By Jeff Kriendler / This story first appeared in Airways magazine in September 2013.
Bjørn Kjos and crew celebrate the arrival of the first Norwegian service to New York on May 30. Image: Courtesy of Norwegian
After eight years’ service in the Royal Norwegian Air Force (Luftforsvaret) guarding the country against Soviet intrusions, in 1975 Bjørn Kjos made a life-changing decision: rather than follow members of his squadron to careers with Scandinavian Airlines System, he chose to complete his law studies, later arguing cases before Norway’s supreme court.
A love of flying and his legal skills converged to draw him back to aviation when he provided counsel to friends at Busy Bee. Founded in 1966 as a subsidiary of Braathens SAFE, Busy Bee lost a government contract which forced it into bankruptcy in December 1992. Kjos built the skeletal remains of that company—and saved the jobs of many of his friends—into Norwegian Air Shuttle (Airways, September 2003).
A Norwegian Air Shuttle Fokker F50 flying a PSO (Public Service Obligation) route between Tromsø and
Lakselv in April 2003. Image: Courtesy of Norwegian
From his office in Oslo, built for Braathens and then SAS Norway’s headquarters, Kjos tells Airways, “At my age (67), I should be cleaning out my garage.” Instead, he is overseeing a low-cost carrier that has revolutionized value travel in northern Europe and has begun a global expansion with flights from Oslo and Stockholm to New York and Bangkok, and service to Fort Lauderdale from Copenhagen [København], Oslo, and Stockholm to begin by the end of the year.
Kjos’s mantra at Norwegian —‘Everyone should be able to afford to fly’—is fostered by offering a combination of low fares and high-quality air experiences based on punctuality and friendly service. The airline attracts both business travellers seeking more attractive prices along with reliability, and leisure flyers who crave value.
Scandinavia is among the world’s most expensive regions, with Oslo rated the most costliest city in the world by ECA International (followed by Tokyo and Stavanger). Indeed, both SAS and Norwegian have the dubious distinction of reporting the highest cost per employee in Europe, ahead of Iberia and Air France-KLM Royal Dutch Airlines. SAS’s labor costs are 32% of total revenue, compared with Norwegian’s 16%, reflecting the LCC’s greater productivity.
For decades before Norwegian’s rise, SAS commanded the air transport market both within Scandinavia and from the lands of the Vikings to many commercial and leisure points throughout Europe and the Mediterranean. Sun-starved and flush with disposable income, Scandinavians are avid travellers, especially during the short, dark, cold days of winter when air travel is the only way to reach solar warmth for limited holiday breaks.
Now, Norwegian has broken SAS’s stronghold and expanded to 382 routes connecting 121 destinations with more to come, and is currently the third largest LCC in Europe with annual revenue exceeding $2.2 billion.
For Kjos, flying has been a family affair. As a child his father owned a Piper Cub and taught Bjørn piloting skills. After training in Mississippi and Arizona, he became a fighter pilot, flying Lockheed F-104 Starfighters for the RNoAF. Kjos’s wife was a former flight attendant at SAS, and one of their daughters is a co-pilot at Norwegian (one of 37 female pilots there), while his son heads the airline’s frequent flyer program. His other daughter works at UNICEF, a charity which Norwegian sponsors.
True to his Norwegian blood, Kjos is an avid sportsman, enjoying sailing, skiing, and mountain hiking. The airline is his passion, however, and even on a rare break he constantly monitors operations with proprietary software that allows him to track performance. He has found time to write a spy thriller and is now working on the history of Norwegian Air Shuttle. The airline business has not only been “fun” for Kjos, but also extremely lucrative with his 23% shareholding in Norwegian being worth NOK1.7 billion ($293.5 million) at today’s valuation. In the past year alone, the company’s stock has tripled in value.
Norwegian has ordered 100 Boeing 737-800s (pictured), plus a similar
number of 737 MAX 8s and Airbus A320neos. Image: Courtesy of Stefan Sjogren
Norwegian Air Shuttle had a very modest start, using a nucleus of former Busy Bee staff to continue operations on behalf of Braathens. When that independent airline was acquired by SAS in November 2001 and all sub-contracts were terminated (Airways, March 2002), rather than fold his company Kjos acquired a former Braathens Boeing 737-500, then secondhand 737-300s, and began to compete against the Scandinavian giant on Norwegian domestic routes. He took the company public, listing on the Oslo Stock Exchange in December 2003. Four years later, Norwegian bought 100% of Swedish LCC FlyNordic. As part of the transaction, former owner Finnair acquired 4.69% of Norwegian, that stake being resold to private investors in April 2013.
