Bjørn Kjos, the entrepreneurial fighter jet pilot behind high-flying Norwegian Air, has peered into the future and sees global expansion as the key to continuing his airline’s success. Long-haul routes are his next frontier, and he’s ready to fight for the right to run them with “a good product” at low cost no matter what the Norwegian authorities say.
“If you have a good product, it’s all about the costs,” Kjos told members of the Foreign Press Association during a meeting at Norwegian’s headquarters at Fornebu, just west of Oslo, on Tuesday. It’s imperative to keep costs down, he says, as close as possible to the levels of other “efficient” global carriers like Air Asia, Singapore Airlines’s low fare airline Scoot and Qantas’ Jet Star. Also established airlines like THAI Airways and Qatar.
To do that, Kjos needs a change in Norwegian law that prevents Norwegian-based carriers from hiring employees from countries outside the European Union and European Free Trade Association. Unions representing Norwegian cabin personnel, for example, have long seen such arrangements as a threat to their much higher pay levels. Kjos bluntly states that “Scandinavian salary costs are way too high,” and make it impossible for any airline paying European and especially Norwegian salary levels to compete against the low-fare Asian carriers that are entering European markets.
A proposal to allow Norwegian-registered aircraft to have non-Norwegian and non-European crew on board international routes made its way through the legislative process but faced strong opposition from labour organizations claiming it would allow social dumping. Airline authorities in Norway are also investigating Norwegian’s establishment of more international bases, most recently in Malaga and Las Palmas, where local pilots and cabin crews are leased from employment agencies and therefore not subject to Norway’s personnel taxes and pension demands. That keeps Norwegian’s costs down but is not popular with Norwegian labour unions and authorities.
Kjos seems undaunted. If the law change proposal gets held up or rejected, for example, he says Norwegian can re-register its aircraft in other countries where it can do what he claims needs to be done, much like how Norwegian shipowners flagged out their fleets years ago to be able to hire cheaper foreign crews. That launched the great decline of Norway’s locally based maritime industry.
It’s likely, therefore, that Kjos will ultimately get what he wants. Otherwise politicians can be held responsible for the “flagging out” of one of Norway’s most successful entrepreneurial ventures in decades. “I can’t believe they’d be that stupid,” Kjos said.
There’s little argument that Kjos’ Norwegian Air Shuttle, as it’s officially known, is flying high. While arch rival Scandinavian Airlines (SAS) has been in crisis, the company that began as a small air shuttle service in 1993 celebrated its 10th anniversary of regularly scheduled low-fare flights last year with a huge increase in its share price (up 160 percent on the Oslo Stock Exchange) and stunning orders for hundreds of new aircraft.
“Norwegian has managed to fill up its seats, cut costs and increased ticket revenues a bit,” analyst Hans-Erik Jacobsen at Swedbank First Securities told newspaper Aftenposten recently. The airline clearly had a great year in 2012. While it remains the second-largest airline in Scandinavia behind SAS in terms of passenger counts, its market value is now twice that of SAS’ and Jacobsen says prospects for 2013 are “very good.”
On Tuesday, the same day Kjos was talking to foreign correspondents in Oslo, newspaper Dagens Næringsliv (DN) reported that Norwegian was “ruling” on the local stock exchange. Norwegian’s shareholders seemed to shrug off a report from investment bank HSBC warning that the airline may need more capital because of the debt it’s taking on in connection with its fleet expansion. It was once again the winner on the stock exchange Monday, up 2.8 percent and up 16 percent so far this year. SAS’ shares have also climbed, by 29 percent in the same period, but SAS remains burdened by a fleet of older and diverse aircraft and a costly structure that still can’t match Norwegian’s despite a major overhaul last fall.
Meanwhile, Kjos remains convinced that new growth will come through low-fare long-haul routes that Norwegian will start running to Bangkok and New York (JFK airport) in late May. In April it will take delivery of new Boeing 787 “Dreamliner” aircraft to fly the routes, and Kjos says he’s not bothered “at all” by a recent spate of problems with the large Dreamliners at a few other airlines. He’s confident Norwegian’s new 787s will be delivered and start service on time.
He said Norwegian chose the “Dreamliners” for long-haul routes because they fly at high speed (meaning shorter time in the air), they’re low-maintenance and, most importantly, highly fuel-efficient with lower carbon emissions. They also offer more passenger comfort and high capacity.
The Bangkok and New York routes mark the beginning of Norwegian’s global expansion, competing directly against long-established THAI Airways and trans-Atlantic carriers. Where does Kjos see Norwegian Air in another 10-15 years?
“Where the passengers are,” he quickly replied. He predicts enormous growth among passengers from Asia, especially China (another reason he says Norwegian needs Chinese and other Asian cabin crew, to ensure communication) and within the leisure market, not business travelers. So-called “Open Skies” policies allow carriers to set up just about anywhere and he wants Norwegian to be where the growth is. “Open Skies is a great opportunity, not a threat,” he claimed.
The same policies will allow other cut-rate carriers like Ryanair of Ireland to enter Norway’s domestic market, giving Norwegian the same kind of competition it has given SAS. Kjos claims he welcomes it.
“You have to be able to compete with Ryanair in this business,” he said. “You have to have a good product, but then it’s price, price, price.”
Views and News from Norway/Nina Berglund
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