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Norwegian Air started a low-cost transatlantic revolution but coronavirus and the airline's Boeing planes pushed it to the brink of collapse
Norwegian Air started a low-cost transatlantic revolution but coronavirus and the airline's Boeing planes pushed it to the brink of collapse
Thomas PalliniMar 19, 2020, 00:57 IST
Norwegian Air Shuttle and its subsidiaries are on the brink of collapse as a lack of demand for travel due to COVID-19 and government travel restrictions are crippling the airline's business.
A popular European low-cost airline, Norwegian expanded into intercontinental travel in 2013, which was the beginning of the airline's problems.
Both of the aircraft the airline used for long-haul flights, the Boeing 787 Dreamliner and 737 Max 8 were plagued with faulty systems and engines, costing the airline financially.
The spread of COVID-19 and President Donald Trump's European travel ban also cut to the heart of the airline's core business, leaving it at risk for collapse, industry experts say.
One of European's largest airlines is on the brink of collapse and the low-cost revolution in the transatlantic market may be coming to an end.
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Norwegian Air Shuttle and its numerous subsidiaries, known simply as Norwegian, are at risk to cease operations as the novel coronavirus continues to spread across Europe and governments across the world restrict travel to prevent future outbreaks.
Major blows to the ambitious low-cost carrier known for its intra-European and transatlantic long-haul operations came as President Donald Trump largely banned travel between the US and Continental Europe, later extending it to the United Kingdom and Ireland, affecting the core of the airline's costly long-haul division.
Following the first round of the president's travel restrictions to Europe, Norwegian announced it would be reducing 40% of its long-haul flying since multiple routes it had operated touched Continental European destinations affected by the ban.
As demand for travel continued to plummet and the UK and Ireland were added to Trump's travel ban, Norwegian announced that 85% of its flights would be canceled and thousands of employees would be let go, bringing the airline closer to the edge.
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The low-cost carrier iconic for its red nose airplanes largely connects popular European leisure and business destinations with cities across the Americas with nonstop flights for as low as $100.
Norwegian gavie low-cost, long-haul to a new meaning, taking advantage of the newest, fuel-efficient aircraft of the time to take on the major carriers and inspire a revolution in air travel that made transatlantic flying more accessible.
As ambitious and egalitarian as the airline was, it was ultimately let down by the very aircraft that made its business model viable combined with crippling travel restrictions enacted to stop the spread of COVID-19.
After a near-10-year stint as a regional airline in Scandinavia, Norwegian Air Shuttle decided to enter the low-cost realm in 2002 and expand across Europe.
The European low-cost industry, famous for its cheap flights and dominated by the likes of Ryanair and EasyJet, had largely filled the gaps left by major flag carriers with airlines serving the endless point-to-point routes across the continent.
Initially based in Norway, as its name implies, the airline began connecting Scandinavia with leisure destinations to the south before then expanding deeper into Continental Europe first with a subsidiary based in Warsaw, Poland in 2006.
After operating the Fokker 50 and McDonnell-Douglas MD-80 series of aircraft, the plane of choice for Norwegian quickly became the Boeing 737, an old reliable used by the low-cost airlines across the world such as Southwest Airlines and Ryanair.
Norwegian, in 2007, announced an order for 42 Boeing 737s and would adopt it as its sole aircraft as adopting a single-fleet type would reduce pilot training and maintenance costs. The initial $3.1 billion order would later be expanded, with Norwegian opting for more aircraft as it grew.
The airline sought to be different from other low-cost airlines, offering amenities such as in-flight entertainment and WiFi, which was eventually made free by the airline.
Boeing also became a vital partner for Norwegian, with the airline sticking with the American manufacturer for its future aircraft needs and aid its next expansion overseas. The partnership, however, would be one of the causes of its future struggles.
The transatlantic market in the early 2010s was largely devoid of true low-cost airlines and Norwegian saw an opportunity to bring the European-style model to the long-haul market with a new type of aircraft: the Boeing 787 Dreamliner.
The strategy would largely take advantage of new, fuel-efficient aircraft and the European Union's single market that allowed Norwegian to serve any city in any EU member state from abroad.
Unlike the full-serving European carriers operating transatlantic flights, Norwegian wouldn't be bound to one hub city but could operate a point-to-point route network between the three continents, choosing the most profitable routes to serve.
The Dreamliner aircraft leading Norwegian's transatlantic expansion was the newest twin-engine innovation from Boeing that promised and delivered more efficiency than any product line before it.
Powered by Rolls-Royce Trent 1000 engines and featuring a slew of passenger-friendly amenities, the Dreamliner offered Norwegian fuel-efficiency and lower operating cost per seat that in turn enabled the airline to offer extremely low fares.
When Norwegian signed a historic order for 222 Boeing and Airbus narrow-body aircraft while preparing for long-haul operations, things looked hopeful for the airline.
The first sign of trouble, however, came shortly before Norwegian's transatlantic debut as Boeing notified the airline of deliveries delays with the Dreamliner.
Intercontinental flights began in 2013 from the airline's Scandinavian bases in Oslo and Stockholm to New York and Bangkok on wet-leased and inefficient Airbus A340-300 while the Dreamliners awaited delivery.
New York's JFK Airport would grow into a formidable base for Norwegian in the US while Bangkok would remain Norwegian's sole long-haul destination in Asia.
Norwegian took delivery of its first Boeing 787 Dreamliner later that year and the low-cost revolution in transatlantic travel had truly begun with the following years seeing lower airfares for flights between North America and Europe.