Always a leader in technology, Norwegian introduced ticketless travel and distribution, greatly reducing administrative costs, and then launched in-flight high-speed broadband service aboard its fleet of 737-800s, a type that was introduced in 2009. Kjos espouses paperless and other forms of ecological practices, with 82% of sales coming from direct Internet transactions. From its principal base at Oslo-Gardemoen (Airways, February 1999), Norwegian has expanded to establish domiciles in Bergen, Trondheim, and Stavanger in Norway, with Stockholm, Copenhagen, and Helsinki covering the other Nordic capitals. To maximize crew efficiencies, bases have also been set up at London Gatwick, and Málaga, Alicante, and Las Palmas in Spain.
Cabin of a Norwegian 737-800 fitted with a Sky
Interior. Image: Courtesy of Norwegian/Kristin Lillerud
Europe’s largest mega-order Norwegian burst onto the global aviation landscape when it ordered 222 aircraft in January 2012 and announced its intention to fly to New York, Fort Lauderdale, and Bangkok. Currently the fleet consists of 74 jetliners, of which 65 are 737-800s, with an average fleet age of 4.6 years. As additional 737-800s join the fleet this year, the 737-300s will be phased out.
The 2012 order consisted of 100 737 MAX 8s, 22 737-800s (for a total of 100), and, for the first time, a commitment with Airbus for 100 A320neos. It was Europe’s largest order ever. In addition to the single-aisle fleet, Norwegian is adding eight 787-8s for intercontinental services.
Norwegian purchased the slots for three Dreamliners from Icelandair in 2011. Another five will be leased from International Lease Finance Corporation for 12 years. Delayed by the grounding of the Dreamliner following battery fires, the first two 787s will come online by the end of the European summer, with a third in November and three deliveries set for 2014 and one in 2015.
The 32 seats in the premium economy cabin of the Dreamliner have a pitch of 46in (1.16m); economy ones are spaced at 31in (78cm). Image: Courtesy of Norwegian
Norwegian and Virgin Atlantic Airways have partnered for 787 pilot training. Says Kjos, “We can draw on their experience in longhaul operations while Virgin gets access to our 787 aircraft.” Virgin’s first 787-9 is due in September 2014. Kjos also hints that Norwegianmay work with JetBlue Airways for connecting flights.
To protect passengers who gobbled up the bargain fares when long-haul schedules were announced, Norwegian wet-leased two A340-300s from HiFly of Portugal. Says lawyer Kjos about the Dreamliner delays, “I have no intention to sue Boeing—I believe in resolving disputes amicably.”
A Nordic LCC model
Norwegian is not a typical LCC. Kjos is keen to appeal to the business traveller by offering a pricing advantage over legacy carriers, while sustaining a hassle-free environment and flying to main airports rather than faraway secondary terminals, as is the standard European LCC model. WiFi, frequent schedule options, and the lack of annoying lines add to the appeal for frequent travellers. For budget-minded passengers, Norwegian aims to make the travel experience “dignified,” in contrast to some other LCCs that treat customers like commodities, the Nordic boss emphasizes.
“At Norwegian, we give the passengers the freedom to choose what they want,” Kjos points out. “We do offer additional legroom and travel flexibility for a premium, but do not charge for carry-on baggage, and of course Wi-Fi is complimentary—a big selling point to both business and leisure markets.”
Wi-Fi is very popular with customers; besides free Internet access to browse the Web, they can rent movies and TV shows directly to their e-reader, smartphone, or laptop for a modest €7 ($9.25). Norwegian was the first airline in Europe to offer this feature, which boasts 40 films and 130 TV programs. The service is streamed on a separate network so it does not affect the Internet speed for other passengers.
Marcus Forss, a Swedish-American musician, says, “For me, Norwegian offers a balance of relatively cheap airfares and high standards. One could say the airline fits somewhere in between SAS and Ryanair, in that ticket prices are more affordable than SAS, and the flight experience is of a higher standard and less gimmicky than Ryanair.”
With the lowest fares, checked bags are charged at a rate depending on sector length; blankets as well as food and drinks are paid per consumption. The airline is particularly proud of its on-time performance—85% departure punctuality.
Anders Magnusson, a Stockholm businessman and frequent Norwegian customer, offers another ringing endorsement: “Last year, I flew by both Norwegian, several of the European flagship airlines, as well some of the other low-cost airlines in Europe. I have ended up selecting Norwegian whenever I can. I like Norwegian’s balance between price and service level in its broad sense. Norwegian’s aircraft are modern and well kept, they offer free Internet onboard, the cabin attendants are nice, and the food and the drinks are quite okay. We Swedes often make jokes about Norwegians, we hate to lose to them in sports but we still like them as people—perhaps we are just a bit jealous of their oil,” Magnusson admits.
