Norwegian’s 2017 financial results were not good. There is simply no disputing that fact. The company lost nearly $40 million, citing significant costs related to increased fuel prices, wet lease and passenger care as contributing factors. The carrier also added 32 new aircraft in 2017, fueling a massive expansion that did not immediately return profits to the company. Headed into 2018 CEO Bjørn Kjos believes that a slowing fleet growth, changes to the inflight product and operational adjustments can turn the tide, bringing the carrier back to profitability. A significant part of that plan includes betting big on London.
Norwegian’s presence at London’s Gatwick Airport blends short-haul service to the European continent and long-haul flights, mostly to the Americas. With another ten 787-9 Dreamliner aircraft joining the fleet this year, all to be based at Gatwick, Kjos is pursuing more routes that place his airline in competition with legacy operators. And he appears keen for the fight, thanks in large part to the Dreamliner fleet.
Norwegian is far better positioned for 2018, with stronger bookings, a growing network of intercontinental routes complimenting our vast European network and not least, a better staffing situation. Our major global expansion reaches its peak in the second half of 2018, when 32 of our 42 Dreamliners on order will have been put into service. – Norwegian CEO Bjørn Kjos
Many of Norwegian’s Transatlantic routes operate on less than daily frequencies. That is a hard sell for business travelers who require schedule flexibility and frequency. Norwegian will shift its approach slightly in 2018, focusing on filling in the existing route map with more frequencies rather than only adding new routes. Los Angeles and Fort Lauderdale will see increases, for example, while the company works to secure additional slots for a third daily JFK frequency. The London-New York market is the busiest across the Atlantic and continues to show premium demand, even in the face of Brexit uncertainty.
Kjos also believes expansion deeper into South America and Asia will help drive revenue for the carrier. Buenos Aires is a new destination from London, launched just last week. The company is teasing Chile, Uruguay, and Brazil as other potential target markets. Similarly, the carrier operates to Singapore today but wants more routes into Asia. Tokyo and Beijing have been suggested, though those routes require access to trans-Siberian routes from Russian authorities to operate efficiently. That approval remains absent thus far.
Can product produce profits?
Norwegian is known as a low cost operator, with a relatively high density layout for its 787s. The latest tranche of 787s will change that slightly. The company is increasing the premium seat count from 32 to 53, adding three more rows of the more spacious recliners to its forward cabin. This comes with a slight reduction in pitch (~3″ removed per row) but still leaves travelers with more legroom than competing premium economy products. Of course, Norwegian also markets those seats as a business class product. On that front it trails nearly every other option on the market. But growing demand for premium economy products, and the fact that Norwegian delivers a pretty comfortable one, should help on that front.
So, too should implementation of the long-awaited inflight connectivity product. Norwegian will add the Inmarsat Global Xpress (GX) kit to its 787s and 737 MAX aircraft; installs are expected to commence at the end of 2018. Following in the path of its free connectivity offering for short-haul flights, Norwegian plans a freemium model for the long-haul fleet. A base level of service will be available complimentary for all passengers. A premium option, expected to support streaming content, will also be available to travelers.
The connectivity deal was announced as an unnamed customer in October 2016. It is unclear whether the delays in deployment rest with the carrier, Inmarsat or integrator Rockwell Collins. Or, perhaps, it was expected that the rollout would not begin until two years after the deal was announced. The lack of formal messaging from any of the parties about the arrangement leaves this one of the more bizarre connectivity deal announcements in recent years.
Compensation Costs Cramp Earnings
Norwegian’s bet on the Dreamliner fleet is not new. Indeed, its long-haul expansion goes back to the the early part of this decade and a less than stellar introduction of the type into service. Quite simply, Norwegian could not keep its operations running smoothly due to a combination of incredibly high fleet utilization and unreliable aircraft.
How long can this shit show that is Norwegian Long Haul last? Multiple hour delays & leasing every aircraft type can't be the norm forever.
— Jason Rabinowitz (@AirlineFlyer) May 3, 2014
The solution involved leasing substitute aircraft, often from HiFly, to fill in the gaps. Those planes left passengers without the promised and much publicized Dreamliner experience, in addition to often being several hours late to their destination. And, while things are getting better, Kjos’s promise that the expensive leases (and compensation payouts) won’t be necessary might be a bit premature. It was just days after that proclamation at the beginning of the year that a blizzard closed down JFK for more than a day. Norwegian’s operations were significantly affected by that closure and the leased planes returned to the carrier’s operations.
Cutting those lease operations is critical not only for cost reasons but also for the passenger experience. A substitution is better than a canceled flight, of course, but eventually travelers come to expect certain services as advertised. And the more premium, business traveler that Norwegian needs to attract cares more about those things than the budget leisure consumer.
To 2020 and beyond
The next decade is only two years away and Norwegian has big plans there as well. The carrier will begin taking delivery of its A321LR orders, allowing for even more flights into North America, particularly to smaller markets that do not support the 300+ seats a Norwegian 787-9 brings with it. But there are still a couple years of Boeing growth to get through before worrying about those shifts.