The CEO of Ryanair, Michael O’Leary, gave an interview where he claimed that Norwegian “will go in four or five months. They are running out of cash. They are scrabbling around daily.”
He calls out both Norwegian and Monarch claiming that both “may not survive through the winter.”
Even while he claims Ryanair is talking with Norwegian about connecting flights, feeding Norwegian’s long haul flying,
“We are still talking to Norwegian [about connecting flights], but I’m not sure they will still be flying in 12 months.”
That may well be hyperbole but they have a couple of hundred aircraft on order. While O’Leary rightly points out they don’t have the cash to pay for the planes, airlines generally finance their aircraft. The trouble here then isn’t what O’Leary thinks, it’s what financial markets think, and I wrote two months ago that markets are skittish about the carrier’s expansion plans in the face of rising fuel costs.
Copyright william87 / 123RF Stock Photo
In the U.S. Norwegian serves or has announced service to Austin, Boston, Chicago, Denver, Fort Lauderdale, Hartford, Las Vegas, Los Angeles, New York JFK, Newark, Stewart-Newburgh, Oakland, Orlando, Providence and Seattle. That’s insane especially considering they aren’t serving these cities with just a single destination in many cases. They fly to London Gatwick, Paris, Stockholm, Barcelona, Copenhagen, Oslo, Rome and more.
The airline is seen as an ultra low cost carrier because of its low fares and its unbundling (fees) model. However it’s not clear the airline’s current costs make those fares sustainable especially as to the extent that new routes take time to grow their load factors. The bet of course is that Norwegian will attain a scale that will drive down costs if it has enough runway to get there.
I’ve argued that it’s not the big Middle East carriers US airlines need to worry about competing against — it’s airlines like Norwegian and Ryanair.
Norwegian is a big part of why we’re seeing deeper discount transatlantic fares than ever before – like $252 roundtrip. Norwegian’s expansion is good news for consumers.
There’s some chance that Norwegian’s model isn’t sustainable, but in the meantime, we should be grateful to what Norwegian is doing to pricing — and in fact their non-US websites sell US flights even cheaper (just use Google Translate and a credit card that doesn’t add foreign transaction fees).
Meanwhile Ryanair’s CEO has been promising pay toilets and seats where you’re forced to stand up for years. So not everything he says is true.
Good for consumers, yes and no. Good for temporary pressure on fares – yes. Good for basic comfort like reductions in seat pitch, transparency in pricing, annoying add-on fees – no. At this point I would rather pay $200 more with access to E+ seats than have carriers like Norwegian and RyanAir leading the race to the bottom. It is not a victory for consumer when 70% of them are crammed into unbearable coach seats for long TATL flights, as opposed to Ryanair’s short hops.
Count me as a Norwegian fan. I’m looking at a one-way San Francisco-London fare of about $650 next year in their quite good (about 46″ legroom with good service) front cabin (call it premium economy or business depending on your preference). Flew them earlier this year London-Boston in that cabin, also at a good price, and liked the experience. I really hope they make it.
I guess he is living by the words of “If you can’t tell about your own success, then try to talk the competitors down”
In 2007 Michael O’Leary said that Norwegian is to small to exand on its own internationally and will be purchased by SAS shortly.
In 2009 Michael O’Leary, said that Norwegian will be bancrupt within 5 years
Michael O’Leary, have also several times said that SAS will go belly up as well (at almost the same time saying that SAS will buy Norwegian).
I sure hope they are successful. I flew them once to Madrid and found it to be quite a standard sort of product. Prices will make it possible for lots of people to fly to Europe who haven’t before. I just hope they sit up and notice so load factors can quickly build.
The huge A320 order with P&W engines is also a big problem for them. The plan was to lease these out, but airlines are not wanting the planes until the engine issues are fixed. This could easily trigger a cash flow crises
Thing about Norwegian is they’re not really in a race to the bottom. Their planes are just as comfortable as the US3, if not moreso (depending on which US3 and which plane). They’re a step above ULCC’s in the US – not sure about Ryanair, since I’ve never flown them.
