A successful business will be good for customers, employees and investors. A successful business is likely to be profitable. The profit is used to invest in new assets, new products and to pay dividends.
Customers will like the product and regard it as being good value for money. Satisfied customers will keep coming back.
Employees see the business as being a good employer. They will be motivated to play their part in delivering a good product. A successful business offers job security, and its employees are likely to stay with the company.
Shareholders see a return on their investment, earning dividends and seeing the value of their shares grow.
A business that is unprofitable over a sustained period fails those tests. Ongoing losses limit the company’s ability to invest in renewing its assets and in new products. It does not offer job security. It is harder to attract investment in the business.
Norwegian did not bring anything new to the intra-Europe ‘low cost’ market; Ryanair and easyJet blazed that trail.
Norwegian did bring ‘unbundled’ pricing to the longhaul market. Norwegian’s lead in fares are low, but include only a bag that’ll fit under a seat.
In longhaul markets, to compete with Norwegian, other carriers have in general aimed to maintain their margins by reducing costs. We’ve seen BA reduce cost per seat by going to 10 abreast on the 777, IAG create Level and Eurowings replace airlines in the Lufthansa group on some services.
If I had a £1 for each time I’ve seen an a.netter complain about those approaches I’d never have to fly in Economy. Be careful what you wish for.
Whether Norwegian offers customers value for money can be debated (see earlier posts).
Whether Norwegian is a good employer can be debated (again see earlier posts).
What can be said is that Norwegian is not profitable. See the financial results for 2019: https://media.uk.norwegian.com/document ... 9-q4-93741
The report says that in 2019 Norwegian shifted its focus from growth to profitability, and that it reduced costs significantly. However, it still did not make a profit.
For 2019 Norwegian made a loss of NOK1,609. This followed a loss of NOK1,454 in 2018.
Competition is ‘fair’ when you sell a good product at a profit. In Europe easyJet and Ryanair show that it is possible to be ‘low cost’ and make a healthy profit.
Short term, Norwegian may offer low prices and that may seem like a wonderful thing. Who wouldn’t pay £19 to fly on Norwegian when easyJet want £29? Hey, you’ll have saved enough for one cappucino and a sticky bun in the airport departure lounge.
However, a struggling business may weaken its competitors. Where a company sells below cost, it forces its competitors to sell at sub-optimal prices, reducing their profitability and so their ability to invest in their own future.
Where a business takes money from shareholders telling them that it will be used to invest in making the company profitable, but then effectively squanders the money on subsidising below cost prices, and damages other business in the process, is that ‘fair’ competition?
Norwegian’s below cost pricing may lead to a reduction in competition. Rational carriers will be unwilling to keep making a loss, and may pull out of markets. Norwegian’s actions may even put other airlines out of business. To be clear, I very much doubt that Norwegian can seriously damage easyJet, Ryanair or any of the carriers in the IAG, AF/KL or Lufthansa groups. However, they may push struggling carriers over the edge. If that happens, is it really good for competition?
On longhaul routes, Norwegian’s ‘Lowfare’ prices allow only a bag that’ll fit under a seat. All other extras have to be paid for.
However, if you can’t fit a change of clothes into a bag that’ll fit under a seat, then you may want to trade up to the significantly more expensive ‘Lowfare+’.
You can work out whether paying the ‘Lowfare’ price and adding a separate charge for a piece of baggage that’ll fit in the overhead paid for is better value for you than the ‘Lowfare+’ with baggage included. To do this you’ll need to navigate a table of baggage charges: “Baggage rates will vary depending on your itinerary. Use our city pair list to establish the applicable zone (e.g. A, B, C etc.) and calculate the charges that will apply”.
Give it a go; you’ll need a lot of time, but it’s way more fun that Suduko.
Ever since childhood, when I lived within sight of London Airport, I have seldom seen a plane go by and not wished I was on it.”
With apologies to Paul Theroux - ‘The Great Railway Bazaar’