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Is Norwegian Air’s Cutback the End of Low-Cost International Flights?

Madhu Unnikrishnan
January 14th, 2021 at 2:32 PM EST

Just a few years ago, Norwegian Air was launching new subsidiaries in Ireland, the UK, and even Argentina as it planned to remake intercontinental travel. Today, the struggling airline admitted its wings have been clipped. It will now focus on its core market in the Nordic region and operate a handful of short-haul European flights and eliminate long-haul routes.

It also will return its fleet of Boeing 787s, central to its international expansion plans, to lessors. Irish media report 787s have been arriving at Shannon Airport for their eventual return. Norwegian grounded its 787 fleet in March last year, due to both issues with their Rolls-Royce engines and as demand for international travel began to evaporate because of the pandemic.

As part of its restructuring, Norwegian also said it will cut its 140-aircraft fleet to 50 Boeing 737 aircraft, with plans to expand that to 70 narrowbodies by 2022, the company told Norwegian regulators. The company also plans to raise as much as $600 million in new capital.

Norwegian has been in administration in Ireland since November. The company got an infusion of state aid from Norway last year, but the Norwegian government turned down its request for a second round of aid in November.

Low-cost international flights, particularly across the Atlantic, have been a tough problem for airlines to solve. In the last decade, several airlines have tried, and some explicitly copied Norwegian’s model. It didn’t end well. Iceland’s Wow Air tried to break into the low-cost transatlantic market and failed, liquidating in 2019. And Icelandair, which also tried flying to secondary markets, struggled to make the model work. Norwegian had been the lone survivor, before the pandemic, but now even it is exiting the market.

In a statement, Norwegian said it has already begun shuttering what overseas operations remain. Norwegian laid off most of its staff last year, and the new business plan will require more layoffs, although the company has not specified how many. British media report that as many as 1,000 employees at Gatwick could be let go. “Our focus is to rebuild a strong, profitable Norwegian so that we can safeguard as many jobs as possible,” CEO Jacob Schram said in a statement.

Norwegian did not specify which routes it will serve in Europe, but said it will focus on the Nordic region and a “shorthaul” European network. “Our shorthaul network has always been the backbone of Norwegian and will form the basis of a future resilient business model,” Schram said.

Norwegian’s downsizing likely could free up slots in the London area, as the airline operated a significant longhaul and European operation from Gatwick. These slots will be a valuable commodity when the airline industry eventually recovers.

It remains unclear what the effect Norwegian’s news will have on the 787 market. Boeing has cut production of the type, and last year delivered only 53 Dreamliners, compared with 158 in 2019. Now, presumably, several dozen more 787s will be available from lessors.

Norwegian was struggling financially even before the pandemic, strapped from its ambitious expansion plans. And those plans were really ambitious. It had established Irish and UK subsidiaries for low-cost longhaul (at one point offering transatlantic fares as low as $69). The airline offered transatlantic flights to secondary cities, including Hartford, Conn. Although the flights were popular and provided transatlantic connectivity to cities that had never had it, the airline posted often staggering losses.

Along the way, Norwegian got into a multi-year fight with U.S. labor, which alleged the company was flouting Norwegian labor laws with its Irish subsidiary and violating the terms of the EU-U.S. open skies agreement (a fight it eventually won by getting Transportation Department permission to fly to the U.S.). It launched a subsidiary in Argentina to operate both domestic and longhaul routes. That business struggled from its inception, and eventually Norwegian sold it to JetSmart at the end of 2019.

Madhu Unnikrishnan
January 14th, 2021 at 2:32 PM EST

 

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