Norwegian 56% lower fare to US than airlines from Heathrow
Long-haul for Norwegian is big and controversial business, although at Group level it only represented 15% of its total seats in 2019. Despite its ongoing, Group-wide rationalisation to improve overall performance, which saw the end of its Argentinan unit and a host of routes cut, it flew nearly six million seats between Europe and the USA last year. This involved 55 airport-pairs, 15 US airports, and nine in Europe, which routes that have since ended and those that are to end. The coming partnership with JetBlue will further help to transform its transatlantic performance.
Minimal YOY capacity growth
Norwegian’s Europe – US seats increased by just 181,000 in 2019 over 2018 against 2.6 million between 2017 and 2018. This shows one impact of its self-described “new strategy”: its approach to “continuing the process of moving from growth to profitability”. In other words, the rocket science idea of focusing on where it is making money and increasing capacity sensibly, increasing loads per flight, increasing ancillary revenues per flight from greater volume, and increasing total revenue per ASM. In November 2019, it reported that its US revenue grew by 21% in Q3 2019.
With 2.2 million of its almost six million US seats, London Gatwick is key to its long-haul operation.
Norwegian’s Gatwick – US fare 56% lower than competitors at Heathrow
In keeping with its long-haul, low-cost strategy, Norwegian has a 56% lower average one-way base fare from Gatwick to the US (USD$405) in comparison to airlines serving the same airports from Heathrow ($921). Of course, given different strategies and costs, this is not an apples-to-apples comparison, but it is insightful. This is based on local passengers only and, for Heathrow, it reflects the average fare across all cabins. These figures exclude ancillaries which, for Norwegian, is crucial. Of course, the fare premium from Heathrow is from full-service airlines, the proportion of premium passengers, and market domination. At $633, Boston had the greatest ‘fare gap’. While the shortest route by distance, it has the third-highest fare from Heathrow. At $238, Miami had by far the smallest fare gap. Norwegian moved from nearby Fort Lauderdale in March 2019, a move which, as we will see, saw a significantly higher average fare achieved.
Las Vegas cut; no surprise given fare per mile
Because of Las Vegas’ passenger mix and strong competition from London, the airport achieved the lowest average from both Gatwick and Heathrow. Its long-distance and summertime payload restrictions due to the high density of its B787s (obviously crucial to reduce seat costs) and hot weather, coupled with low performance, made its end inevitable. This came in March 2019. Denver and Chicago ORD, both underperforming, were not spared. Both have been made summer-seasonal. Unlike Denver, Chicago, which began less than two years ago, will not see S20 capacity increases, suggesting the need for further work. Not surprisingly, Tampa and Austin, along with Denver and San Francisco, will see frequency increases in S20.
Move to Miami and San Francisco paid off by fares
Norwegian’s move from Fort Lauderdale to Miami and Oakland to San Francisco was, of course, for higher fares. This was, in part, from competition from London but also because the new airports are better known internationally. It decided that stronger performance would likely result even with higher charges. Purely in terms of base fares and based on most of the IATA summer period only, San Francisco attained an estimated $140 price advantage each way against Oakland, and Miami $121 against Fort Lauderdale. Despite the increases, there is still a significant price gap (albeit before crucial ancillaries are added) versus airlines from Heathrow, at least to San Francisco.