While airlines naturally hate competition on their own turf, one carrier has proven a thorn in the side of network airlines for years. That airline in Norwegian Air, a budget carrier that has pushed transatlantic airfare sharply downward through its no-frills business model. Now the airline industry is rooting for troubled Norwegian Air to collapse, as evidenced by the performance of airline stocks today.
As Norwegian Air Faces Collapse, Competitors Rejoice
IAG, the parent of company of British Airways and Iberia, is surging today in London trading. So is Wizz Air, a low-cost competitor growing across Europe. So is EasyJet and Ryanair. It seems counterintuitive, doesn’t it? Lockdowns in the UK and across Europe have forced airlines to dramatically slash schedules and warn of more job cuts. Passengers numbers are down so much that British Airways has temporarily closed its lounges in London Heathrow.
But today is cause for celebration for these carriers and others. Why? On Monday, Norway denied a request from Norwegian Air more funding. As Iselin Nybø, Norway’s Industry Minister, noted:
“It is a tough message to get. But we are answerable for the responsible use of public funds. Norwegian Air has a financial structure that makes it risky for us to go in with support. It was not defensible.”
Of course Norwegian pushed back and called it a “slap in the face.” But Norway can hardly be blamed and the idea that Norwegian Air is Norwegian is tenuous at best. The carrier has several subsidiaries and uses Irish law to skirt taxes and hire foreign crews from Thailand at wages far below what would be considered “living” in Norway.
The demise of Norwegian Air would directly benefit the other incumbents operating in Europe. Today’s surge in stock prices are hardly surprising and go far beyond hopes of an effective COVID-19 vaccine.
To be clear, I don’t want to see Norwegian fail. Not only is its premium economy product above average, but its presence in the market is good for consumers. One thing in particular I love about Norwegian is that you are not penalized for buying one-way fares. On both U.S. and European legacy airlines, you are often charged more for a one-way than a round-trip. Not so on Norwegian, which has forced other airlines to adjust pricing (downward). If Norwegian fails, I expect the availability of attractive one-way pricing will be greatly reduced and consumers will see higher fares on many routes.
At the same time, I just don’t see the business case for another bailout. Norwegian was in bad shape before the pandemic and its financial issues now appear insurmountable considering that reported virus cases are surging against on both side of the Atlantic.
image: Norwegian Air