Norwegian Air Shuttle, to many North Americans, is a little known European low cost carrier, that flies short haul routes in Scandinavia and Europe. The airline started in 1993 as a regional carrier and in 2002 transitioned into a low cost carrier. In 2009 it ruffled industry feathers when it announced intentions to begin flights from Oslo to New York, Fort Lauderdale and Bangkok. We have heard such intentions from other low cost airlines like Ryanair and Easyjet, but for the most part it has been pure speculation. Norwegian on the other hand meant it and has taken steps over the last five years and made these flights a reality. They have six Boeing 787’s currently flying and have 9 more on order. While a search for flight between Oslo and New York in the summer still demands a steep price of around $1100 round trip, Norwegian has also begun flying from London Gatwick to NYC. In the fall you can hope to find fares between the two cities hovering around $630 including taxes and fees. Quite a deal, but how is Norwegian getting the price that low? The answer is somewhat confusing and sly at the same time.
To start with Norwegian Air Shuttle set up two wholly owned subsidiaries, Norwegian Long Haul AS which is register in Norway and has an Air Operating Certificate form the US and Norwegian Air International Limited. Both are run by their parent company which supplies the capacity. Since Norway is not part of the EU they don’t enjoy the rights of the Open Skies Agreement. To solve this the subsidiary Norwegian Air International (NAI) applied for and has been granted a license to operate in Ireland and will move their headquarters there. The strange thing is, they don’t operate flights in or out of Ireland. This is a move to escape strict Norwegian labor and tax laws, to save on operating costs. They have also hired a Singaporean company to hire Thai pilots and crews at much lower pay and benefits, thus saving money again. Their model is to escape the high costs of running an airline in Norway and hire crews from parts of the world where wages are significantly reduced. Some have called this bottom feeding, but Norwegian is claiming they are operating within the boundaries of an international airline. They’re molding the airline to operate international routes as cost effective as possible, with the notion of offering cut rate long haul fares.
There are two camps that seem to be upset with the way Norwegian is going about this scheme. The first is the Norwegian Labor unions, who claim the move to become licensed in Ireland is robbing their citizens of jobs. Which is true and Norwegian CEO Bjorn Kjos has admitted the Norwegian worker costs to much. The second is the Airline Pilots Association in the US who protects the rights of American pilots. They don’t want US based crew members working for a foreign carrier at a pay that could be sub-standard to what the ALPA has suggested with US carriers. The ALPA has brought the issues to Department of Transportation Secretary Anthony Foxx and demanded he vote against granting NAI an Air Operating Licence. Norwegian already employs 300 crew members based in New York and Fort Lauderdale, which the ALPA could be putting in danger. Delta Airlines has also jumped into the mix by claiming Norwegian and other carriers like Emirates are creating unfair economic conditions to take advantage of US carriers in the global marketplace. While its true Norwegian is using loopholes to create advantages, they aren’t doing anything illegal. Is it good business tactics or do they have an advantage that isn’t available to others?
What is really lost in the whole argument is how passengers feel about the service. The flights that have commenced have been well received and while the price isn’t a low as some would like, Norwegian is filling the 787’s. Even with its growing pains, the 787 with its lower fuel burn seems to be the correct choice of aircraft for these long haul routes. The setup of Economy and Premium Economy fits their low cost mantra combined with the extra costs of checked luggage, food and drinks. This service is something passengers are not shocked by anymore. Passengers now are more receptive to the low cost structure and just because the flight lands on another continent doesn’t mean you can’t use a low cost model. Other airlines have failed in such ventures, but what I think sets Norwegian apart is they have done the planning. They have altered their structure to provide the most effective operating situation for them to succeed in. Maybe they have done it in a cutthroat fashion and upset people along the way, in the end they did it within the operating rules and are providing a product pax want. I am all for competition and there will always be collateral damage when an airline tries a new tactic. The US carriers will have adjust to stay competitive. It will be interesting where DOT Secretary Anthony Foxx falls on the issue.