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Sunday, July 14, 2024

Norwegian takeover can threaten SAS

Norwegian Air founder and CEO Bjørn Kjos remains keen to hang on to the airline he’s nurtured over the past 15 years. A possible takeover by Lufthansa, however, would likely hurt Norwegian Air’s main rival, Scandinavian Airlines (SAS), while also creating a new giant low-fare carrier in Europe.

Norwegian’s chief executive Bjørn Kjos says he doesn’t need a partner or new capital and maintains that it’s “too early” to sell out. PHOTO: Norwegian Air

Shares in Norwegian Air Shuttle (NAS) remained among the most actively traded on the Oslo Stock Exchange Wednesday, after news broke earlier this week that major German airline Lufthansa has also expressed interest in the Oslo-based low-fare airline. Kjos has confirmed that other potential suitors have approached the airline, too. NAS’ share price was settling down after shooting up from less than NOK 250 to as high as NOK 286, but takeover interest from British Airways’ parent IAG and now Lufthansa is clearly keeping NAS stock in play.

Newspaper Dagens Næringsliv (DN) reported Wednesday that Kjos is flattered by the interest in his airline but claims Norwegian Air “does not need a new partner.” Kjos, who controls roughly a fourth of all NAS shares himself and has strong shareholder allies as well, stresses that he is not looking for a new owner for the airline and instead wants to keep developing it as CEO.

He’s also now stressing that any negotiations regarding a merger or acquisition must be handled by the board, not him. Kjos, though, has played a major role in who sits on the board and NAS’ board leader is one of his co-founders and best friends.

That’s left Kjos, a former fighter jet pilot, largely viewed as a captain who wants to remain in control, while he seems to be enjoying at least some of the attention. “It would have been less hyggelig (nice, enjoyable) if no one showed interest in Norwegian,” he told DN. “I think it’s just fine, and then we can concentrate on running the company.” Kjos also told DN that the company has “full control” over its debt and has no need for new capital.

Quest for consolidation
Speculation was flying, however, over the future of the locally grown airline that’s expanded from regional shuttle service in Western Norway to become a major intercontinental player in the low-fare market. Both IAG and Lufthansa seem most interested in consolidation of the low-fare segment of the airline business, probably by merging Norwegian with the low-fare carriers they already run, and thereby achieving greater economies of scale.

In Lufthansa’s case, CEO Carsten Spohr is on record as saying he wants to merge airlines Lufthansa already owns, like Brussels Airlines, into its fast-growing Eurowings, which would serve as a base for consolidation of low-fare carriers. Lufthansa also owns airlines Swiss and Austrian.

Both Kjos and Spohr were attending an airline conference in Brussels on Tuesday. While Kjos chatted with reporters, Spohr didn’t want to comment further on Lufthansa’s interest in Norwegian, other than telling Norwegian Broadcasting (NRK) that “Norway is a nice country” as he headed out a door to a waiting taxi.

Challenges for SAS and Star Alliance
A takeover of Norwegian by Lufthansa likely won’t be nice for SAS, which already cooperates closely with Lufthansa on routes and, DN noted, shares revenues on several when SAS’ passengers from Scandinavia connect to Lufthansa’s long-haul routes. Both SAS and Lufthansa were also founding members of the Star Alliance of partner carriers that now spreads around the globe.

SAS and Norwegian have long competed in Scandinavia, albeit in different segments of the market. SAS has cooperated with Lufthansa on routes and as partners in Star Alliance, so an acquisition of Norwegian by Lufthansa raises many questions. PHOTO: Avinor

Frode Steen, a professor at Norway’s business school NHH in Bergen, thinks SAS can run into trouble if Lufthansa bids for Norwegian. It would trigger examination by competition authorities that can raise challenges and force choices.

“If we look at the competition, Norwegian is still primarily in another market (leisure travel) than SAS (business travel and leisure with more service),” Steen told DN. Around 90 percent of SAS’ and Norwegian’s destinations and routes can be seen as competing, though, making it difficult to continue the alliance between SAS and Lufthansa.

A combination of Lufthansa, SAS and Norwegian could be seen as creating a near monopoly in Scandinavia, suggested Steen, who follows the airline industry closely. Lufthansa could be forced to end its cooperation with SAS and that can hurt SAS’ chances of remaining in the Star Alliance.

“It’s not a given that competition authorities will be positive towards Lufthansa being in an alliance with SAS and owning Norwegian, when SAS and Norwegian compete in the same (geographic) market,” Steen told DN.

Kjos isn’t expected to have any concern or sympathy for SAS, after challenging it on Scandinavian routes and fares for the past 15 years. Asked whether Norwegian could land in the Star Alliance instead of SAS, Kjos laughed and told DN he had no comment. Berglund



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