Norwegian Expands in the Trans-Atlantic Market

http://www.nytimes.com/2017/01/17/business/norwegian-expands-in-the-trans-atlantic-market.html

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Just three and a half years ago, Norwegian was an upstart discount carrier entering the long-haul market. Now it is the 10th-largest trans-Atlantic airline by percentage of seats offered. The growth of Norwegian is a sign of the competitive threat on trans-Atlantic routes faced by legacy carriers like British Airways, Delta and American.

Norwegian is about to announce details of a plan that is poised to lower fares and expand the cities it serves in the United States and Europe. Last month the United States Transportation Department approved a Norwegian subsidiary in Ireland, enabling the plan to go forward. The approval took three years, leading to criticism that the agency was bending to pressure from the big airlines and labor unions.

Later this year, Norwegian plans to begin flying out of new American cities to include Newark; Newburgh, N.Y.; and Providence, R.I. On the other side of the ocean, it will begin to operate out of new cities including Barcelona; Belfast, Cork and Shannon in Ireland; and Edinburgh, Scotland. Average fares on the new Irish routes are expected to be $300 to $350 round trip, tax included.

Longer term, the carrier is considering starting trans-Atlantic service out of Düsseldorf, Berlin and Rome, said Bjorn Kjos, Norwegian’s chief executive.

Norwegian already serves American cities like New York; Los Angeles; Boston; Las Vegas; Oakland, Calif.; and Orlando and Fort Lauderdale, Fla. In Europe its airports include London, Paris, Copenhagen, Stockholm and Oslo.

Along with Norwegian, discount carriers like WOW Air, Condor, Thomas Cook Airlines U.K. and Eurowings (a subsidiary of Lufthansa) have been able to muscle their way into the trans-Atlantic market because of a decade-old revision of the “open skies” pact, which eased various restrictions on routes and fares.

The ascent of the low-cost carriers has been aided by fuel-efficient, two-engine aircraft and a willingness by some passengers to forgo some customary amenities in exchange for appealingly low fares.

Naturally, the behemoth legacy carriers are not sitting idly by as the upstarts gnaw away at their market share. This year British Airways will begin flying between Gatwick Airport and Fort Lauderdale and Oakland, routes served by Norwegian. BA’s parent company, the International Airlines Group, plans to start a long-haul, low-cost operation out of Barcelona this summer, also to compete with Norwegian. And Air France KLM recently said it would begin a long-haul operation that would be “simple” and “innovative.”

In the United States, JetBlue is considering entering the European market. Philip Stewart, a spokesman, said that the airline had the option to take delivery of Airbus A321LR aircraft and that the plane “could potentially fly to Europe from the East Coast.” He said Europe suffered from a lack of competition and high fares, “and that is certainly an environment that JetBlue competes well in.”

American carriers that already fly to Europe are focusing on new in-flight products to challenge airlines like Norwegian, which offers a “premium” in-flight service with more legroom, meals and airport lounge access, along with three different economy fares. Condor also offers flights with three classes of service.

The president of Delta, Glen Hauenstein, said last week that by next year the carrier would fully roll out its “basic economy” fare — for which seats are assigned at check-in and the ability to make changes or cancel is prohibited — on international flights. In addition, starting this year Delta will begin offering a higher-priced “premium select” service on Airbus A350 and Boeing 777 aircraft, with improved seat pitch and upgraded meals, among other amenities. For its part, American recently began offering a “premium economy” service on 787-9 Dreamliner flights from Dallas to Madrid and Paris, and will eventually introduce it on all international wide-body aircraft.

The availability of varying in-flight offerings might well determine the popularity of low-cost carriers among business travelers, as opposed to the price-sensitive leisure travelers they traditionally attract. Greeley Koch, executive director of the Association of Corporate Travel Executives, said its members looked for an array of choices on fares and routes.

“Travelers occasionally close deals worth millions of dollars, and a trip of that significance justifies a business-class seat,” he said. “At other times, low-cost, lowest-fare options can make the trip practical. I frequently see this with smaller companies and start-ups where budgets are extremely tight,” he said.

Anders Lindstrom, a spokesman for Norwegian, said almost one-third of its trans-Atlantic flight bookings in Europe were made by corporate customers, a figure it hopes to match in the American market once it expands its sales activities there.

Norwegian faces challenges as it continues its aggressive trans-Atlantic strategy.

“There is the risk of overexpansion and fuel prices skyrocketing,” said Henry Harteveldt, travel analyst at Atmosphere Research. Budget airlines appeal to very price-sensitive travelers, he noted, “and if something bad happens to the economy, these travelers will be most affected by the downturn.”

Andrew Lobbenberg, who follows Norwegian for HSBC in London, said he was concerned about the carrier’s substantial number of future aircraft deliveries, which he said placed “considerable burden on its balance sheet.”

In 2012, it placed one of the airline industry’s largest aircraft orders ever, and by next year it is set to receive 20 more planes that can operate trans-Atlantic flights.

Mr. Kjos, the Norwegian chief executive, is confident about the airline’s ability to expand. “We’re in a very favorable financial situation,” he said. He added: “The best hedge you can have is flying new airplanes that have much less fuel consumption.”

“The market is stimulated by lower fares,” he said. “There’s a new layer of people flying that normally can’t afford to fly trans-Atlantic.”

Federal data shows that the number of passengers flown by Norwegian in both directions between the United States and Europe soared to about a million in 2015, up from about 100,000 in 2013. It now has 3 percent of trans-Atlantic market share, compared with 13.5 percent for the industry leader British Airways, according to the Centre for Aviation, a research firm based in Sydney.

Craig Jenks, an aviation consultant based in New York, detects signs of “irrational exuberance” in the trans-Atlantic market. The low-cost airlines, he said, “are putting on lots of new capacity. They say they can just keep on doing this indefinitely, with a new business model and low costs and fares that can stimulate new traffic.”

He said that was what Freddie Laker believed. Mr. Laker offered cheap Skytrain trans-Atlantic service from 1977 to 1982 before his operation fell apart. “But in a sudden market downturn, Skytrain fares were matched by large carriers and it couldn’t compete,” Mr. Jenks said.