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Boeing 737 crisis deals blow to Norwegian's low-cost transatlantic routes
NORWEGIAN Air Shuttle's reliance on the fuel-saving Boeing 737 Max to underpin its ultra low-cost transatlantic strategy has exposed the loss-making carrier as the most vulnerable in Europe to the worldwide grounding of the plane.
The discount airline was among the earliest adopters of the new narrow-body, using its extra range to launch services on Europe-US routes traditionally dominated by twin-aisle planes. But after the fatal crash in Ethiopia on March 10 put the Max out of action, Norwegian has had to scrap some flights and switch others to bigger aircraft, increasing costs and reducing competitiveness in an already cut-throat market.
The 737 crisis has hit Norwegian at a time when it can least afford disruption. The carrier is already grappling with a cash squeeze from splurging on planes and was forced to raise fresh funds in a rights issue this month. The move came after British Airways parent IAG SA dropped a takeover approach, helping to send send shares down 43 per cent so far this year.
The 737 grounding is costing Norwegian as much as 15 million kroner (S$2.37 million) a day, according to Ole Martin Westgaard at Oslo-based DNB bank. The carrier has said "it is obvious" that expenses should be reimbursed by Boeing, but the situation is unclear and the reduced market value of the Max could "significantly hurt" the company's sum-of-parts valuation, the analyst said.
The discount carrier has 18 Max jets, making it the biggest operator of the model in Europe ahead of German holiday company TUI AG, which has 15. Norwegian usually deploys them on services from Scotland and Ireland to the US, and between Norway and the UK.
While it is now using older 737s on the latter routes, flights from Edinburgh to Stewart in upstate New York were terminated. Services from Dublin to Stewart and Providence, Rhode Island, were combined into a single flight to the New York town using a Boeing 787 sourced from Norwegian's London Gatwick wide-body hub. People going to Providence have to complete their journey by bus.
"Passengers will be taken care of," Bjorn Kjos, the carrier's co-founder and chief executive officer, said in a video message on its website. "We are combining flights, reallocating aircraft and booking customers to other departures. Only a small part of our operation is affected."
TUI is relying on other planes to cope with the Max grounding, which affects 10 per cent of its 150-strong fleet, while leasing in one or two extra jets a day and more on weekends. It has also rerouted some flights, changed departure times and will postpone non-critical work, such as repainting, to maximise resources, a spokesman said.
In the Middle East, FlyDubai, which has 13 Max planes representing 12 per cent of total capacity, is cancelling up to 15 flights a day. Customers are being given the option of rebooking with the airline, transferring to sister carrier Emirates, or receiving a refund.
Norwegian's use of the 737 Max and 787 allowed it to steal a march on bigger rivals by utilising the improved efficiency of the new aircraft to offer transatlantic fares they couldn't match. But problems with the planes have made the bet look like a bad one. The 787 fleet has already been affected by engine problems at Rolls-Royce Holdings Plc.
Like other northern hemisphere airlines, the grounding has come during the low season for Norwegian, when part of the fleet typically stands idle, and could prove more disruptive once demand begins to climb towards summer. The carrier has already been slowing its capacity growth with the closing of four European bases and a slowdown in its long-haul expansion. The Edinburgh-Stewart route was earmarked to shut later in the year. BLOOMBERG