Here come the Vikings
For Bjorn Kjos, Norwegian Air Shuttle’s boss, success may depend on ruthlessness
HE WAS a pilot in the Norwegian air force, then a lawyer. Like many Scandinavians, he has penned a thriller in his spare time. But Bjorn Kjos (pictured) is celebrated in his home country as the man who brought low-cost flying to one of Europe’s most expensive countries.
Last year the airline he co-founded and runs, Norwegian Air Shuttle (NAS), placed the biggest aircraft order Europe has yet seen. It will buy 222 Boeings and Airbuses for around $10 billion, aiming to compete with Ryanair and easyJet, Europe’s champions of cheap aviation.
This is on top of an earlier order for a fleet of Boeing 787 Dreamliners, which NAS will use (now that their battery problems have been fixed) to launch flights to Asia and America later this year. Offering such a long-haul, low-cost service will be fiendishly hard. Mr Kjos has the ambition and appetite for risk of a Viking hopping on a longboat and paddling off to pillage Northumberland.
To escape high Nordic labour costs and taxes, NAS is increasingly basing planes and hiring people elsewhere: in Spanish resorts and at London’s Gatwick airport. Its back office is in Latvia; its IT department is in Ukraine. It plans to run its Asian flights out of Bangkok, and hopes to fill the planes mostly with newly rich Asians enjoying their first foreign holidays. Already it is flying British tourists to Spain and Spaniards to Britain. NAS’s planes, which like Santa’s chief reindeer have shiny red noses, are set to become a familiar sight.
As Mr Kjos tells it, he became a buccaneering airline boss largely by accident. In 1993, when he was a partner in a law firm, some friends asked him to draft an investment plan to revive their collapsed aviation company, which was flying commuter routes under contract to another carrier, Braathens. Finding fresh investors proved hard, so after all the work he had put in, Mr Kjos and his brother decided to take a 55% stake (since reduced to 27%) in what became NAS. In 2001 Braathens was taken over by SAS, a struggling carrier part-owned by the governments of Sweden, Denmark and Norway, and took the commuter routes in-house. Thus Mr Kjos was forced to relaunch NAS as a low-cost airline, mainly serving Scandinavia.
As fuel prices soared in the mid-2000s, and competition from the likes of Ryanair and easyJet intensified, Mr Kjos realised that the only route to survival was to buy lots of new, fuel-efficient planes to achieve economies of scale, and to base some of them in cheaper countries. Boeing and Airbus are straining to keep up with booming demand for new aircraft, so by reserving a large chunk of their delivery slots NAS is denying potential rivals the chance to refresh their fleets with better planes.
Axeing costs, not skulls
Last month Ryanair announced a big order of its own, saying it would buy 175 Boeing 737s, probably costing around $8 billion. But whereas Norwegian is mainly ordering the re-engined “MAX” version of the 737, to be launched in 2017, Ryanair is choosing a less fuel-efficient version. Its boss, Michael O’Leary, seems to be betting on a lower fuel price than Mr Kjos. Indeed, says Mr Rasch-Olsen, a big fall in oil prices would be bad news for NAS. Other airlines with older fleets would no longer find them uneconomical to fly, so there would be lots more planes chasing the same passengers, and perhaps a price war.
Some have also assumed that Mr Kjos was betting on SAS going bust. But last year the rival airline’s threat to close itself down if staff did not accept big cuts paid off, and SAS is still flying. However, Mr Kjos argues, this is good news, not bad: it is better to have a still-limping competitor than to see it disappear and its routes and airport slots snapped up by a more efficient rival—such as Ryanair, which is sniffing around Scandinavia looking for domestic routes to fly. When Hungary’s national airline, Malev, collapsed in early 2012, it took Ryanair only hours to announce that it would take over many of its flights.
New lands to conquer
From the Vikings to Roald Amundsen, Norwegians have always been up for a foreign adventure. But nowadays their country runs along consensual Scandinavian lines, with high costs and taxes and strong unions and labour laws. So far, says Jacob Trumpy, author of “Hoyt Spill” (High Stakes), a history of NAS, Mr Kjos has been seen as a local hero, but of late he has been acting in a rather un-Norwegian manner, demanding labour-law reforms, hiring cheap foreigners and threatening to shift more aircraft out of the country.
Parat, the main union at NAS, complains that Mr Kjos has been drafting in Spanish flight attendants to operate Norwegian domestic flights. The airline says it has brought in a few, to help cope with the summer peak, and that they are enjoying Norwegian pay and perks. The book claims that in tense talks with the unions last year, Mr Kjos threw a chair at a wall; he denies this. He says he believes he has good relations with staff but, given the threat from Ryanair and easyJet, he is “prepared to be unpopular” to save jobs.
A report this month by CAPA, an aviation consultancy, shows how cost-effective NAS has become under Mr Kjos. Since most of its staff are still Scandinavians, their average cost is almost as high as SAS’s. But since it makes far better use of them than its rival, those costs as a share of revenue are closer to easyJet’s, though still well above Ryanair’s (see chart). In the past year NAS’s post-tax profits have almost quadrupled to NKr457m ($80m), though these were far behind the €540m ($700m) that Ryanair is likely to have made.
A long way still to go, then. But is Mr Kjos moving too fast, in danger of losing his cuddly, Richard Branson-like image and becoming a media hate-figure like Mr O’Leary? That is a risk, but Norwegian opinion may be moving in his direction. Polls suggest that in this autumn’s election the left-wing coalition government will be replaced by a more free-market one.
Since 2006, Mr Rasch-Olsen reckons, Europe’s low-cost carriers have increased passenger numbers by 12% a year, whereas its full-service airlines have grown by only 2% annually. Air France-KLM and IAG (the parent of British Airways and Iberia) are now getting tough with their unions and seeking to expand their own low-cost subsidiaries. IAG said on April 23rd that it would increase its stake in Vueling, a low-cost Spanish carrier, from 45.9% to 90.5%. It has also told Iberia pilots that it will cut their pay by 18% because they rejected a cut of 14%. But despite these efforts, traditional carriers are likely to see more of their passengers carried off by the Celtic, Anglo-Saxon and now Viking raiders.