Just two years after emerging from bankruptcy, Norwegian Air is flying high again. Its offer to buy Norway’s short-haul airline Widerøe for NOK 1.12 billion in cash this week caught analysts and many others by surprise, and is widely viewed as bad news for arch-rival Scandinavian Airlines (SAS).
“This is a milestone in Norwegian aviation history,” claimed Geir Karlsen, who steered Norwegian Air out of the bankruptcy that resulted from years of huge losses, ill-fated intercontinental routes, labour trouble and then the pandemic. Karlsen, as Norwegian’s chief executive, is back on the offensive and clearly keen to expand again, given the announcement of the pending Widerøe acquisition (external link).
The airline Karlsen now leads has been aided by a resurgent market in which some costs have recently declined while traffic has risen. Even though airfares are much higher than before the pandemic, passenger numbers have risen and Norwegian has flown into a strong summer season. The airline reported its first profitable year since 2016 last winter, and load factors in April were up to 83 percent.
Norwegian Air also emerged as the ultimate vulture in circling over the remains of start-up airline Flyr, which was popular with travelers but had to declare bankruptcy itself earlier this year. Flyr complained that Norwegian had made things extra difficult by scheduling flights to the same destinations very close to Flyr’s own departures, and exacerbating a fare war.
Norwegian countered most of Flyr’s moves, and after Flyr posted pre-tax losses of NOK 1.2 billion last year and filed for bankruptcy, Norwegian also ended up being able to take over aircraft in Flyr’s fleet. “We got these jets (six Boeing 737 MAX) on very, very favourable terms,” Karlsen told newspaper Dagens Næringsliv (DN) in February. Norwegian Air’s shares jumped even more than they already had, and Norwegian also hired many of Flyr’s pilots and flight attendants.
“It’s a tough branch,” observed Flyr’s bankruptcy administrator Stine Snertingdalen at the time, “and Norwegian has been through a financial reconstruction. More than 90 percent of their (Norwegian’s) debt was forgiven and it’s clear they’ve come out (of their own bankruptcy) stronger than before.”
That has also helped Norwegian in its ongoing competition with SAS, which remains in a bankruptcy reorganization process itself. Last month Norwegian also struck out at one of SAS’ biggest assets, its frequent flyer program known as Eurobonus. Karlsen had already invited partners into his airline’s “cash-points concept” in February, announcing plans to expand and upgrade the airline’s loyalty program known as Norwegian Reward.
Norwegian’s cash-points were now being viewed as a valuta (digital currency) of its own that could be used anywhere from hotels to grocery stores. The loyalty program was spun off as its own company five years ago and in June, Norwegian launched a new initiative for it with hotel chain Strawberry (formerly Nordic Choice). Karlsen, along with Strawberry’s high-profile leader Petter Stordalen, will be teaming up with the hotel chain’s own loyalty program and developing “a whole new cooperation” aimed to attract others. Karlsen equated it to “a sort of new Nordic euro for travel” that other partners can join, with the new entity possibly even being stocklisted.
All this has continued to send Norwegian Air’s once-struggling shares upwards. Its stock value jumped 6 percent right after Karlsen and Widerøe’s CEO Stein Nilsen launched their pending deal, before settling back down again. Norwegian Air is also currently sitting with around NOK 8.6 billion in cash, NOK 1.125 billion of which will be spent on Widerøe.
Widerøe, meanwhile, hasn’t been doing as well as Norwegian but has strengths of its own. The Bodø-based regional airline has a fleet of nearly 50 aircraft, aaround 3,500 employees and revenues of NOK 5.7 billion last year. It’s been around for nearly 90 years and has long operated state-supported routes to small and remote destinations with short runways.
Widerøe also had a lengthy relationship with SAS, which even owned Widerøe until selling the airline in 2013 to transport company Torghatten, the Fjord1 ferry line and Nordland County for around NOK 500 million. Torghatten’s owner hung on to Widerøe when acquisition fund EQT took over most of Torghatten in 2020. The Forbergskog family wound up as the main owner of the airline, which DN reported was valued at around NOK 800 million at the time.
Widerøe owner Brynjar Forbergskog had no plans to sell Widerøe, according to DN, but then came along what he called “an industrial, solid, Norwegian player and I think we complement each other.” Widerøe’s CEO Stein Nilsen got Forbergskog and Karlsen together around six months ago and found lots of synergies and potential, some of which were already being tapped.
“This is positive for passengers, who will get more travel opportunities and shorter travel time,” Forbergskog told DN. Widerøe routes to and from small airports can feed into Norwegian routes within Norway and abroad, “offering better connectivity and a seamless end-to-end experience,” the two airlines claimed in their notice to the Oslo Stock Exchange Thursday morning. Each airline will operate as a separate business unit under their separate brands, though, and employees will remain in existing companies under existing collective bargaining agreements.
Karlsen and Nilsen insist their airlines have “never” viewed one another as competitors even though they do operate some of the same routes, such as Bergen-Trondheim, Bergen-Stavanger and Oslo-Bergen and Oslo-Trondheim. It’s the feeder opportunities that make the airlines “go perfectly together,” they said.
Norwegian’s pending purchase of Widerøe still needs to be cleared for take-off by competition authorities, who will examine its effect on the market. “The question will be whether competition will be weakened in a manner that can affect consumers through higher airfares or a poorer offer,” says Gjermund Newe of the competition authority Konkurransetilsynet. If so, he adds, the transaction can be halted.
Norwegian Air and Widerøe are hoping, however, for approval and implementation of the purchase by the end of this year. It’s unlikely to be welcome by rival SAS, though, which may lodge protests.
SAS remains in bankruptcy and now seems to have lost Widerøe as a long-time partner. After SAS sold the regional airline, they’d continued to cooperate on their frequent flyer programs, but DN reported that relations had soured in recent years. Widerøe customers were already reportedly unhappy that they didn’t get Eurobonus points on routes served by both Widerøe and SAS. Nilsen of Widerøe promises that his airline’s passengers will now be offered benefits like “fast track” and lounges at airports through a new program.
SAS had also dropped various other agreements it had with Widerøe, opening the door for Widerøe’s talks with Norwegian. SAS itself wouldn’t immediately comment on Nilsen’s views of their former cooperation or on Norwegian’s pending purchase of Widerøe.
Analysts warn that Norwegian Air is now a much stronger competitor for SAS and can become stronger after taking over Widerøe. “With this transaction, Norwegian Air is firming up its position as a Norwegian airline,” Jacob Pedersen of Sydbank told DN. “Now it’s not mostly about flying passengers to Southern Europe, but also about Norwegian customers and the regional market in Norway.”
Frode Steen, a professor at business school NHH who follows the airline market closely, thinks flying can be “simpler and more efficient with a Norwegian-Widerøe package,” and that’s “not good news for SAS.”
Hans Erik Jacobsen of Nordea Markets seems to agree. “2023 is shaping up as an extremely good year and Norwegian’s results are “very, very good.” The fact that it’s “no problem” for the once-bankrupt airline to pay cash for Widerøe is an indication of Norwegian’s revival. The airline has also financed new aircraft from Boeing and paid down debt while still building up cash reserves.
Nilsen of Widerøe said he’s mostly keen on securing a long-term view and stability for the regional airline that “Norwegian seems better able to give us.”
NewsinEnglish.no/Nina Berglund
