In the US prices have been driven downward by ultra low cost carriers — primarily Spirit but also Frontier and to a lesser extent Allegiant.
Major US airlines responded by lowering their own prices so they don’t lose business. Then, to try to segment the market and not give too good a deal to customers that aren’t going to buy a more stripped down product, they introduced Basic Economy fares to try to offer a worse product at the lower price, in hopes customers would spend more to keep things like seat assignments and carry-on bags. Basic Economy is a price increase.
Ultra low cost carriers have spread to transatlantic travel. There’s Primera and Wow Air but the biggest is Norwegian, operating new Boeing 787s and now also 737 MAXs for shorter routes.
Copyright william87 / 123RF Stock Photo
Norwegian’s rapid expansion has run into rising costs and limited cash in the face of losses.
However they’ve put pressure on yields, and Delta and its partners followed by American and its partners have introduced new restrictive Basic Economy-style fares on these routes.
British Airways has spun up their own lower cost no frills airline LEVEL. Air France has Joon that they say is for millennials since apparently that means ‘no money, doesn’t care about comfort, and is into marketing buzz’ or something.
The real question is how sustainable is the model both for Norwegian as it bleeds cash, and for airlines operating carriers-within-a-carrier, a strategy that has poor track record of success (in the U.S. that history has included Delta’s Song, United’s Shuttle and Ted, Continental Lite, and US Airways Metrojet).
But what if a legacy carrier could – as Grover Norquist once said — “drag it into the bathroom and drown it in the bathtub?”
British Airways parent IAG has acquired a 4.61% stake in Norwegian and plans to initiate acquisition discussions.
A potential acquisition could value the Norwegian company, which has a market value of more than $1 billion, at about $3 billion including debt, people with knowledge of the matter said, asking not to be identified because the deliberations are confidential.
Of course IAG says they view Norwegian as ‘an attractive investment’. At this point almost no one views Norwegian as an attractive investment.
The question is whether killing Norwegian kills the model. Is there more money that would come in behind Norwegian to scale up a replacement? Or are Norwegian’s losses enough to put the idea to bed, assuming that Wow Air and Primera aren’t going to grow the way Norwegian has — or sustain — and remain a niche part of the market?
[…] years ago British Airways bought a small piece of the airline to get a good look from the inside as they considered acquiring and killing the low fare competitor. Instead they left Norwegian to – they hoped – fail on its […]