July 13, 2014 10:02 am

Norwegian Air Shuttle retains hope of living the dream

A Boeing 737-800 aircraft, operated by Norwegian Air Shuttle AS, right, passes a Ryanair Holdings Plc aircraft at Gatwick airport in Crawley, U.K., on Thursday, Jan. 10, 2013. Gatwick, acquired by Global Infrastructure Partners Ltd. in 2009 after regulators sought a breakup of BAA Ltd., owner of the larger Heathrow hub, is 30 miles (48 kilometers) south of London and serves about 200 destinations, more than any other U.K. airport, according to flight schedule data provider OAG. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

On Saturday June 21, more than 200 passengers were looking forward to flying from Orlando to Oslo on Norwegian Air Shuttle’s new Boeing Dreamliner. Their excitement soon changed to irritation. Maintenance problems led to delays that grew longer and longer. The 221 exhausted passengers eventually arrived in Oslo more than 44 hours late.

The incident was a familiar one for low-cost Norwegian. Since the airline started long-haul services last year with the Dreamliners, it has faced a barrage of negative headlines. Big delays, unhelpful staff and an inability to purchase even water on some flights have threatened the airline’s hitherto good local image.

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If ever an area were made for a low-cost airline, it would be Scandinavia. Dominated by SAS – part-owned by the governments of Denmark, Norway and Sweden – the regional air industry has been characterised by higher prices than in much of Europe, where the likes of Ryanair and easyJet have helped reduce fares.

Enter Norwegian and its chief executive, Bjorn Kjos. A former fighter jet pilot and author of crime novels, Mr Kjos has shaken up the Scandinavian market with much of the same chutzpah and publicity-grabbing antics as Ryanair’s Michael O’Leary did in Ireland and the UK.

Norwegian Air Shuttle started in 1993 in modest circumstances. Mr Kjos, at the time a lawyer, took a big stake as it was proving difficult to find other investors. A decade later, the airline with which Norwegian had a contract for commuter routes was taken over by SAS. Mr Kjos pushed ahead with a focus on low cost.

Norwegian is now a clear third behind Ryanair and easyJet. Its lowest fares are not as cheap as Ryanair’s but its onboard services usually match those of its Irish rival. It has become one of the first European airlines to have WiFi on most of its planes.

But as the Orlando delay shows, Norwegian is at a delicate stage in its development. It has fast expanded its short-haul network in Europe, with bases not just in its Scandinavian homeland at Oslo, Copenhagen and Stockholm but also at airports such as London Gatwick, Madrid Barajas and Tenerife.

It has become the latest low-cost airline to attempt to crack the long-haul market. Many have failed, such as trailblazer Laker Airways, while others have struggled. Air Asia gave up its routes between Asia and London and Paris because of high fuel prices and low demand.

Norwegian does not lack ambition. It has five Dreamliners and orders in for 12 more by 2018. That is on top of the biggest aeroplane order placed in Europe: 222 short-haul Boeing and Airbus aircraft.

Mr Kjos is insistent that the timing is right for cheap long-haul flights. He argues that previous airlines struggled because they were not able to use fuel-efficient aircraft such as the Dreamliner. “First of all, I don’t think they have had the possibility due to the type of aircraft they were flying,” he says. “To do long haul today on a low-cost approach you need a very good aircraft. That means you have to have a low fuel burn and you have to have a possibility to keep it up in the air as long as possible.” He stresses that the aircraft need to be used 17-18 hours a day rather than the 12-13 hours previously possible.

It will be tough. The fact that Ryanair has not done low-cost long-haul speaks volumes

The repeated delays to its Dreamliners have hurt Norwegian. As it lacks an alliance partner, it has found renting replacement aircraft expensive and tricky. In the Orlando case, it had to wait for a part to come from London and was not able to charter a replacement aircraft as the football World Cup was soaking up capacity.

Oliver Sleath, analyst at Barclays, says fuel costs and passenger taxes are big hurdles on long-haul flights. “It will be tough to make it work,” he adds. “The fact that Ryanair has not done low-cost long haul speaks volumes.”

Norwegian has suffered PR problems over its attempts to avoid high Nordic labour costs by basing planes and crew in other countries, such as Spain, the UK, the US and Thailand. Its attempt to exploit the US-European “open skies” agreement by establishing a base in low-tax Ireland has run into trouble in the US from airlines and unions.

Mr Kjos professes to be unfazed. In Asia he is turning his sights beyond Thai destinations popular with Scandinavians.

Two groups of airlines will be left in Europe, he says. One is big legacy carriers such as British Airways, while smaller ones – such as SAS – will struggle. The others, naturally, will include Norwegian. “Low-cost carriers,” he says, “will be stronger and stronger.”

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