Norwegian’s percentage of ancillary revenue to total income is 12%, a low share for comparable European LCCs, and this is an area for growth without the need to offer tray table backs for advertising.
The airline has recently set up a cargo company. Says Bjørn Erik Barman-Jenssen, previously with Braathens and now Norwegian’s director ground operation and in-flight services: “With our continued growth and launch of flights to the USA and Thailand, this is the right time to establish a separate unit to maintain and develop the carriage of goods and mail to ensure optimal utilization of available cargo capacity.”
Previously, Norwegian had carried cargo only within Scandinavia. Carnegie analyst Preben Rasch-Olsen of Oslo notes that traffic trends favor LCCs in Europe that have recorded growth of 12% annually since 2006, while the legacy airlines have achieved only 2% per year. The success of LCCs has prompted full-service carriers to get tough with their unions, cut payroll, and sell money-losing subsidiaries, causing labor unrest leading to work stoppages, especially at Iberia and Lufthansa, says Rasch-Olsen.
The key to Norwegian’s success has been its ability to keep costs low despite operating in Europe’s most expensive home market. Kjos credits this efficiency to the acquisition of modern aircraft, automation, and outsourcing. For example, the company performs IT (information technology) and backroom administrative functions in Kiev, Ukraine, and Riga, Latvia, because of eastern Europe’s good work skills—and low pay.
All ground handling is contracted out as well, and while some engineering functions are conducted at Stavanger, heavy maintenance and engine overhauls are tendered.
“The fuel-efficient ’plane is the tool to control costs and expand profitably,” Kjos explains, with his sights set on further growth to Asia, where Finnair has proved that a strong market exists. The Finnish flag carrier now flies from Helsinki to 13 cities in Asia, including four in China, and many of those passengers originate in Norwegian’s breadbasket.
Kjos believes that the Chinese pose the biggest future competitive threat, and is planning to introduce other services to the Far East as his long-haul fleet grows. He says that the future market between Asia and Europe will originate increasingly in the East. “The new competitors will be Asian-based carriers, not the Europeans as it is today.”
For its first ten years of operations, Norwegian directly employed all pilots and cabin attendants. To align its costs more closely with those of Asian airlines, Kjos has instituted a policy of hiring crews on short-term contracts, a practice common with LCCs in Europe and considered ‘social dumping’ by organized labor, and—at least in principle—by the majority of Scandinavians.
This allows Norwegian the flexibility of entering new markets without concern for a long-term commitment and lowers operating costs. As expected, this change has not landed smoothly with the Norwegian government and labor unions, especially Parat, a union representing 32,000 workers in private and public sector jobs in Norway, including 2,000 at Norwegian.
Vegard Einan, the union’s vice president, states “For the permanent workforce and the reputation of aviation it is important for Parat that the majority of the personnel is permanently employed to be the supporters of a strong and sound safety culture, and that the contracted crew sees the importance in adapting to this culture, and have an opportunity to be permanently employed when the production and need for crew is permanent.
“We have no wish in obstructing the possibility to hire foreign crews. In fact we have already collective agreements securing that this is possible. However, we want to prevent workers from a low-cost country competing with personnel in a country with higher costs. If you are paid in Spain, you should work and live in Spain, and not do all your work in Norway or other countries with a higher level of living costs.
“Parat and I think Bjørn Kjos is one of the most positive things that have happened to Norwegian and European aviation this last decade. He probably is one of the most successful and most intelligent CEOs aviation brand. EasyJet, and Southwest in the USA, have proven that unions, and collective agreements, are possible and profitable in the LCC market.”
Philip von Schoppenthau, secretary general of the European Cockpit Association, tells Airways, “Social dumping in the aviation sector is a growing phenomenon. It is already a reality for many cabin crews working across Europe and is on the increase for pilots as well. It can take the traditional form of hiring crews from another country where social and labor costs are lower. Or it takes more innovative forms, such as where an airline forces crews to set up bogus companies in a low-tax/low-social security country that then sell their services to a temporary work agency that in turn sells the pilots’ services to the airline.
“All risk and all social and tax contributions that the airline would normally have to bear are thereby shifted to the ‘independent’ service providing pilots, who are on contracts that can be ended at the company’s will and at very short notice. Such inventive set-ups—which we have seen develop in Ireland and which are now swapping over to other countries—offer an unfair competitive advantage to such an airline, while its competitors comply with the rules and employ pilots regularly and as normal employees. This is social dumping—just in a different wrapping.
