Norwegian Airlines was once the up-and-coming low-cost transatlantic airline, but in November of 2020, they filed for bankruptcy.
So, how did it get so far? Flew they too close to the sun or are there other reasons they fell even lower as they had risen in the past years? Let’s Talk Aviation!
The Rise
The stock price of Norwegian Air tells the story of the rise and fall quite clearly. In their first years as a public company, they focussed on operating regional flights inside of Europe. After becoming profitable in 2005, they expanded beyond Scandinavia and opened a base in Warsaw, Poland. The first step in their expansion. Many more will follow.
With operating more and more flights comes the need for a bigger fleet and in 2007, they placed a large order for 42 Boeing 737s. Meanwhile, they started operating at the largest airports in Scandinavia. They were expanding within and outside of Scandinavia.
The company had success after success, and during this period of expansion, they stayed profitable. Amid the beginning of the 2010s, they opened up about their plans to expand further, beyond the European market. They ordered multiple Dreamliners to offer some nice amenities like Wi-Fi on board.
Expanding rapidly
Then, in 2012, I could say, they may have tried to expand beyond their means. They signed an order for the then-largest order in European history, 122 Boeing 737s and 100 Airbus A320neos. While they still operated as a low-cost airline, they stepped away from the single-aircraft model, used by almost all other low-cost carriers like Ryanair, EasyJet, WizzAir, and Southwest Airlines. But it was not to be as the Airbus order would be canceled before a single plane was delivered.
In May of 2013, they launched their intercontinental operations with a flight from Oslo to New York. However, the Dreamliners weren’t used for this flight, because of delays, they had to wet-lease an Airbus A340 from HiFly.
After the operations were running more smoothly, they opened more bases, placed orders for extra 787s and launched multiple new intercontinental destinations. During these years, passenger numbers rose sharply and while the company remained profitable, growth pains became visible.
Issues arise
The year 2019 can be seen as the first year that it was clear that there were more problems than some minor ones. The airline was forced to close crew bases, cancel orders, and even set up sale-and-lease-back deals on their existing fleet. Due to the grounding of part of their fleet, both the 787 and 737 MAX were forced to stay on the ground for some significant periods of time, many of their flights were delayed and this cost the airline large sums of money in compensations.
When the company was already financially unstable, the pandemic hit. This led a couple months later to their bankruptcy and the company entering restructuring.
The decline and eventually steep dive of Norwegian airlines have in my opinion many reasons. Of course, the pandemic did not help, but even before they were struggling to stay in the air. Today, I will go over some of the underlying reasons I believe are the most important.
The reasons for their fall
First, their business plan. Flying low-cost long-haul has been a market that many airlines entered, and many have left. There are many reasons, but one of the reasons has to do with competition. On longer flights, convenience and comfort matter more, and legacy airlines offer that. Low-cost short-haul airlines have already shown that it is best to offer routes from and to the periphery. For example, in Europe, Ryanair stays away from the major airports London Heathrow and Paris Charles the Gaulle. And in the US, Southwest operates from Dallas Love Field instead of Ford Wort.
While this not only has to do with competition, costs are a major factor as well. Operating from larger airports costs more. Landing fees are higher at these larger international airports.
Also, by operating from smaller airports, turnaround times are lower, allowing for just that extra flight each day. This all means that it is generally harder for long-haul airlines to compete on price than it is for short-haul carriers.
Norwegian chose to compete with the legacy carriers on heavily competed routes like Amsterdam to JFK or London to Chicago.
Bad luck
The next reason why Norwegian ended up where they are now has to do with the airplanes they chose to operate. They couldn’t have had more bad luck with this.
For long-haul operations, they primarily used the Boeing 787 Dreamliner. And in 2016, problems were found with the engines of this particular aircraft, the Rolls Royce Trent 1000. This meant that all Dreamliners with these engines needed enhanced inspection and, in the end, replacements. However, Rolls Royce didn’t have the capacity to fix all engines at once and this led to the situation where Norwegian had to ground a significant portion of their aircraft. Norwegian however, was also expanding aggressively in this period and couldn’t miss these planes.
To keep operating, the wet-leased other aircraft to replace their grounded 787s. This led to higher operating costs and customer dissatisfaction. The replacement aircraft were generally older, less modern aircraft and couldn’t live up to the expectations. Amenities that were common among Norwegian aircraft like Wi-Fi were not available. This meant that many passengers who fled with Norwegian for the first time didn’t get the experience that would make them come back.
The Boeing 737 MAX groudings
After the problems with the Boeing 787 were fixed, new problems arose. Now with their short-haul fleet. As we all are familiar with, this aircraft had a fatal flaw and on March 12, 2019, Norwegian grounded their entire fleet of 18 Boeing 737 MAXs.
For short-haul operations, they now lost 13% of their capacity and had to cancel part of their short-haul network. Up to this day, Norwegian is in ongoing talks with Boeing for compensation, if and when it will come remains the question.
If Norwegian didn’t have enough bad luck already, the pandemic can be seen as the final nail in the coffin for the plans of Norwegian. They appointed a new CEO in 2020 with a growing focus on profitability compared to the some can say reckless, focus on growth and expansion. The growth of Norwegian was steep and the way they made it happen certainly wasn’t very neat. By opening bases in countries like Ireland, they could hire staff on lower wages than in Scandinavia. This created some bad blood with competing airlines.
So, after a tumultuous couple of years, Norwegian had to cut back their network, cancel their order at Airbus completely, and remove the Dreamliners from their fleet.
Current fleet
Currently, they now only operate the Boeing 737-800, not even the MAX and their network is trimmed to merely flights within Europe from their bases in Copenhagen, Stockholm, and Oslo.
In May of 2021, they exited bankruptcy protection after they presented their restructuring plans. With a significantly smaller fleet of now only 53 aircraft, compared to the 140 before the pandemic, they will keep their operations in the three Scandinavian countries for the foreseeable future. Thanks to bankruptcy protection, they were able to cut two-thirds of their debt and are now left with a debt of 2.4 billion US dollars.
In August of this year, they announced their summer schedule for 2022. Their number of destinations will increase to 259 anticipating many travel restrictions will be lifted by then.
Future
So, what will the future look like for Norwegian? It is hard to tell, but even with the still quite large debt, it looks like they have been able to restructure themselves. By drastically reducing their operations and essentially starting over, I think they could become a healthy airline.
Going back to their core, a short-haul low-cost airline in Europe, they will avoid many of the pitfalls that eventually led to their fall. Furthermore, they now only operate the highly reliable Boeing 737-800, which makes it unlikely that they ran into issues on that front. However, competition is large with the likes of Ryanair, EasyJet, and WizzAir to name a few.