The US Department of Transportation made a potentially industry-changing decision when it tentatively approved Norwegian Air International’s application this month to fly into the US.
It’s a move that has been vehemently opposed by US airlines and unions for several years.
They have argued that allowing NAI, one of the several entities operating under the Norwegian Air umbrella, into the US market could jeopardize the health of the US airline industry and its workers.
The issue lies with where Norwegian has chosen to headquarter its NAI subsidiary. Unlike the rest of the company – including Norwegian Air Shuttle – NAI is based in Dublin instead of in Norway.
This, critics say, allows Norwegian Air to take advantage of Ireland’s employment laws, which are significantly less stringent than Norway’s. As a result, they say, NAI could hire lower-cost pilots and cabin crew from Asia to fly trans-Atlantic routes.
The alarm among US carriers is overblown.
With just 100 aircraft, Norwegian Air loses money and accounts for a tiny fraction of travel between Europe and the US. And its no-frills, low-cost model works best with smaller aircraft, rather than the Boeing 787 Dreamliners and other large aircraft needed to fly across the Atlantic.
It’s why Norwegian can compete so well flying Boeing 737s in Europe but can’t make a profit on its trans-Atlantic flights. Other attempts at low-cost travel across the Atlantic have ended badly. Remember Laker Airways Skytrain or People Express? There’s a reason you don’t.
‘Not a fair market’
So why is there so much acrimony over the DOT’s decision? In part, its just the notion that an airline can choose a home base only to take advantage of labor laws that allow it to undercut its competitors.
The US-based Delta, United, and American airlines can’t just pick up and move in response.
“Norwegian Air International has picked its place of incorporation based on whether that nation’s tax and regulatory laws are favorable,” airline pilots union president Capt. Tim Canoll said in a statement.
“As a result, NAI gains an enormous competitive advantage over US airlines, which are required to do business under one set of US laws and regulations. This is not a fair market.”
Norwegian Air Shuttle is currently operating trans-Atlantic flights with European flight crews and the airline says it has no intention of hiring low-cost crews from Asia.
Norwegian Air spokesperson Anders Lindström told Business Insider that the airline has told the DOT that it will not be using any Asia-based flight attendants on its trans-Atlantic routes.
In addition, Lindström told us that NAI will only use European Union and US-based cabin and flight crews on its tran-Atlantic routes, and thatNorwegian pays its pilots “almost exactly” the same regardless of where they are based.
Further, Lindström wrote that the appeal of Ireland is its inclusion in the EU of which Norway is currently not a member.
- Flickr/Eric Salard
But a cheaper crew affects a transatlantic flight’s profit margin by only 2% or 3%, Airways News senior business analyst Vinay Bhaskara says.
Fuel, more experienced pilots, and extra fees are instead what make the big jets expensive.
Bhaskara thinks the threat Norwegian Air could pose to US airlines comes not from how much it pays its crew, but from choosing to fly into smaller cities with smaller planes.
Instead of flying big Boeing 787 Dreamliners from London to New York, flying narrow-body planes from Manchester, England, to Pittsburgh or Providence, Rhode Island, could be the game changer.
The airline has 200 Airbus A320neo and Boeing 737 MAX narrow-body airliners on order. With a maximum range of 4,600 miles for the Airbus and 4,000 miles for the Boeing, both aircraft could be deployed on routes from Western Europe to the East Coast.
This strategy cuts out the added overhead associated with large wide-bodies as well as costlier landing fees at larger global hubs.
With this strategy, Norwegian can undercut the feeder routes that help fill the US trio and their alliance partners’ jumbo jets.
With the ability to fly from Providence nonstop to the UK for cheap, there’s no need to drive or fly to Boston or New York for a flight to Europe.
Still, even here, Norwegian may be limited in its success and its ability to disrupt America’s legacy carriers by the budget airline model.
People tend to fly low-cost airlines because they either don’t often fly or don’t have the means to fly a higher-end airline.
“You aren’t going to go with a low-cost budget experience when you can afford or have access to a nicer seat, nicer food, and better in-flight entertainment,” Forrester Research vice president Harley Manning told Business Insider.
That effect is amplified when it comes to long-haul international flight in which the frills matter.
This also limits Norwegian’s effect on US legacy carriers.
“The bread-and-butter target customer for US legacy airlines is the business traveler who flies frequently,” Manning said. “Losing a customer who is hunting for the cheapest ticket on the rare chance they fly isn’t hurting American, Delta, or United all that much.”