12 June 2013
Last updated at 19:13 ET
By Russell Hotten
Business reporter, BBC
People queued overnight to get cheap tickets on Freddie Laker’s Skytrain services between London and New York in the late 1970s. But it collapsed five years later
It’s possibly the biggest airline you’ve never heard of. Norwegian Air Shuttle (NAS) may have a low profile, but its ambition is huge.
The airline’s name belies its direction of travel. The carrier is becoming less Norwegian by the month, as it sets up bases at airports across Europe and Asia.
And NAS is certainly no mere shuttle service, having placed one of the biggest aircraft orders in history, including for eight of Boeing’s new 787 Dreamliners.
NAS wants to shake up the European low-cost, no-frills market, becoming a rival to Easyjet and Ryanair. But it is the airline’s long-haul intentions that are attracting significant interest.
Please turn on JavaScript. Media requires JavaScript to play.
Bjorn Kjos says he can succeed where others have failed
Bjorn Kjos, co-founder of NAS, is convinced there is a market for a low-fare budget operation serving the long-haul sector. “New aircraft technology and the forecasts for growth in passenger traffic make it possible,” he says.
Trouble is, other airline chiefs have held similar convictions, only for their operations to stumble in the face of commercial reality.
Freddie Laker started a no-frills service between London and New York in the late 1970s, but it collapsed within five years. Hong Kong-based airline Oasis was another notable failure. It lasted less than two years, having launched with a promise to eventually serve 60 major cities with a minimum of eight hours’ flying time from Hong Kong.
Malaysia’s Air Asia X made a good stab at no-frills long-haul, but eventually scaled back its network and ended services to London, Paris and several other long-range destinations.
Air Asia X (top) claimed to be the first real low-cost long-haul since Skytrain
Other airlines – almost all in the booming Asia-Pacific region – are attempting budget long-haul model, but there is much debate about whether these carriers are really just going one step beyond short-haul, rather than serving the longer-range destinations.
‘Game-changer’
Mr Kjos wants to do ‘proper’ long haul, serving routes that involve flight times of well over six hours. NAS is flying initially between Oslo and New York, Oslo and Bangkok, and Stockholm and Bangkok, but will add other destinations as it takes delivery of more Dreamliners over the next two years.
So what makes him think he can succeed where others failed? In short, because of new-generation, fuel-efficient aircraft. “The Dreamliner and the Airbus 350 will really be a game-changer in this industry,” Mr Kjos said.
“When we did the calculations we could not get the numbers to add up with the old aircraft. We needed the new aircraft. The others did not have the possibility of the Dreamliner and the A350. Before, when you attempted to do low-cost when flying more than eight hours, it just didn’t work.”
NAS will take delivery of its first Dreamliner at the end of June, with the aircraft scheduled to make its first commercial flight in August.
It will offer economy and premium economy classes, but there will be four ticket options depending on such things as passengers’ meal and luggage options, and whether they want to reserve seats.
The Dreamliners being used will squeeze in 292 seats, near the top end of what the aircraft can carry, but the premium class offers a pretty generous 46in of legroom.
Continue reading the main story
Paris Air Show
BBC News will be reporting from the Paris Air Show from 17-23 June
You will be able to find out the latest on BBC World News TV, on BBC World Service radio and on the BBC News website
There will be free in-flight entertainment with back-seat screens, and NAS will eventually offer free wifi once the planes are kitted out.
Mr Kjos says that NAS’ aim is that its long-haul passengers “should be able to fly for half the cost and half the ticket prices as our competitors”. But exactly what the ticket price might be at any one time is difficult to predict. Today’s sophisticated computer booking systems mean airlines can easily adjust prices daily depending on demand.
Mr Kjos says: “You can provide a very good product to the passenger at very low prices without incurring too much additional cost. And that is always going to be Norwegian’s philosophy.” And that is why he is keeping Norwegian in the name. “Our market research showed that Nordic brands are known for quality,” he says.
To meet its short and long haul growth plans, NAS has 273 aircraft on order – including 65 Boeing 737s and 100 of Airbus’s A320neo – plus options to buy another 150 aircraft from the two manufactures.
Their fuel efficiency will make a big dent in running costs of both the short and long-haul operations, Mr Kjos says.
“Given the price we pay for the fuel, it will save us a £100m each year on today’s fleet,” he says. “So you can imagine when you grow twice as large the savings will be huge. And even if fuel prices rise, it will still mean savings than if we flew old airplanes.”
Another key part of his business model relies on a huge growth in leisure travellers in Asia as the region’s emerging affluent middle class join the jet set. “We will fly where people are going to fly in the future. We will fly out of China, Hong Kong, India, and also the US,” Mr Kjos says.
Continue reading the main story
Why budget long-haul airlines struggle
- Cannot utilise aircraft to the maximum by flying several times a day
- Need to fly from costly major airports rather than cheaper secondary ones
- Longer flights mean passengers want food and entertainment – and either the traveller or the airline must foot the bill
- The boom in tourist travel that was to underpin budget long haul has been slower than expected
- Budget short haul fuelled by weekend breaks or second homes abroad – factors unlikely to help budget long haul
‘Not proven’
But while analysts admire Mr Kjos’s ambition, they fear it may be a case of hope over reality.
Aviation expert John Strickland says: “Norwegian is very successful, and you have got to admire what they have done. The airline is profitable, and that’s an achievement in itself.”
But he adds: “The challenge of long haul is very different to short haul. You cannot utilise the aircraft as efficiently, and you are exposed to a different set of costs. The low-cost, long-haul model is not proven.”
Norwegian flew its first transatlantic service from Oslo to New York last month
The cost structures of short-haul budget operators can be 40-60% lower than for full service long-haul carriers. But those maths do not apply to budget long-haul, where cost savings are more like 20% at most. The way short-haul operators save money is simply not applicable to long haul, critics argue.
Flying up to four hours without in-flight comforts is different from flying up to 10 hours. People on long flights want a couple of meals and entertainment. And that will either be funded by the airline, or by the passenger whose cheap ticket may no longer look so cheap when the extras are added.
Budget airlines are not troubled by different time zones, night curfews and lengthy flying times, so they can get the maximum number of daily rotations out of aircraft and crew. Low-cost carriers also tend to operate from cheaper secondary airports. Long-haul carriers with large planes to fill need to fly from bigger, but more expensive, airports.
Dr Peter Morrell, visiting professor at Cranfield University, has studied the short-haul/long-haul business models. He agrees that changes in the aviation market may make room for a long-haul, low-cost carrier to succeed. But he sees no reason why this change favours NAS ahead of other carriers.
“Norwegian has bought fuel-efficient aircraft. But, then, so have all the competitors,” Dr Morrell told the BBC.
He also thinks that NAS will find operating in the highly regulated Asian market, rather than deregulated Europe, very different.
But Mr Kjos is untroubled by such challenges.
He believes he will get high utilisation out of his Dreamliners, which may be in the air up to 18 hours a day. Nor is he worried about the competition, arguing that his bigger rivals are targeting a different sector of the market.
And as for claims that he might be restricted by regulation, he says: “Asia’s aviation market is becoming more liberalised by the year. Eventually, everybody will be competing with everybody.”
In a report published in 2008, Dr Morrell wrote about why budget long-haul may never work. But he concluded: “That has never prevented experiments in the past, and thus there are likely to be many low-cost, long-haul attempts in the future.”
How right he was.
source: http://www.bbc.co.uk/news/business-22840790#sa-ns_mchannel=rss&ns_source=PublicRSS20-sa
