Brand new planes — Boeing 787s and Boeing 737s — are expensive. Ramping up quickly; attracting, hiring, training new crew; setting up new stations and new hubs even; generating consumer awareness are all expensive.
So it’s not surprising to see the Wall Street Journal covering challenges at Norwegian “You Can’t Build a Low Cost Airline Without Low Costs.
Copyright william87 / 123RF Stock Photo
Even stripping out fuel, second-quarter unit costs rose 7% year over year, management announced Thursday. Unit staffing costs ballooned 12% as the company prepared to ramp up intercontinental operations. Second-quarter unit costs, excluding fuel, have now been rising for four years.
Indeed, high costs including service on substantial debt is weighing down the airline’s stock. Norwegian has been trading not just at a 52 week low, but at a 4.5 year low.
In the U.S. Norwegian serves or has announced service to Austin, Boston, Chicago, Denver, Fort Lauderdale, Hartford, Las Vegas, Los Angeles, New York JFK, Newark, Stewart-Newburgh, Oakland, Orlando, Providence and Seattle. That’s insane especially considering they aren’t serving these cities with just a single destination in many cases. They fly to London Gatwick, Paris, Stockholm, Barcelona, Copenhagen, Oslo, Rome and more.
The airline is seen as an ultra low cost carrier because of its low fares and its unbundling (fees) model. However it’s not clear the airline’s current costs make those fares sustainable especially as to the extent that new routes take time to grow their load factors. The bet of course is that Norwegian will attain a scale that will drive down costs if it has enough runway to get there.
I’ve argued that it’s not the big Middle East carriers US airlines need to worry about competing against — it’s airlines like Norwegian and Ryanair.
Major US airlines hate competition, and they’ll advance any disingenuous argument necessary to stop it, for instance they smear Norwegian’s safety procedures without coming out and explicitly making the claim. Norwegian flies brand new Boeing 787s and 737s — and is Boeing’s largest customer for ‘GoldCare’ outsourcing maintenance, engineering, and parts to the US aircraft manufacturer.
Norwegian is a big part of why we’re seeing deeper discount transatlantic fares than ever before – like $252 roundtrip. Norwegian’s expansion is good news for consumers.
However the US airlines face much greater pressure on their business from Norwegian’s Europe services than they do from Gulf airlines like Etihad with its six daily flights. US airlines have gone from arguing that it’s the theoretical possibility that Gulf airlines might fly Europe – US (Emirates operates two such routes) to arguing that they’re unfairly denied access to Indian cities there’s no reason to believe they’d ever serve.
There’s some chance that Norwegian’s model isn’t sustainable, though of course the Gulf carriers have experienced cutbacks as well as travel to the region falls as a result of low energy prices, US travel bans, and electronics bans.
In the meantime, we should be grateful to what Norwegian is doing to pricing — and in fact their non-US websites sell US flights even cheaper (just use Google Translate and a credit card that doesn’t add foreign transaction fees).