Norwegian Air Leans On Boeing as 787 Woes Hamper Strategy
Norwegian Air Shuttle AS (NAS) said it’s working with Boeing Co. (BA) on quicker fixes for technical issues that caused delays and groundings over Christmas, undermining its strategy of extending discount flying to long-haul routes.
Glitches involving the Oslo-based carrier’s fleet of three Boeing 787 Dreamliner jets forced it to delay peak-period flights to Scandinavian cities from Bangkok, New York and Ft. Lauderdale, Florida. Norway’s air-travel complaints body was inundated with calls from stranded passengers, and local media have ripped into the airline over the series of breakdowns.
“We had a meeting with Boeing’s maintenance team in Oslo earlier this week where Norwegian was promised swifter and more flexible maintenance routines going forward,” the carrier said today in response to questions from Bloomberg News. “We are fully confident that we will work through these issues so that our customers can expect a reliable on-time performance.”
Norwegian Air Chief Executive Officer Bjoern Kjos has pinned the success of his intercontinental push on the 787. While Boeing’s most advanced jet has the lower operating costs needed for budget long-haul flying, failures with the new model get magnified because the carrier shuttles planes between the U.S. and Asia via Scandinavia and doesn’t have spare capacity.
“They need to fix this fast because there is definitely a reputation risk,” said Danske Bank analyst Martin Stenshall in Oslo, who has downgraded the stock. “Norwegian has been a short-haul low-cost carrier, but now they’re moving into long-haul and there is operational risk to that.”
Norwegian Air fell 1 percent yesterday as Stenshall cut his rating to “sell” from “hold,” and while it advanced 31 percent in 2013, that trailed gains of 100 percent and 33 percent at discount rivals EasyJet Plc (EZJ) and Ryanair Holdings Plc. (RYA)
The stock rebounded as much as 7 percent today after the carrier said its passenger total rose 2 percent last year to 20.7 million, with the average flight length up 12 percent in December following the commencement of Dreamliner services.
Norwegian Air’s long-haul trials come with the company committed to one of the most ambitious expansion plans in the history of European aviation after it ordered 222 Boeing and Airbus Group single-aisle planes worth $22 billion in 2012 to help grab market share in its main short-haul discount market.
Norwegian entered long-haul flying from Scandinavia to New York, Ft. Lauderdale and Bangkok in 2013 and will add trips to Los Angeles, Oakland and Orlando this spring. It also aims to connect London Gatwick airport, Britain’s second-busiest, with New York, Ft. Lauderdale and LA starting in July.
A one-way fare to Oslo from New York departing this month starts at 107 pounds ($176), while seats from London to the U.S. city will sell from 149 pounds per leg. SAS Group, the Nordic region’s largest carrier, was yesterday offering return tickets on the Oslo route for 515 pounds, while British Airways has round-trip New York flights available for 506 pounds in June, rising to 795 pounds in July, according to its website.
Norwegian Air reckons that if the 787 performs as it should, other carriers seeking to offer long-haul discount services will struggle to compete unless equipped with the plane, which is sold out for the next few years. The Airbus Group A330, which is more readily available, might fill a niche over shorter distances but is ill-suited to serving Europe from China, a market Kjos says he’s looking to in the longer term.
Dublin-based Ryanair, Europe’s largest discount airline, is interested in flying to the U.S. under a different brand once new wide-body planes are more affordable, CEO Michael O’Leary said in an interview Sept. 16. He outlined a plan to take seven aircraft annually to build a fleet of 40 to 50.
Norwegian Air’s expansion plans leave little margin for error, with every delay causing a knock-on effect that may be hard to recover from, Stenshall said in a phone call. In order to serve its three long-haul destinations planes must fly from the U.S. to Scandinavia and immediately on to Bangkok on what are effectively 16-hour trips, the analyst said.
The carrier said today that delivery of four more 787s in 2014 will provide “more flexibility,” and that the meeting with Boeing should enhance the response to technical issues which in some cases have “taken too long to fix.” It added that the Dreamliner operation has generally delivered “satisfying on-time performance.”
Kjos had said in September he planned to confront Boeing about glitches that emerged on the 787’s return to service after a global grounding earlier in 2013, and the CEO was in the U.S. this week, Norwegian state broadcaster NRK reported yesterday.
In the most recent failures, a Norwegian Air flight out of Fort Lauderdale was delayed for 24 hours on Dec. 21 and a New York departure on Dec. 30 by two days. Passengers returning to Stockholm from Bangkok on Jan. 1 were delayed one day, while storms on the east coast caused further problems on Jan. 3.
“Passengers were put up in hotels and meals were provided for,” spokesman Lasse Sandaker-Nielsen said yesterday by e-mail, while referring questions regarding the nature of the faults to Chicago-based Boeing. “We’ve done everything in our power to get all our passengers to their destinations as soon as possible,” the airline added today.
The glitches were given prominence by Scandinavian media during the holidays, with Norwegian newspapers including Dagens Naeringsliv and Finansavisen providing regular updates. Kjos was today lambasted in Aftenposten for being in the U.S. as complaints piled up in Norway, saying his absences suggest the airline is not taking the situation seriously.
Norwegian Air was one of a number of pioneering 787 operators which found its plans upset by the global grounding of the model last January following battery fires, being forced to delay the start of long-haul Dreamliner operations and lease less fuel-efficient Airbus A340 planes.
Later failures with its 787 fleet have ranged from brake faults to issues with the cockpit oxygen supply, and costs associated with hiring replacement aircraft totaled 101 million kroner ($16 million) in the third quarter alone.
Norwegian Air will report full-year results on Feb. 13.
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