Norwegian’s problems have little or nothing to do with growing too fast. They have everything to do with a horrific business model. No one has ever been successful across the Atlantic without catering to high-end business travellers. There’s a reason why the airlines are so competitive with those business class cabins: that’s where the bills get paid. If you have no business class passengers — and you fly to lots of places nobody wants to fly to — you will fail across the Atlantic. And that’s exactly what’s happening to Norwegian.
Because consumers (including reporters) love the idea of low fares, the obviously weakness of Norwegian’s business model did not get the attention it deserved. Instead, people like you wrote about “the threat they posed to the legacy carriers.” Believe me, the managers of the US legacy carriers knew Norwegian would fail: they can do the math.
This is why, despite your protestations, these managers worry much more about the Middle East airlines. Like Norwegian, the Middle East airline business model is economically absurd. But, unlike Norwegian, the owners don’t really care: they have virtually limitless amounts of money to lose flying these routes to enhance the glory of their kingdoms.
@iahphx you appear to be ignoring the very real effort the US airlines made to try to stop Norwegian from getting the routes to the US in the first place. You also appear to be ignoring the very real efforts legacy carriers like BA are still making to combat Norwegian on TATL routes (do you really think BA wants to fly to Oakland?)
So, no. The legacy carriers do not “know that Norwegian will fail”. They’re actually still pretty worried about it.
@Ziggy — Of course the US airlines opposed Norwegian’s “flag of convenience.” Norwegian is exploiting a questionable loophole in the Open Skies agreement with the EU, given that they’re not actually based in an EU country. Norwegian’s entry into EU-USA markets have cost the majors millions of dollars, and will cost them many more millions until Norwegian fails. If you were a business person and a new competitor was trying to operate under a new loophole, wouldn’t you oppose it, too?
As far as BA goes, they’re not as well managed as the US legacy carriers. There are better ways to compete. Note that no US airline has launched anything like Level. There’s no reason to.
I second @Steve – I am a huge fan of Norwegian Air. I have been especially impressed with their affordable Premium Economy (46 inches of pitch? AMAZING). I’m super price conscious right now with how much airfare will cost my fiance and I when we start traveling the world next year, so seeing NA’s expansion into more cities in different countries makes me feel relieved. I seriously hope they will have longevity!
Once you add seat assignments, checked bags, checkin fees, meal fees, etc. they are often not cheaper than the major legacy airlines, particularly for those of us with status and/or credit cards that get the same perks for free.
So a great deal for consumers when they fly airlines that price match, plus EQM and RDM to boot. But ultimately just feeding the race to the bottom as we see from AA reducing seat pitch and the new fare increase for less aka BE fares.
@iahphx
“Note that no US airline has launched anything like Level. There’s no reason to.”
Not sure where you are coming from, but Ted and Song are but a couple to remind you in the not too distant past..
I now only fly Norweigian to the US. The planes are new, clean and it’s the best airline by a long shot.
@Tis — Ted and Song are from another era. An era where airlines lost billions of dollars. Airline management has gotten much smarter now.
Honestly, I’m amazed that Norwegian raised public capital for their expansion. I guess investors in Europe looked at the profits of Ryanair and such and didn’t understand why the more established low cost airlines were staying far away from this “opportunity.” Those investors are getting absolutely crushed now.
@Boraxo — I agree with you. And, for my personal sake, I hope Norwegian fails before we see Basic Economy across the Atlantic. I think it will, although I wouldn’t be surprised to see a checked-bag fee. How you seen how much luggage is taken by a typical customer on an int’l flight? I’m always amazed. That luggage will someday be monetized by the airlines (or folks will have to pack more rationally).
Perhaps Ryan is seting themselves up for an expansion through some “bottom feeding”. Push the value down and go do a hostile takeover for 10cents on the dollar. Then they have their TATL with very little investment and low capital outlay. Be interesting to watch
Norwegian is much better than Ryanair in my experience, the planes are clean and the crew pleasant. I don’t think they are much cheaper than BA when flying across the pond if you include luggage and a meal. I hope they survive.
i will Norwegian to Paris any day. AA flies old single aisle plane to Paris with bad time slots. Are you kidding?
Nice analysis, Gary. The current bargain-basement transatlantic fares, while beautiful, are totally unsustainable.
There: I’ve said it