Big Interview: Norwegian sets out strategy to make low-cost long-haul work

Big Interview: Norwegian sets out strategy to make low-cost long-haul work

Booming low-cost carrier Norwegian has put long-haul services from Gatwick at the centre of its strategy. Chief executive Bjorn Kjos spoke to Ian Taylor

Norwegian Air Shuttle is a relative newcomer to Gatwick, having flown from the airport only since 2009 and establishing a base in 2013.

The carrier has grown rapidly on short-haul, carrying 24 million passengers in 2014 to become Europe’s third-largest budget airline. Yet chief executive Bjorn Kjos insists Norwegian will become not only the first carrier to make low-cost long-haul work but will even put long-haul at the core of its network.

If it succeeds, Norwegian will triumph where Freddie Laker, Zoom Airlines, Hong Kong Airlines, Air Asia X and all other no-frills long-haul attempts have failed.

Yet Kjos insists: “Our main focus will be long-haul. It will be our main strategy. Short-haul will be more of an add-on.

“We have a larger network than BA or Lufthansa in Europe [and] it will serve our long-haul.”

Kjos dismisses the idea that low-cost long-haul can’t work. “A low-cost long-haul operation [requires] the same as short-haul,” he says. “You can’t run short-haul or long-haul with old planes. You’ll never succeed if you fly [McDonnell Douglas] MD80s. You need crew bases in the main catchment areas and you need new planes – the Boeing 787 or Airbus A350. If you try [to use] workhorse aircraft, you won’t have a chance.

“You can’t operate [just] 12 hours. You need 17-18 hours’ utilisation and you can’t fly back and forth. There have to be short and long legs. It’s a different [kind of] network.” As an example, he says: “We fly Gatwick-New York, New York-Copenhagen and Copenhagen-Bangkok within 24 hours.”

“Volume is essential,” he adds. “That means it’s essential to have a large fleet.”

Fleet expansion

Norwegian is certainly building a large fleet, having placed Europe’s biggest-ever aircraft order in 2012.

It has a fleet of 100 aircraft, with eight Dreamliners and 11 more due for delivery by 2018. But until recently, all its growth was short-haul. The carrier launched long-haul only in 2013 and began Gatwick-US services last July.

Ryanair boss Michael O’Leary has suggested: “Norwegian has taken its eye off the ball in the short-haul business.”

But Kjos disagrees, also dismissing a suggestion by investment analyst Gerald Khoo that Norwegian will “run out of money”. He insists: “Analysts don’t really know the figures. They look at traditional airlines, but we don’t fly to New York and sit on the ground for six hours. We’re on the ground 90 minutes – two hours at most.”

Operational headwinds

The carrier has still had its problems. Its early long-haul programme from Scandinavia was dogged by delays owing to problems with its 787s, culminating in passengers being stranded over Christmas 2013. Kjos concedes: “We had a lot of problems in the first six months.”

He blames exchange rates for a loss of more than £82 million last year, saying: “The main part was currency. The Norwegian krone devalued against the dollar and we encountered heavy losses at the start of the Dreamliner [services]. We’re back on track this year.”

Norwegian reported an operating profit in the three months to June, when Kjos declared: “We’ve reached critical mass in long-haul.”

However, difficulties remain. Norway is outside the EU, so is not recognised as part of EU open‑skies agreements outside the US. To get around this, the carrier has an Irish Air Operator’s Certificate in addition to Norwegian licences, but US authorities have so far declined to recognise this Irish licence – with critics dismissing it as a “flag of convenience”.

Kjos blames leading US carriers, saying: “Our competitors tried to block it. Norway is part of open-skies, so we can develop long-haul operations, but we have to fly everything to the US or Bangkok. We need an EU operating licence.” He argues: “It’s ridiculous. If we fly aircraft registered in Norway or Ireland, what is the difference? They will have to give a licence. It’s just a matter of time.” But he notes: “I said that a year ago.”

Undeterred, he says: “We’re in the process of ordering more Dreamliners. We need a lot more.”

Norwegian also has 100 narrow-body Boeing 737 MAX aircraft on order. The 737 is a staple of short-haul fleets, but the new 737 MAX will have a longer range and Kjos intends to use it to extend Norwegian’s long-haul network.

“The MAX will open transatlantic services from smaller cities,” he says. “We could fly Birmingham-New York, Birmingham-Boston or Edinburgh-Boston. That is our intention.”

Norwegian will launch the aircraft in 2017. “A lot [of them] will be based in the UK,” says Kjos. “We’ll definitely fly [the 737 MAX] from the UK to the US East Coast. Gatwick will be first. We’ll look at more bases in the UK.”

In the meantime, the long-haul operation at Gatwick is “going better than we anticipated or than we budgeted”, says Kjos.

The carrier will operate daily from Gatwick to New York from October, add San Juan twice a week from November and launch flights to Boston four times a week next May, when it bases another two 787s at the airport.

Kjos says: “Gatwick is very important for us. It’s a huge market and there is a lot of feeder traffic. We’ll add destinations and frequencies. We could go double-daily to New York.”

He adds: “You’ll see more short‑haul [services] into Gatwick – the problem is getting slots.

"[But] the growth of short-haul will supplement long-haul. That is not how we set it up, but now we’re looking to organise feeder traffic. Long-haul will drive short‑haul [development].”


10 Seconds with Kjos

What makes Norwegian different?

“When Lufthansa flies to South Africa, it flies in the afternoon, lands in the morning, flies back in the evening. So the aircraft is parked all day. We don’t do that.”

What went wrong early on with the Boeing 787?

“It’s a very sophisticated aircraft with a lot of software – it’s like a flying iPad. There are sensors all over the aircraft and you have to calibrate them correctly. There was a learning curve.”

What is your opinion on US carriers such as Delta, United and American Airlines?

“These carriers still fly old aircraft. I sit in Washington DC and it’s like sitting in a museum. There are aircraft you have not seen in years.”

What is your relationship with agents?

“We sell through all channels, including GDSs. It depends on the market. We work with travel agencies, but 80% of seats are booked online.”

Would Norwegian fly from Heathrow?

“Our set-up is different. We need to work with low-cost guys. Every penny counts.”

What has been the impact of the falling price of oil?

“The problem we have is that the Norwegian krone goes down with the oil price [Norway is a significant oil producer]. So we don’t benefit that much from the oil price.”

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