Just a day after Norway’s gateway airport north of Oslo was celebrating its major expansion, one of its biggest customers was setting off strong turbulence within the local airline industry. Norwegian Air, faced with mounting losses, wants the Norwegian government to pull out of a long-time Scandinavian agreement involving flight routes over Russia, while arch-rival SAS claims that would jeopardize all airline traffic between Scandinavia and Asia.
There was, at least, no lack of turbulence after Norwegian Air also reported heavy losses (external link to Norwegian’s own press release) for the first quarter of this year despite strong passenger growth. Norwegian noted that the quarter was “seasonally weak,” but the NOK 1.5 billion in net losses and NOK 1.84 billion pre-tax loss set off concern among analysts. They’re nearly double the airline’s loss in the same period last year and the share price for parent company Norwegian Air Shuttle has been suffering because of the weaker earnings. Norwegian’s debt, meanwhile, has been growing rapidly as the airline takes delivery of new aircraft to serve its ambitious international route expansion.
Norwegian Air CEO Bjørn Kjos and his colleagues have been frustrated, meanwhile, by a longtime agreement between the Scandinavian countries (Norway, Sweden and Denmark) and Russia regarding rights to use the airspace over Russia. The agreement, first struck in 1956, gives Scandinavian Airlines (SAS) exclusive rights to fly over Russian territory using a so-called “Siberian corridor” for flights to east- and southeast Asia. It excludes Norwegian Air, which also has had to fly long detours on its routes to Bangkok to avoid flying over Russia. Now, however, Norwegian can fly over Russia using European corridors.
Seeks new bilateral deal to open up Russian airspace
Newspaper Dagens Næringsliv (DN) reported on Friday that Kjos, eager to launch new routes to Asia, wants Norway’s conservative government coalition to pull out of the old Scandinavian agreement and negotiate a new bilateral deal just between Norway and Russia. “I hope we can get some action on this, because the situation now hurts not just Norwegian but all of Norway,” Kjos told DN during the ceremonies at the newly expanded OSL Gardermoen on Thursday. “We’re losing large revenues (on direct flights between Oslo and Asian cities and the business that would bring) every year.”
Kjos wants, for example, to offer direct flights from Oslo to Beijing and Hong Kong next year, “and to several other countries in Asia. With permission from Russia, we would have moved some of the aircraft we have today, to Asian routes.”
SAS, which currently runs flights to Asia from Copenhagen and Stockholm as the only Scandinavian carrier, has an entirely different view. Eivind Roald, the only Norwegian in SAS’ top management, calls Kjos’ plans “a form of brexit” in the airline and aviation industry and warns that the consequences of it are entirely uncertain.
“For all these years, the Scandinavian countries have stood together on negotiating with Russia and other countries,” Roald told DN. “That’s been a strength all of us.” He and his colleagues at SAS claim that Norwegian Air can put all airline routes in play and risk losing those the Scandinavian countries have now.
“We have no objections to Norwegian getting rights to fly over Siberia, as long as the current agreement is respected,” Roald told DN. Kjos retorted that he’s not buying SAS’ argument that such agreements have aided Norwegian’s intercontinental expansion. In this case, he claims, the Russia agreement is preventing it.
Government ‘positive’ to Norwegian Air’s plans
Transport Minister Ketil Solvik-Olsen of the conservative Progress Party, whose government ministry is responsible for negotiating such aviation agreements with other countries, is listening to Kjos’ pleas, which are also supported by the labour unions representing Norwegian Air’s pilots- and cabin crews. Asked whether he’ll seek a bilateral agreement between Norway and Russia, Solvik-Olsen told DN that was “a question we’re working on. We’d have to get the Russians to say ‘yes.'”
His government colleague, Trade Minister Monica Mæland, was in Moscow last week and brought up Norwegian Air’s desire to fly routes through Russian air space. It’s unclear how receptive the Russians will be, since Norway continues to go along with the US’ and EU’s economic sanctions against Russia following its annexation of Crimea and intervention in Ukraine, where a Malaysian Air flight from Amsterdam to Kuala Lumpur was even shot down, killing all on board.
“We’re waiting for the Russian’s response to (Mæland’s) meeting,” Solvik-Olsen said, adding he hopes for a new meeting on the issue before the summer holidays. “This isn’t just an important issue for Kjos, but for tourism and business in Norway,” he said. “I want to try to settle this as soon as possible.” He told DN that if a bilateral agreement on airspace rights just between Norway and Russia “will serve Norway’s interests, I’m positive.”
Norwegian Air, meanwhile, is moving forward with expansion on other continents. On Thursday Kjos announced that Norwegian will launch a new direct route from Oslo to Seattle, with two weekly flights from the summer of 2018.