The Norwegian Air International Debate

This week, the US Secretary of Transportation rejected a request from Norwegian Air International (NAI) to be granted expedited approval to begin scheduled flights to the United States on an expedited basis.

The dismissal order can be seen here. NAI is a subsidiary of Norwegian Air Shuttle, the European discount carrier, which is among the first low cost carriers to undertake transatlantic operations. According to Politico, “several aviation insiders with knowledge of the situation have said that DOT won’t rule on Norwegian’s desired foreign air carrier permit until after the elections.”

This decision is clearly political, with more than 100 members of the House of Representatives and 40 members of the US Senate sending letters against the application to DOT, and the House even passing an amendment to an appropriate bill to block the airline from serving the US. As those of us in the US already know, politicians in Washington, with an approval rating in the teens, appear quite easily bought and sold, especially during an election year.

Norwegian stated that it was disappointed in the ruling, but still expected to ultimately win approval, indicating that the DOT has already had six months to examine the application. NAI believes that opposition stems from protectionism for the major airlines, and indicated that tickets on its existing operations are often more than $100 cheaper than its closest competitors

Norwegian Air already operates flights to the US using new Boeing 787s and offering low fares from New York, Orlando, Ft. Lauderdale, Los Angeles and San Francisco to Europe. Their service launched last May between the US and Scandinavia with fares as low as $99 each way. That’s a really cheap transatlantic fare. But the 787 is an efficient, state of the art airplane.

The crux of the matter is location, and the ability to utilize “open skies” traffic rights to fly to destinations without the need for a bi-lateral route award. Norway is not a member of the EU, so Norwegian Air opened a new subsidiary in Ireland, Norwegian Air International, to fly transatlantic while enjoying the benefits of Irish incorporation, which gains them EU traffic rights. In addition, Ireland has fully adopted the Cape Town Convention, which provides better aircraft financing conditions, and is the reason Ireland is the home to many large aircraft leasing firms. Norwegian indicates that it examined the UK and other EU countries before deciding upon Ireland. Ireland is also the home to low cost carrier Ryanair for similar reasons, as it is the best place to finance aircraft. Their subsidiary is legally registered as an Irish-based airline, but with majority Norwegian ownership. That technicality is at the root of this dispute.

The authority for NAI to operate into the US has been opposed by both the incumbent US carriers and their labor unions, which argue that Norwegian can hire Asian crew members at lower cost than in Ireland. Norwegian counters that they offer competitive wages and follow all applicable local labor laws for every country in which they operate, and could hire Asian and American crew members from any country. They already employ more than 300 American cabin crew members, and received over 6,000 applications for 300 advertised positions. Norwegian claims that their wages and benefits are superior to those offered by US airlines, which post-bankruptcies and forced wage reductions for US carrier employees, is likely true.

The application was to expedite the approval process for NAI, a carrier based in Ireland with Norwegian ownership, to begin service. The carrier requested the ability to conduct scheduled and charter transportation of persons, property and mail under the US-EU-Norway-Iceland Air Transport Agreement of 2011, as amended, as is normally granted to other EU carriers. Our view is that like any other carrier operating from those countries, permission should be granted, as it normally is, for expedited introduction into service. The Open Skies arrangement applies to Norway and Iceland as well as the EU, but flights from the EUROPE to most destinations in South America, Africa and Asia can currently only be operated by an EU-based carrier. The subsidiary in Ireland provides that basis.

This is similar to the opposition that Virgin America faced before it could start service in the United States, with claims that it was under the control of Sir Richard Branson, despite Virgin Group only holding a minority share. While that was settled, after complaints from US airlines not wanting additional competition, it took more time than it should have. We have a similar situation here.

A number of parties objected to NAI’s application, including Delta, United, American, USAirways, Lufthansa, SAS, Air France, KLM, and Austrian Airlines. All of these airlines have existing transatlantic operations and the international carriers have code-sharing agreements with the big three US carriers as well. Labor unions also opposed the application, including ALPA, APA, SWAPA, TTD of AFL-CIO, AFA, IAM and TWU domestically, and the European Cockpit Association (ECA), European Transport Federation (ETF) and Norway’s Parat trade union.

Supporting the application were FedEx, Atlas Air, the Travel Technology Association, the European Low Fare Airlines Association, the Washington Airports Task Force, the American Society of Travel Agents, the Broward County Aviation Department and Ft. Lauderdale Airport, and the Greater Orlando Airport Authority.

It is somewhat surprising to us that labor unions opposed this effort, since a majority of Norwegian’s staff in Scandinavia, including pilots, cabin crew, technicians, and administrative staff, are union members. We would expect, as with most airlines, that union organizers would penetrate any new crew bases or opportunities in Ireland rather quickly, and likely be successful given union presence in other parts of the organization.

So why is everyone afraid of additional transatlantic competition from a low fare carrier? Norwegian asks “Why should a flight between New York and Europe cost three times as much as a flight between New York and Los Angeles? The flight to Europe is only about an hour longer, sometimes even less.”

Ryanair and Southwest encountered resistance from the established carriers when they began low fare service. By introducing low fares transatlantic, Norwegian is pushing the frontier to long-haul international low fare service, thereby threatening the ability for incumbent carriers to continue to generate their current yields.

Norwegian has chosen the Boeing 787 for these routes, which creates jobs in the United States in addition to planned hiring of additional crews at their US bases. From a consumer standpoint, we applaud their efforts.

Innovation must often overcome inertia and entrenched interests to move forward. We believe Norwegian has an innovative idea, has legally established an Irish-based subsidiary, and should be allowed to fly under the open-skies bilateral between the US and Europe.

Politicians have larger issues to focus on than whether a small European low cost carrier should be allowed to fly to the United States because it found a loophole that regulators hadn’t considered in the agreement between the US and EU. A few daily flights by a European LCC, on new US built aircraft, won’t change the face of the industry overnight; and isn’t competition and capitalism the hallmark of the United States? Between an economy that is growing too slowly and ill-considered foreign policies, there are bigger fish to fry. In our opinion, the do-nothing Congress, which controls the purse strings, has once again intimidated the DOT and its Secretary, Anthony R. Foxx, from doing his job. This is sad for American consumers, and stifles innovation that could create increased demand, increased tourism, increased trade, and the benefits they bring.

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