“The issue is Norwegian Air Shuttle’s controversial plan to hire cabin crews—and possibly pilots in future—from Asia through an office in Bangkok. These cheaplabor crews would replace Norwegian crews not only on flights to Asia, but also on flights within Europe. This destroys well-qualified jobs in Norway and Europe which is hardly desirable,” he adds.
Norwegian is operating intercontinental services under an ACMI (aircraft, crew, maintenance, insurance) wet-lease arrangement with Norwegian Long Haul, an entity formed last September. With a separate operating certificate, Norwegian Long Haul 787s could be registered overseas—such as in Ireland—thus circumventing restrictions against hiring contract employees.
SAS fights back
Because the modern-day Norwegian Viking chose the legal profession over a flying career, Kjos has now evolved into one of SAS’s fiercest competitors. Analysts point out that SAS battles with Norwegian in most of its Nordic markets, and is now also fighting on long-haul routes.
Thor Heyerdahl, the Boeing 737-500 (ex-Braathens LN-BRU) that operated the first Norwegian LCC service from Oslo to Trondheim on September 1, 2002, is ‘cleaned’ upon departure. The same day, Norwegian inaugurated schedules from Oslo to Bergen and Tromsø, followed a week later by Stavanger. Image: Courtesy of Kjell Oskar Granlund
Commenting on the new Norwegian services, Eivind Roald, SAS’s executive VP sales & marketing, notes, “We operate from different business models. SAS relies on a strong network at both ends while Norwegian only has its own network in Scandinavia. We will be able to effectively compete on long-haul routes, reaching many different destinations, and with a commitment to offer the best network, best product, and most attractive prices. In addition, we have a joint venture agreement with Singapore Airlines and code-share with Thai Airways which makes us able to offer a wide range of destinations and flights to our customers.”
Roald also criticized Norwegian’s policy of outsourcing, saying, “SAS is based on a Scandinavian model where employees work and live in Scandinavia, having benefits and agreements based on this. We think this an important part of our company, and we continue with this model. To SAS, it is important that the competition is based on a framework consisting of equal and predictable conditions. Challenging these premises could create a competition where some companies have unfair advantages—and this is, of course, not right. The playing field is not level unless national and international authorities decide upon equal and predictable conditions. We expect everyone to follow existing laws and regulations, and that we will have a fair competition.”
Reacting to Norwegian’s growth, Roald says, “We have interviewed customers who have told us that they want to have flexible and easier products that save time and have attractive prices. This is why we have created two new service classes: one [SAS Go] for passengers who want to have a lot, and one for passengers who want to have even more products.”
Ironically, Norwegian’s success is credited in part for forcing SAS’s unions to accept a rescue plan that saved the conglomerate from oblivion late in 2012. Kjos says that SAS’s survival is good news for Norwegian as he believes the collapse of SAS would have prompted Ryanair to aggressively increase its presence in Scandinavia, much as it did when Malév Hungarian Airlines failed in 2012.
Freddie Laker…or Thor?
“Norwegian is, in my opinion, the best low-cost/budget airline flying today,” says Bergen native Bjørn Knudsen, who lives in Geneva, Switzerland. “Their aircraft are clean and bright, and based on my experiences, always on time. Furthermore, it was the first budget airline to let you book a specific seat, which has forced others to do same. They were also the first to offer Internet inflight and at airports. If Bjørn Kjos was an Englishman, he would today be a lord for his excellent contribution to modern air travel,” Knudsen asserts.
His is not a lonely opinion, but one shared by the thousands of passengers that voted Norwegian as Europe’s best LCC of 2013 in the SkyTrax World Airline Awards. Like his Viking forebears, Kjos is bent on conquering the world, this time by “democratizing international air travel.” Norwegian’s recent traffic gains (+27% in April) and first quarter financial results (revenue +23%) support fans who say Norwegian is for real and the world is their smörgåsbord, or koldtbord.
With a route network that now spans Europe, North Africa, Asia, and North America, the Norsemen sport the broadest geographical expanse of any LCC. But the question of whether he will be hailed as a Freddie Laker clone or a marauding Thor, plundering and pillaging labor on four continents, has yet to be answered.
Norwegian honors the country’s notables by adorning its tails with their likenesses, such as Olympic ice skater and film star Sonje Henie and composer Edvard Grieg. As the fleet expands, famous Norwegians now share the sky podium with fellow Nordic achievers from fields such as literature (Hans Christian Andersen of Denmark), science (Sweden’s Anders Celsius), and activists (Finland’s Minna Canth). Look for Bjørn Kjos to join the pantheon of Norse honorees by taking to the skies on the tail of a 787 as yet another Norwegian explorer out to shrink the globe. ✈
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