Special Report: Why Norwegian believes low-cost long-haul will work

Special Report: Why Norwegian believes low-cost long-haul will work

Norwegian Air Shuttle will launch low-cost flights to the US from Gatwick next summer, arguing the Boeing Dreamliner will finally make no-frills transatlantic flights profitable.

The rapidly growing carrier will operate from Gatwick to New York JFK three times a week and to Fort Lauderdale and Los Angeles twice a week each.

Norwegian chief executive Bjorn Kjos promises one-way fares from £149 to New York, £179 to Florida and £199 to Los Angeles. All three services will begin in the first week of July and operate year round.

Norwegian currently has two 787s, although one recently had to be taken out of service due to technical problems.

It is due to take delivery of a third in November, has four more on order next year and another to come in January 2015.

The carrier already flies long haul to five US cities from Oslo, Stockholm and Copenhagen, as well as to Bangkok, and it operates 320 short-haul flights a week from Gatwick – with more to come.

It began flying from Gatwick in 2009 and has grown rapidly, aiming to carry 2.4 million passengers from the airport next year.

But Norwegian’s expansion has been Europe-wide and, unlike Ryanair and easyJet, it has gambled on extending the low-cost model to long haul.

The Boeing 787 is the principal reason. The Dreamliner can cut fuel use on a long-haul flight by 20%-25% compared with existing aircraft.

It is this, allied to transfer traffic from Norwegian’s growing network, which lies behind Kjos’s confidence.

He says: “We have a lot of feeder flights into Gatwick and the airport has one of the biggest networks in Europe.

“We estimate we will attract a lot of transfer passengers, not just off our own network but from other carriers.”

Norwegian will offer interlining on its own network – meaning transfer passengers will be able to check bags through to their final destination – but won’t enter interline partnerships with other airlines.

Kjos insists the services will be profitable despite other low-cost carriers, such as AirAsiaX, abandoning attempts to fly long haul from Europe.

AirAsiaX tried flying from Stansted and Gatwick before pulling out in March 2012. The carrier blamed Air Passenger Duty, but since it also withdrew from Paris and ended flights from Europe we can assume there was more than APD behind the move.

AirAsia also had a big network at one end of its long-haul operations to feed traffic into and from.

Kjos argues: “We know low-cost long haul works. The reason it did not work [for others] is they didn't have a network."

He insists using the Boeing 787 will make a decisive difference. In London last week to announce the services, Kjos said: “We looked at this previously but couldn’t do it without a Boeing 787.

“You would never get close to the same figures on fuel efficiency.

“The 787 is another world and you can keep it in the air longer. It is £5 million a year less costly to operate [than other aircraft]."

He has a point. Fuel makes up about half the cost of flying to the US, so Norwegian's transatlantic flights could be about 10% cheaper to operate than on other types of aircraft.

However, British Airways is also deploying the 787 which could limit the advantage.

Norwegian will operate with no business class but with some premium economy seats and charge for drinks and food, meaning it is unlikely to tap into the business market which is what makes most long-haul services viable.

Crew will be based in New York and Fort Lauderdale. The carrier won’t base an aircraft at Gatwick, which suggests there could be delays in the event of technical problems.

Norwegian will also face stiff competition. BA and partner American Airlines fly to New York every hour from Heathrow.

Virgin Atlantic and partner Delta offer nine flights a day and are poised to enhance services after winning anti-trust immunity on transatlantic services.

Kjos dismissed suggestions that Norwegian may struggle in face of the competition, saying: “Other airlines can dump prices but they can’t do it on every aircraft for every passenger.”

He added: “We don’t try to get business passengers.”

Kjos also insisted Norwegian’s existing long-haul routes deliver “positive cash flow” and said of the carrier as a whole: “We have a profitable operation.”

The airline has 266 aircraft on order, which puts it on a par for growth with the biggest UAE carriers.

Its long-term long-haul success is likely to depend on its access to funds – Norway has a considerable sovereign wealth fund – and the commitment of investors.


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