Flying the unfriendly skies?

Photographer: Tomm W. Christiansen/Bloomberg

Let Norway's Uber of the Skies Fly Freely

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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An upstart transportation company with unorthodox hiring practices and suspiciously low prices has disrupted its home market and would like to do the same to foreign ones, but faces regulatory problems and fierce resistance from incumbents. While Uber fits that description, the company I'm talking about flies rather than drives and is European, not American.

Norwegian Air, the low-cost carrier based in Oslo, has been around 1993, but it's only been actively expanding since the early 2000s, raising cash in an initial public offering and buying a fleet of the latest Boeings and Airbuses. Three years ago, it started long-haul flights, mostly to the U.S., setting apart from most other European discount airlines including industry leaders RyanAir and easyJet which haven't braved that market.

QuickTake Jumbo Jets

Norwegian's fares to U.S. cities are refreshingly low thanks to the usual discount airline tricks: more seats are squeezed into a plane (as many as 344 for a Boeing 787 Dreamliner, compared with 240 in a traditional set-up), and charges for basic amenities such as blankets and headphones. The Dreamliners the company uses on long-haul routes boast good fuel efficiency, giving Norwegian lower costs per passenger mile. 

Norway, however, is not the best home for a budget airline. It has strict labor laws and high taxes. Besides, it's not a European Union member, and it doesn't have bilateral open-sky agreements with as many countries as the EU bloc does, which makes it impossible for Oslo-based Norwegian to use, say, London as a base for flights to Canada or Latin America. Since the company's business model depends on keeping its planes in the air for longer than most competitors, having such limited options is inconvenient.

So from the start of its long-haul expansion, Norwegian has wanted to use its Irish subsidiary, Norwegian Air International (NAI), for transatlantic flights. It asked the U.S. Department of Transportation for permission to do so in December, 2013, but still hasn't got it even after the process taking a record amount of time. More recently, the company applied for another permit -- for its U.K. subsidiary. That hasn't been forthcoming, either.

Norwegian' opponents in the U.S. include the three major airlines -- American, Delta and United -- as well as labor unions. The point they make is that Norwegian's U.K. and Irish operations use an ingenious arrangement to hire pilots and cabin crew. Some pilots are employed through a Singapore company, and some flight attendants through a Thai one. The salaries they make are in line with the traditional airlines, but it's easier to lay off staff, with benefits such as pension contributions much lower than in Europe. 

The controversy, similar to the one Uber faces over the employment terms of its drivers, is ostensibly what has delayed the application. Norwegian, however, has offered only to use crews under European and U.S. contracts for U.S. flights -- and that hasn't helped much. "Somebody has got it wrong in the U.S.," Bjorn Kjos, Norwegian's chief executive officer, said during the company's July earnings call. "They tried to prevent us from competing in the U.S. market."

The motivation of Norwegian's opponents is transparent. The company's ticket prices are nothing special in Europe, where low-cost airlines are commonplace, but they scare U.S. competitors, especially when Norwegian talks about $69 transatlantic flights. On its existing routes, Norwegian has grabbed market share from incumbents:

CAPA -- Center for Aviation, OAG Traffic Analyser

The airline hasn't been able to do that on London-based flights yet, and U.S. permits would allow it to be more competitive.

In a recent report, CAPA -- Center for Aviation, an airline research company -- argued that major U.S. carriers wouldn't suffer from increasing Norwegian's market access. Their route networks wouldn't overlap much, and Norwegian would largely attract new customers not available to the legacy carriers because of their pricing. But, CAPA added, "those opposing NAI's application cannot really be blamed for trying. They are serving their own interests by attempting to restrict competition."

Norwegian's efforts to expand in the U.S. have the support of the EU. Violeta Bulc, the bloc's transportation commissioner, wrote an angry letter to U.S. Transportation Secretary Anthony Foxx in July, saying the airline's problems could damage bilateral trade relationships. Bulc said the EU would seek arbitration in the case. In response, she received a missive from Bill Shuster, head of the congressional transportation committee , repeating the labor arguments and accusing Norwegian of trying to "plant the weed of this unsustainable business model in the fertile soil of our international aviation system."

If this seems reminiscent of Uber's treatment by many European regulators, ostensibly for the same reasons, that's because the both situations involve government attempts to dress up protectionist policies as socially-oriented shields. One notable difference between Uber and Norwegian is that the latter is consistently profitable: Regardless of what Shuster says, the discount airline model has proved sustainable, and Norwegian is one of the few companies that have honed it to near-perfection.

The U.S. has the Uber model for urban transportation, but many European countries don't want to import it: They'd rather back local players using much the same technology, but in a less disruptive fashion. Europe has the budget airline industry with truly low prices and well-developed methods of keeping costs down, but the U.S. is not particularly interested in importing that model. 

Americans probably wouldn't mind flying at European prices, just as Europeans don't mind Uber undercutting their taxi services. Low prices, of course, do come with uneasy compromises on fair dealing -- compromises that most consumers accept as economically rational. It's the governments' business to protect workers and consumers, and Uber and Norwegian both comply when regulators force them to temper their cost-cutting in favor of following socially-oriented rules. Provided they do so, they should be allowed to compete without further hypocrisy -- or the protectionist motives should be made explicit, with inevitable consequences for both trade relationships and governments' moral authority. 

  1. First published by Politico.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Mark Gilbert at magilbert@bloomberg.net