Norwegian Air Shuttle Continues Rapid Expansion
This week, Norwegian Air Shuttle announced the commencement of flights between Singapore (SIN) and London Gatwick (LGW) airports. The flights are due to start in the northern Autumn season, with fares starting as low as US$230. This will be their second destination in Asia after the low cost carrier began flights to Bangkok in 2013. It’s also their first direct service from the British capital to Asia and puts it into direct competition from the likes of British Airways and Singapore Airlines.
Bloomberg – Norwegian Air Takes on Asian Rivals With $230 Fares to Singapore
More significantly, perhaps, is that they are making aggressive moves to take any potential market share from other LCC’s such as Air Asia and Scoot. Given their notable expansion into North America, we take a look at how Norwegian are able to compete and turn a profit in such well established markets.
History and Transition to Low Cost Carrier
Norwegian Air began services in 1993, providing domestic services around Norway and to their Scandinavian neighbors. It was in 2002 that the airline rebranded and began operating as a Low Cost Carrier, operating Boeing 737s. They established hubs in cities such as Warsaw and quickly rolled out numerous destinations in Europe, primarily aimed at the leisure market.
It wasn’t long before they required the services of more 737s to cope with all the demand. The rapid expansion in Europe was coupled with the ordering of 100 new Boeing 737 Max 8 aircraft and a further 100 Airbus A320 Neo’s. This meant they eventually had built up one of the youngest fleets in Europe and one increasingly focused on fuel efficiency.
Services into North America and Asia
While the European market was already bulging with a host of Low Cost Carriers, Norwegian really stepped it up with the announcement of direct services between Oslo and New York City and Bangkok in 2013. As part of their plans for the long haul routes, they invested heavily into Boeing 787-800 and -900 aircraft. The new routes across the Atlantic opened with fares for as low as US$69, figures previously unheard of.
It served as a two-pronged strategy. On the one hand it took customers away from the major players. Even up until recently, the other low cost carriers that had gained huge market share in Europe, were yet to launch into North America, particularly the United States. Naturally, a lot of people, especially those with the intention to visit families, for example, were very attracted to the low prices.
The other market Norwegian Air tapped were customers who would otherwise not be able to afford a Trans-Atlantic flight. The Middle America that spent their vacations on domestic trips. With flights for a few hundred dollars, suddenly Europe became much more affordable.
The Boeing 787 Factor
One might think as to why another airline had not yet taken advantage of these factors. Regulatory and logistical factors are a big reason why many LCC’s avoid the long haul. Keeping planes in the air and minimal turnaround times at airports are critical in maintaining profit margins. But there is one factor that Norwegian Air have taken full advantage of. That is investing in modern technology and fuel efficient aircraft, the Boeing 787 being their biggest weapon.
The fuel savings achieved with the latest generation 737s and A320s have enabled Norwegian to establish new routes rapidly and affordably. On top of this, they are attracting customers with a very young fleet of aircraft. According to their website, the average age of their fleet is 3.6 years. This puts a lot of the major carriers on notice, with many comments from customers regarding ageing fleets and dwindling “extras”.
Other Cost-Cutting Initiatives
There are a few other avenues that Norwegian Air have utilized in order to maximize cost-effectiveness. One of them has been establishing operating licences in multiple countries. Currently, they have registrations in multiple countries to legally bypass domestic carrier laws. A number of airlines do this and it allows them to operate flights from multiple destinations in those countries. Essentially, it is used as a way to open up routes profitably that would otherwise not be possible.
Norwegian Air also strongly encourage their customers to book online. The company says that around 80% of their bookings are online, using their website. This no doubt minimizes the staff required for reservations as well as any costs associated with agency bookings.
The New Future for Trans-Atlantic Travel?
Ever since Norwegian Air began their flights to the United States, other LCCs have been encouraged to launch their own Trans-Atlantic services. One example is Level, a new airline created under the IAG group of airlines. They begin flights from Barcelona to Los Angeles on June 1, followed by San Francisco the next day. This will be followed by routes to other destinations in the Americas.
As for Norwegian, some of their Trans-Atlantic routes involve smaller airports and more options for customers. Some of these routes include pairings such as Cork-Stewert, which is a tiny airport about 60 miles north of New York City.
In addition, they have announced plans to fly London Gatwick to Seattle and Denver from September. It shows that they can really push the boundaries, not only in terms of small airports, but also in direct competition with major players.
It bears to keep in mind that they are a low cost carrier, meaning any extras such as luggage and seat assignment, are extra. However, it certainly puts pressure on the established airlines to lower prices and introduce more routes. In the near term, an increasing number of LCCs flying between Europe and the US will no doubt place downward pressure on prices and increase the options available to customers.
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