Norwegian Airlines just announced that it will end the low-cost, long-distance international flights that made it famous. Norwegian will instead focus on its European network. As recently as 2019, Norwegian was the largest foreign airline in New York, carrying over 2 million passengers internationally.
As part of what the company calls a simplified business structure, Norwegian will focus on operating a European short haul network with narrow body aircraft. (Norwegian intercontinental flights like the 787 Dreamliner I flew from LAX to Madrid in 2019 are apparently a thing of the past.) Instead, Norwegian promises to offer competitive fares across a broad range of domestic routes in Norway, the Nordic countries and to key European destinations.
The retrenchment is apparently a matter of survival to Norwegian, which hopes to reduce its debt significantly and raise new capital via various strategies.
“Our short haul network has always been the backbone of Norwegian and will form the basis of a future resilient business model,” said Jacob Schram, CEO of Norwegian. Although the airline was voted Europe’s Best Low Cost airline for six consecutive years, the decision puts Norwegian in direct competition with European low-cost leader Ryanair.
Norwegian was famed for its low-cost long distance service, winning prestigious Skytrax awards for five consecutive years as the World’s Best Low Cost Long Haul Airline. Norwegian also won recognition for its loyalty program with the Freddie Award, a frequrent flyer award named for the late Sir Freddie Laker.
This may epitomize the problem, because of the failure of Laker’s own creation, Laker Airways, one of the first long-haul, low-cost airlines. Serving Europe, North America and Asia, Laker collapsed in 1982, a failure followed by that of People Express and more recently carriers like Primera and Iceland’s WOW.
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Many believe that low-cost, long-haul carriers focusing on fees and upgrades (like formerly “free” bags and food) can’t work—particularly if the airlines involved have little of the formerly lucrative (before the high-paying business traveler became conspicuous casualty of COVID-19) BusinessClass and First Class market.
Norwegian has suffered several economic and operational reverses over the past several years. These including growing too quickly, lack of profitability due to costs and competition, an expensive debacle trying to retrieve a grounded 787 from Iran, the costly grounding of its 18 brand-new Boeing 737 MAX aircraft, costly subbing of an A380 for another grounded 787, and, of course, the enormous impact of the COVID-19 pandemic.
Norwegian says its entire long-range Boeing 787 Dreamliner fleet of 37 widebody aircraft has been grounded since March 2020. Restrictions such as 14-day quarantines, requirements for negative COVID-19 tests, and changing government advice (“Don’t travel”) have decimated the international travel market.
Future demand remains highly uncertain, the company says. “Under these circumstances a long-haul operation is not viable for Norwegian and these operations will not continue.” Norwegian says that its entities employing long-haul staff in Italy, France, the UK and the US have “contacted insolvency practitioners,” implying bankruptcies and layoffs are coming. The airline promises refunds for customers with long-haul bookings.
Nonetheless, Scott Keyes, Founder and Chief Flight Expert of two-million member Scott’s Cheap Flights, says, “We owe a huge debt of gratitude to Norwegian for the Golden Age of Cheap Flight. Flying has never been cheaper than in the last five years. What airlines know is that the number one decision making variable on what flight to book is price. To compete with Norwegian, American, Delta, United and British Airways started cutting their fares.”
With Norwegian out of the picture, how will Scott’s, which says it searches 168 airports for the lowest fare near you, send thousands of Americans around the world when budget travel roars back with vaccine availability?
“I think that the outlet for cheap is worse today than it was yesterday as Norwegian is not flying these cheap flights. Average leisure fares may increase 10 to 20% out of the pandemic as demand goes up,” Keyes says. “But there are still absolutely going to be these sub-$300 transatlantic flights. I can’t tell you how many people say as soon as I get vaccinated, I will bemaking up for lost time. Airlines need to price their fares according—leisure travelers aren’t going to pay $900.”
But they might pay more for affordable premium seating, which was another Norwegian innovation. While the big-spending business traveler remains elusive in the age of Zoom, Keyes says “More leisure travelers are sitting in those front seats. Delta said that two-thirds of their premium seats were bought leisure travelers.” As travel returns, Keyes believes that vacationers might use the money saved from not dining out, shopping, vacationing, clubbing, or even haircuts to fly up front.
With Norwegian giving up on it, can low-cost, long-haul routes ever succeed? “It is certainly not easy to do, and no one has been able to do profitability,” says Keyes. “But two decades ago the airlines did not fly the long flights they do now, with smaller, more cost- and fuel-efficient planes,” he says.
“The biggest single factor in low-cost flying is competition between airlines. Now you have airlines like Southwest flying to Hawaii, or next year, JetBlue to Europe. Until recently, budget airlines only flew within one country (think Spirit) or one region (think Ryanair). Norwegian helped change all that.”