Shortly after inducting its new aircraft, Norwegian was forced to ground its Boeing 787 Dreamliner fleet in 2013 due to electrical issues that plagued the aircraft in its infancy.
The Dreamliner was grounded again in 2014, this time by global regulators for issues with the aircraft's battery, furthering hindering Norwegian's operation.
The result meant Norwegian would wet-lease aircraft from other operators without the same level of efficiency and passenger comfort, a costly trend the airline would have to get used to.
Despite the hiccup, the airline continued expanding across Continental Europe and the UK, opening a long-haul base at London's Gatwick Airport.
Norwegian quickly expanded to major cities across the US including Los Angeles and San Francisco while also eyeing secondary markets such as Boston, Denver, and Seattle.
Its Dreamliners, seemingly the perfect aircraft for the task, featured modern interiors complete with in-flight entertainment and in-seat power, uncommon features for a low-cost carrier.
Norwegian gave customers the option to pick and choose which amenities they wanted, allowing those who only needed a ticket ride the option to purchase one for fares as low as $100 one way to Europe from New York.
The airline was heavily criticized for its use of the European Union's single market to skirt labor laws in its home country, opening subsidiaries in more business favorable locations such as Ireland.
In-flight crews were also employed by companies located in countries outside of Norway as a way for the airline to pay fewer wages and offer fewer benefits. Many Norwegian aircraft were also based in other countries.
Though Norwegian's practices were not illegal under the EU's rules, it didn't stop the low-cost airline from attracting enemies in both labor unions and airlines on both sides of the Atlantic.
While its Dreamliners were focusing on key routes deep into the US and Europe, Norwegian had a plan for smaller jets to connect secondary cities near the coasts of each continent that didn't have enough demand for its larger aircraft.
Cities such as Newburgh, New York; Hartford, Connecticut; and Providence, Rhode Island would be connected with Dublin, Ireland; Cork, Ireland; Shannon, Ireland; Edinburgh, Scotland; Belfast, Northern Ireland; and Bergen, Norway using narrow-body Boeing 737 Max 8 aircraft.
Similar to the airline's use of the Dreamliner, the Max 8 would provide better efficiency and economics to make the services viable even with Norwegian's low prices. Flights began in 2017.
The service, operated under Irish-based subsidiary Norwegian Air International, would see success on key routes mainly to Dublin, Ireland with mixed results on other routes.
Norwegian also set its sights on Argentina, which had liberalized its aviation sector in the late 2010s and saw numerous low-cost airlines set up shop, opening its latest subsidiary Norwegian Air Argentina and launching flights between London and Buenos Aires.
Just under two years into its run, the global grounding of the Boeing 737 Max aircraft in March 2019 cut right through the heart of Norwegian Air International, which ultimately ceased flying transatlantic routes later that year.
The grounding also affected Norwegian's intra-European fleet as the airline had plans to replace its Boeing 737-800 NG aircraft with the 737 Max aircraft to further reduce operating costs across its fleet.
Norwegian Air Argentina was also sold at the end of 2019 to Chile's JetSmart, though flights between London and Buenos Aires were maintained.
Meanwhile, Norwegian was also struggling with another issue with its Dreamliner fleet: fan blade issues with the Rolls Royce Trent 1000 engine that were grounding some of its aircraft for repairs.
With aircraft left grounded for engine repairs, Norwegian turned once again to wet-lease operators for help. Without enough aircraft to fuel its rapid expansion, the airline spent millions leasings Boeing 747, Airbus A340, and even Airbus A380 planes
The wet-leased planes were often old and inferior compared with Norwegian's Dreamliners, damaging first impressions for new passengers, and were notoriously delayed, forcing Norwegian to pay out millions in EU-mandated delay compensation.
The issues came to a head when a Norwegian Dreamliner suffered an engine failure on a flight from Rome to Los Angeles in 2019.
The slow drip of issues with its aircraft damaged the airline financially, making it vulnerable and putting it on the precipice of collapse.
Norwegian had outlasted low-cost, long-haul competitors including WOW Air...
And Primera Air, but its luck wouldn't last forever.
While dealing with both the Max and Dreamliner issues, Norwegian was hit with the COVID-19 crisis as demand for travel in Europe plummeted.
Another blow came as Trump issued travel restrictions banning foreign travelers who had visited the European Schengen Zone, the core of Norwegian's long-haul network.
Following Trump's extension of the ban to the UK and Ireland, Norwegian announced it would reduce 85% of its flying and lay off thousands, with industry analysts already speculating the airline could go under.
Though the airline was proving to be quite popular with consumers, issues outside of the airline's control including faulty aircraft, the global spread of a virus, and government-imposed travel restrictions gradually reduced the airline's cash flow and valuation.
Industry expert Henry Harteveldt told Business Insider on Thursday that he believed Norwegian to be at risk for collapse even before the Trump travel ban expanded to the UK, where Norwegian has a base in London.
Should Norwegian fold, the transatlantic industry will lose a low-cost disruptor that made intercontinental travel between the Americas and Europe more accessible and contributed to a reduction in fare levels in the market even for flights on full-service carriers.
By offering a low-fare alternative, the airline has kept fares low across all airlines, according to Harteveldt. Norwegian's downfall would surely lead to fares increasing for transatlantic flights and put the final nail in the low-cost revolution, especially as other entrants, namely WOW Air and Primera Air, cease to exist.
