Norwegian, Europe’s third-largest budget airline, is aiming to get more business travellers on board by making sure its routes from London to different parts of the US are always around £149-£179 ($228-$274).
This is a bit of coup considering long-haul flights to these destinations usually cost at least twice that amount on larger incumbent airlines, and aren’t available from budget rivals such as Ryanair and easyJet.
Bjorn Kjos, the CEO of Norwegian, told Business Insider that the airline is aiming to rapidly expand in the US and South America by serving regular and business travellers, offering prices that legacy airlines can’t match, including a London Gatwick Airport to Boston flight.
“We’re planning to keep expanding in the US and we are launching our low-cost route to Boston in May next year. We can’t give an exact price but it will be around the Puerto Rico level,” said Kjos, referring to Norwegian’s ownership of Britain’s only direct route to Puerto Rico with fares from £179 ($274).
“We’re also hoping to cover Washington DC as well as a few other places in South America and Africa. The latter two actually are heavily underserved and have high prices.”
This month, Norwegian agreed to purchase 19 new Boeing 787-9 Dreamliners. This is a huge deal because the order more than quadruples its current long-haul fleet to 38 aircraft within the next five years.
Considering it does already have short-haul flights in Europe, its bid to expand long-haul routes means that it directly competes with incumbent airlines such as British Airways and Virgin – but at half the price. It already offers direct flights to popular destinations, such as New York, Los Angeles and Fort Lauderdale, with fares from just £149 ($228).
Compare this to even a quick search on various travel booking websites like Expedia and you can see that the cheapest flights come in at around £500 ($766) and they’re indirect.
“We have a lot business people to date especially long haul because they like the low cost that you can’t get on legacy carriers combined with the premium seating in-flight as well as features such as free Wi-fi – even on short-haul flights,” said Kjos.
“We’re looking at Asia in the future but we’re concentrating on expanding in the US right now.”
It seems to be working.
Norwegian’s third quarter results showed a 15% rise in revenue, compared with the same period last year. Year-to-date, sales rose by 15%, compared to the same period in 2014. Pre-tax profits came to 1.1 billion Norwegian krone (£87 million).
In the third quarter, the load factor rose by 6%, compared to the previous period, to 91%. The airline also carried 7.7 million passengers this quarter while long-haul passenger growth expanded by 15%.
Norwegian has clearly found a gap in the market and its CEO Kjos highlighted how a low oil price environment is helping their expansion. Oil prices are around $44 per barrel at the moment. Last summer they were over triple digits.
Companies that use oil or fuel usually hedge themselves by agreeing to buy a quantity of the commodity for a certain price by a certain date. This means a company could save money if prices were to rise. However, it could lose a company lots of money if prices started to crash.
“When oil was at $100 per barrel we thought there was as much risk of it falling as it did going up, so we hedged our fuel by less than 50%,” said Kjos. “We’re happy with that and we don’t plan to up our hedging as we anticipate oil prices staying low for at least another two years.”
So overall, it looks Norwegian is in a pretty nice sweet spot. It all screams a little like preparation to be bought out. However, Kjos was very quick to shoot us down when we mentioned whether they were looking for a suitor.
“Hey no! We’ve been on our own since 2002 and our idea and strategy is to serve this new market and to keep expanding,” said Kjos. “Our plans are long term, like 40 or 50 years. We are in a great position and it’s easy for us to compete against other airlines right now. We’re not looking for anything else.”