Skift Forum Europe: Norwegian Air Hopes Its Low-Cost Revolution Is Just Beginning

On April 4 in London, hundreds of the travel industry’s brightest and best will gather for Skift Forum Europe 2017, our first conference in Europe. In only a few short years Skift’s Forums — the largest creative business gatherings in the global travel industry — have become what media, speakers, and attendees have called the “TED Talks of travel.”

This year’s event at Tobacco Dock in London will feature speakers including CEOs and top executives from InterContinental Hotels Group (IHG), Norwegian Air, Google, Lonely Planet, Momondo Group, and many more.

The following is part of a series of posts highlighting some of the speakers and touching on issues of concern in Europe and beyond.

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Over the past four decades, many entrepreneurs have sought to disrupt the world’s airline industry. Some have succeeded, but many more have failed. One common problem: Aviation is a complicated and highly regulated business, with high barriers to entry. It costs a fortune to buy one Boeing 787.

But Bjørn Kjos, Norwegian Air’s CEO, is a rare executive who may have successfully disrupted a notoriously risk-averse industry. In the past three years, Kjos, who has worked for airlines for decades, has shown that a low-cost, long-haul airline can thrive. And because Norwegian has been so successful, it has forced some legacy competitors, including Lufthansa Group and International Airlines Group, to build their own low-cost, long-haul airlines.

It may sound surprising now, considering how many Americans and Europeans have bought sub-$100 one-way fares for transatlantic flights, but not everyone believed low-cost, long-haul operators had such a rosy future. Some feared travelers wouldn’t want to sit in cramped seats or pay extra for food and bags. Others noted that discounters would lose some of their cost advantages when flying longer flights, since low-cost and legacy airlines pay roughly the same fuel prices. Low-cost airlines typically capture many of their cost savings on the ground, with many turning their airplanes faster than legacy carriers.

It’s still early, and the global macroeconomic environment remains relatively strong. Norwegian could run into problems from competition, or from external shocks like terrorism or a fuel price spike. It might be thwarted by U.S. regulators. But for now, Norwegian, which will launch a slew of new U.S.-EU routes this summer, many between smaller airports with fuel-efficient Boeing 737 MAX aircraft, is in good shape.

Kjos will speak at Skift Forum Europe next month in London. We interviewed him recently by email to ask about the airline’s growth plans and to discuss challenges facing his company.

Skift: You’ll soon fly the 737 MAX into smaller U.S. and European markets. Few airlines have done this, with most transatlantic operators preferring larger cities. What opportunity do you see?

Kjos: That’s exactly it – few airlines have done this which is why we’re trailblazing into unchartered territory to expand in new markets. We’ve spotted the opportunities to create new markets and connect people who otherwise wouldn’t have been able to travel. This is where the 737 MAX comes in, as these aircraft will help us usher in a new era of transatlantic travel between smaller cities.

The popular demand for affordable high quality travel is fueling our growth on well-established long-haul routes serving major cities with our 787 Dreamliners. Now, by introducing the 737 MAX, which is smaller and has the range for long-haul travel, we are opening up underserved areas such as Providence [in Rhode Island] and Hartford. These cities provide good access to New York City, Boston and the New England areas, which gives our customers a more affordable option of visiting larger cities on the U.S. east coast.

Skift: Your competitor International Airlines Group is launching its own low-cost routes, both through British Airways at London Gatwick and through Level, its new low-cost operation from Barcelona. And U.S. airlines are considering selling Basic Economy fares on long-haul routes. Does the competition concern you? 

Kjos: Competition does not concern us because Norwegian’s expansion in low-cost long-haul travel simply underlines the huge demand for quality, affordable travel. Competition is a great thing for consumers, as they will have more choice and lower fares. Other carriers are beginning to realize that there is demand for low-cost long-haul travel so we expect to see more competition going forwards.

Skift: The consensus is that European legacy airlines underestimated the threat from low-cost, short-haul airlines a decade or more ago. Have you noticed them being more aggressive with the long-haul threat? 

Kjos: We are definitely seeing a response to our long-haul expansion. Other carriers are launching low-cost offshoots or introducing services on routes we serve to directly compete with us.

This is flattering but unsurprising as we saw an opportunity to take off [with] low-cost long-haul travel and three years later, it’s still working. Our flights between Europe and the USA are more than 90 percent full on average so competitors are starting to believe there is demand for affordable travel.

While competition is increasing from the legacy carriers, it’s important to remember we are creating a market of our own as no other low-cost airline flies direct between different points in Europe and different points in the U.S.

Skift: Most of Europe’s low-cost airlines, like Ryanair and EasyJet, still are not interested in flying long-haul. Do you expect that eventually will change? Or do you think Norwegian will continue to own the transatlantic low-cost space?

Kjos: Norwegian is being closely monitored in industry circles to assess whether low-cost long-haul can survive. The main difference between Norwegian and other low-cost airlines is that we already have a growing fleet of state-of-the-art aircraft such as the 787 Dreamliner, which is the workhorse of our long-haul operation. These aircraft are ‘greener’ and like no other which helps keep our costs down in order to make the operation work. We have also seen competitors put in orders for aircraft which are capable of flying transatlantic so it will be interesting to see how the low-cost long-haul market develops going forwards. Right now, we’re focusing on launching a new era of transatlantic travel using the 737 MAX to service our 10 new routes between the UK and Ireland and the U.S. East Coast.

Skift: You’re bullish on the future of long-haul low-cost airlines. But does anything worry you? Perhaps a fuel price spike? Or terrorism in the United States or Europe that depresses tourism? Or changes to U.S. border control policy that will make it harder for some to visit the country?

Kjos: Absolutely, we are constantly monitoring changing market conditions and industry threats to ensure we remain a dynamic airline. Despite any potential issues, people will always want to fly for an affordable price, which is why we have been successful in our global expansion plans. The USA is one of our fastest growing markets and a very important one to our business so naturally we want tourists and businesspeople to have the flexibility to gain lawful access to the country so they can quickly enjoy their holidays and work trips.

We also fly the newest aircraft with a young fleet, which has an average age of 3.6 years that offer up to 20 percent more fuel efficiency. With more fuel-efficient aircraft and carefully managed fuel hedging, our costs will be less impacted in the event of a spike in the oil price.

Skift: How, if at all, do you expect the Trump administration will affect your business?

Kjos: The USA is one of our biggest markets because it will always have demand for visitors no matter who is president. Our flights to the USA remain busy with over 90 percent of our seats full on average, and in February alone we saw a 53 percent increase in long-haul traffic which suggests that the USA is still a popular place to visit.

Skift: What about Brexit? Does it change your UK operation? What about the rest of your European operations?

Kjos: It’s still too early to say how Brexit will impact our UK operation as we still await details of how the UK will transition out of the EU. Nonetheless, the UK remains one of our most important markets and our plans for continued UK growth remain unchanged.

Having subsidiaries in the UK, Europe, and Norway also gives us the flexibility in how we operate now and in the future.

Skift: You’re expanding with an operation in Argentina. Why? What sort of routes might it fly? And do you expect to add more markets like this in the future?

Kjos: The South American market looks very attractive, as consumers have traditionally had to deal with high airfares and a lack of competition. More affordable travel could benefit millions in a region, which has high growth potential.

It’s no secret that we are ambitious in our global expansion plans and our large aircraft order can make low-cost flying a possibility within South America. We have recently established a company in Argentina and we are still in the early stages of exploring opportunities to enter the market but no potential new routes have yet been decided.