likes of Santiago, Buenos Aires and Sao Paolo, tend to be expensive. So unlike on some of Norwegian’s northern transatlantic routes, you’d expect to see a significant difference in pricing between the airline and its competitors.

“This is a natural expansion opportunity for the airline in a market where the potential for growth is quite significant in the coming years,” said John Grant, a senior analyst at OAG.

If Norwegian is to achieve its desired level of aircraft utilization, it would need to operate shorter flights in South America as well, something that would also help to shake-up the market.

Unlike say, Europe, the impact of low-cost carriers has been minimal. Journeys are much more expensive and much less frequent, meaning that bus travel is extremely popular. This could be about to change with new entrants in Peru, Argentina and Colombia offering up cheap flights.

Data collected by OAG also shows solid growth over the last six years. Across the peak summer period, the number of seats has grown by 40 percent to 89.7 million. Frequency has lagged slightly, increasing by 21 percent over the period.

Not alone

When Norwegian does start to offer flights to Argentina, it almost certainly won’t be the only low-cost airline doing so.

Just before Christmas, International Airlines Group announced it planned to setup a new low-cost, long-haul operation in June 2017, based out of Barcelona, Spain.

The group will use exiting low-cost airline Vueling to funnel passengers in from all over Europe before sending them off to destinations further afield.

Of the destinations under consideration, two of them – Santiago and Buenos Aires – are in mainland South America.

Now that Norwegian has proven that the low-cost long-haul model can work, the airline is going to have to deal with others trying to copy its model.

Grant added: “What with IAG via Vueling also reportedly about to announce services then Europe – South America capacity and subsequent demand may be about to enjoy a few years of strong growth as a mix of first time visitors and increased frequency of travel in the VFR market respond to the low cost opportunities.”

Another reason that Argentina and Southh America makes sense for Norwegian is that it has a large number of aircraft arriving in its fleet over the coming years.

By the end of the decade it will have a total of 42 Boeing 787 Dreamliners with South America being the likely home for at least some of them.

“They’ve got a large number of aircraft coming on order and almost all their eggs are in the North Atlantic basket at the moment, [with] a little bit of Asia,” said aviation consultant John Strickland.

“It’s wise to diversify and if you look at Europe – South America, then they are looking at market which is already sizeable and where there’s nothing like the liberalization or strength of competition that there is to North America.”