The dream of a successful low cost long haul airline seems not to have lost its shine. Norwegian only recently announced that it will back out of long haul, but its founder, Bjørn Kjos, is bouncing back with plans to join in with a new start-up.
To do better, this new low cost long haul carrier will have to be different. It turns out that Norse Atlantic will perhaps not be so different. The aircraft are set to be the same Boeing 787s, secured “at very good terms.” The destinations mentioned so far sound familiar – New York, Miami, Los Angeles, Paris, Oslo, London. And CEO Bjørn Larsen will bring his experience hiring crew for Norwegian with him.
So what could make Norse Atlantic succeed where Norwegian failed on long haul? Those “very good terms” for aircraft could help shave a few per cent off overall costs of operation. Perhaps Norse Atlantic can also achieve tighter costs in overheads and sales and marketing – though some of those costs will be higher per passenger for a small start-up.
Larsen has mentioned that the aircraft will have “high cabin utilisation.” Norwegian operated relatively dense configurations – its 787-9s are configured with 344 seats, much denser than on legacy carrier 787-9s. Scoot in Singapore sets a higher bar, at 375 seats. Copying that would increase density by 9%, partly through less roomy seats in its Premium cabin than Norwegian’s.
But having more seats also means finding the right routes to fill them. That’s perhaps where the new carrier can be different.
It will face the same challenges as before, particularly in the North Atlantic market. Norwegian managed to capture only a small number of passengers travelling for business, according to data from the Office for National Statistics. On UK-US routes, the BA-American JV carried around 20 times as many business travellers as Norwegian. That’s critical, because in winter the market for non-business travellers shrinks to half its summer size. Business travellers make up over 20% of winter passengers, and a much more significant chunk of revenue. Winter is particularly tough for a carrier that fails to attract this segment of the market.
To succeed, a new low cost long haul carrier needs to take a leaner, more nimble approach – which is maybe what Larsen had in mind when he talked about basing growth decisions exclusively on demand and profitability.
First, profitable routes may not always be the obvious ones. There are big markets between, for example, London and the largest US cities. But in winter, they become smaller markets dominated by corporate travel – and the legacy carriers have the tools to capture those travellers in a way a small low cost carrier cannot.
Second, take a nimble approach to seasonality. Don’t operate in markets during their low seasons, and look for opportunities to fly where the demand follows a different seasonal profile. Lower aircraft costs and flexible crew can enable peaks and troughs in flying to match peaks in demand.
Third, don’t grow too far too fast. If overheads can be kept tight, a relatively small operation could work. But too small an operation makes it harder for the numbers to stack up. Too big and there’s too much unprofitable flying. Finding that balance means staying agile and responsive.
The long haul domain is a tough one. Operating just one aircraft on the wrong routes at the wrong times can lose tens of millions of Euros, dollars or pounds. The new venture will face the same perils as Norwegian: battle-hardened competition, limited schedule flexibility at slot-constrained airports and boundaries to reducing costs of fuel, nav charges and airport fees.
It’s a tough call to make this new low cost long haul carrier take off.
