Norse Atlantic will be the newest long-haul low-cost airline to join the competition in hope of capitalising in this market segment.
Image: Norse Atlantic Airways
Given that the aircraft, routes and leadership at the helm of the new airline are the same that led Norwegian's expansion in the past five years up to 2019, it can be thought as the continuation of Norwegian's Long-Haul division. The emergence of Norse comes amidst a modest boom of over 130 start-up airlines that plan to commence operations between 2021-2022. One such operator is Norway-based Flyr, who commenced operations in June 2021.
Norse Atlantic will purely focus on the long-haul market between Europe and North America, with a demand driven approach. Despite this representing a slight difference with the Norwegian operation, the similarities are uncanny.
Following the low-cost model, Norse Atlantic will have a lean structure, services delegated to third parties, a high utilisation of fuel-efficient aircraft and low fares. By picking the most profitable routes for its transatlantic operations, Norse Atlantic targets a cost per available seat kilometre of USD 2.7 cents using the Boeing 787 Dreamliner. The service offered will be point-to-point with no interconnections between journeys.
Using fleet data from InsightIQ, we can identify that Norse Atlantic will lease nine Boeing 787 aircraft from AerCap Holdings, comprising of 6 x 787-9 variant and 3 x 787-8. An additional 6 x Boeing 787-9 are to be leased from BOC Aviation, totalling 15 aircraft. The totality of the fleet is expected to be delivered by the end of March 2022.
The typically profitable routes identified by Norse Atlantic to be operated at launch include the following...
Like its former counterpart, the new operator has a large focus on the North American leisure market, though at significantly reduced levels. Expansion plans will be heavily dependent on the identification of sustainable profitable routes. The reliance on self-connection services means that the operator will have to provide relevant traffic for feeder airlines to create a lucrative proposal for the potential partnerships it hopes to target.
Whilst Norwegian Air Shuttle had been successful in growing capacity and finding niche markets from which it could grow, the suitability of the long-haul low-cost model remains a point of concern. In a recent LinkedIn poll, 67% of IBA's followers believed that LCLH was not a viable long-term business model. Before the pandemic, the operator already recorded losses which it could not recover from unless a restructuring of the business was carried out. At present, the demand for international flight is impeded by the pandemic. Furthermore, domestic travel has thus far led the market recovery due to different global travel restrictions, especially in the US. Despite this, there is some evidence to suggest that global crises can drive successful airline start-ups. Whilst restrictions are gradually being eased, the aviation sector is still at the early stages of the recovery, with international traffic levels still below the 60% level when compared to the traffic level in 2019.
There is little doubt that the low-cost model provides operational efficiency - highlighted by the use of a lighter structure, simplification of product offering, maximisation of flying time using a single aircraft type at high density, and selective profitable routes. These factors enable the operator to keep fares low. The keystone of this model is the unit cost gain achieved against a comparable full-service carrier.
Whilst full service carriers are known to make a profit from business class seats, hybrid models have now emerged since the low-cost model has cemented its presence in the market. Full service carriers are striving towards the cost reduction and operational efficiency pioneered by LCCs. Conversely, LCCs are adopting passenger segmentation and upgraded airports like full service carriers. As such, implementing a premium class could well be a profitable addition in Norse Atlantic operations on these transatlantic routes. Norwegian Air was among the pioneers of low-cost-long-haul, setting the trend less than a decade ago. Whilst the events of recent times do not bode obviously well for the model (leading to some premature scepticism) Norse Atlantic will benefit greatly from a management with comprehensive LCLH aviation experience.
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Norwegian airline Flyr officially started operations in June 2021, with a domestic network setup to operate from Oslo Gardermoen Airport (OSL). Flyr intends to operate using the low-cost carrier business model, with a demand driven business model.