Norwegian Air suspends US, Asia service: winners and losers

  • Norwegian Air said it would end low-cost flights between the US and Europe.
  • Even people who never flew Norwegian may have benefited from the airline’s influence on the market.
  • Norwegian’s exit from the transatlantic market is a clear win for some and a loss for others.
  • Visit Business Insider’s homepage for more stories.

Norwegian Air Shuttle, the budget airline that helped usher in a wave of low-cost airfare across the Atlantic Ocean, announced last week that it would permanently suspend all intercontinental flying, focusing instead on regional European travel.

The collapse of Norwegian’s long-haul operation was years in the making, but still surprising. Despite massive expenses and operational challenges associated with its brand-new Boeing fleet — including ongoing issues with Rolls Royce engines on its 787 wide-body aircraft and the 20-month grounding of its 737 Max fleet — Norwegian had managed to hang on to the transatlantic budget travel market, even as competitors like Iceland’s WOW Air and Britain’s Primera Air collapsed.

As part of this reorientation, the airline said it would and lay off more than 1,000 employees and return its fleet of 787s to lessors — the fleet has been grounded since March 2020, as international travel demand collapsed due to the pandemic.

The low-cost airline model, which has been wildly successful in domestic and regional markets, is a harder sell in long-haul markets because of the higher costs and thinner margins. Many traditional carriers offset their lowest-priced tickets with sales of last-minute tickets and premium cabin fares to price-indifferent business travelers.

But for a while Norwegian made it work.

“I think Norwegian Airlines deserves a huge amount of credit for ushering in what I call “the golden age of cheap flights,” said Scott Keyes, airfare expert and founder of newsletter service Scott’s Cheap Flights.

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Keyes thinks the competition Norwegian brought to the transatlantic market drove prices down on mainline legacy airlines, too.

“Before they started flying between the US and Europe in 2013, it was very rare to see flights [on those routes] drop to the fares we expect to see today,” he said. “All of the sudden the dynamics changed.”

Because mainline carriers earn the majority of their revenue on international routes from those last-minute and premium fares, they were able to drop prices on their lowest economy fares to compete with Norwegian and similar low-cost carriers.

One major question on everyone’s minds: When international leisure travel can fully resume after the pandemic, will Norwegian’s exit mean that prices to fly to Europe skyrocket?

Keyes doesn’t think so.

“I think the industry has shifted in a way that’s going to be hard to undo, or to quickly roll back,” he said.

Over the past decade, the portion of airlines’ revenue that comes from economy ticket sales has decreased, with a greater share of revenue coming from premium seats and nonticket things like cargo or frequent-flyer credit-card engagement. Ultimately, significantly raising prices on those bottom-tier basic economy tickets would barely be a blip — and the potential to keep more members engaged with frequent-flyer programs by offering those low fares is likely more lucrative.

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“I don’t want to be overly rosy because it’s not going to be a good thing for cheap flights,” he said. “There will probably be fewer cheap flights to Europe.”

Henry Harteveldt, a travel-industry analyst, put it more bluntly.

“Without a low-fare leader, like Norwegian, leisure travelers may end up paying more than they otherwise would if a low-fare airline were serving the market,” he said. “I certainly expect that we’ll see good attractive airfare offers this summer. It’s a standard strategy to stimulate demand and get people traveling. But without a strong, low-fare competitor like Norwegian, other airlines won’t need to discount as aggressively.”

Harteveldt said there are a few clear-cut winners and losers stemming from Norwegian’s decision to leave the transatlantic market.