For the past year, Norwegian Air has been making a big splash in the Hudson Valley economy with its inexpensive fares for transatlantic flights between Stewart Airport in Newburgh and a handful of European destinations. Norwegian had its best month yet in May, clocking 29,437 revenue passengers at Stewart.
But the highly leveraged Scandinavian discount carrier’s plans — and indeed its very independence — may be in jeopardy. Norwegian’s financial troubles have forced it to draw back from its expansionary strategy. Whatever the final outcome of its strategic review and possible sale to a more established carrier, Europe’s third largest discount carrier’s ambitious program at Stewart, whose flight offerings are scheduled to expand this autumn, may be affected.
“You will not see us taking in so many airplanes, we will be come down to a moderate-growth phase,” said Norwegian chief executive Bjorn Kjos earlier this month. “Our focus will be on cost reduction.”
Norwegian now flies more than 60 intercontinental routes. It will have almost 200 planes next year, mostly of very recent vintage and efficient to operate. The airline’s a national business success story in Norway. To get where it’s got, however, it has accumulated about $3.4 billion in debt.
A larger competitor who would take it over would probably be more interested in its international routes rather than its domestic ones. IAG, the owner of British Airways, took a 4.6 percent position in Norwegian’s stock and made two bid offers in May to take it over. Norwegian turned both down. Lufthansa has also publicly expressed interest.
“Norwegians should include in their evening prayers that the airline remains Norwegian and doesn’t land in British or German hands,” investment analyst Hogne Tyssey told News in English from Norway last week. “We have had fantastic advantages from a good route system and many cheap airline tickets. I don’t think that would have the same priority for a foreign owner.”
Norway has a population of only 5.3 million, a little more than double the population of the Hudson Valley.
It is difficult to exaggerate the transformation in passenger traffic that the arrival of Norwegian Air has brought to Stewart Airport. In 2016, paid passenger traffic had dwindled after several years of decline to 275,000 revenue passengers. With Norwegian entering the picture in mid-June and with a positive turnaround in domestic traffic as well, Stewart ended up with 449,000 paying passengers last year. If present trends hold — and they probably will — that mark will top 610,000 this year. Conservatively estimated, Norwegian will account for 270,000 passengers to and from Stewart in 2018.
There have been schedule changes. Flights from Stewart to Edinburgh were reduced in number, daily flights to Dublin increased from one to two, and there appears to be some question whether twice-a-week flights from Stewart to Bergen and Belfast will continue after this October. With the delivery of new aircraft, the Norwegian schedule out of Stewart beginning October 28 will consist of two daily flights to Dublin and one each to Edinburgh and to Shannon.
Last year, Norwegian started offering flights from Stewart, T.F. Green south of Providence, and Bradley airport south of Hartford. It pulled out of Bradley fairly quickly.
Because winter flights to Florida account for a robust share of Stewart air traffic, there’s less seasonality in domestic air traffic than in international traffic. According to the statistics, Norwegian traffic in February (14,666 passengers) was less than half that of May (29,437). There’s been talk of redeployment of some Norwegian capacity from Stewart to other locations during the winter months.
European competitor Ryanair’s volcanic chief executive Michael O’Leary has been forecasting that Norwegian will go bankrupt. Other chief executives find the present situation of great interest, according to a Reuters analysis. Instead of buying such a competitor in order to get rid of it, a smart buyer could use it for product differentiation: continuing to operate a low-cost, long-haul operation out of Stewart.
According to a perceptive July 12 article in Financial Times by reporter Richard Milne, Norwegian executives insisted that they “were not beautifying Norwegian for a sale.” Norwegian had a wide variety of ways of reducing its debt load, they said, including selling or leasing all kinds of separable assets.
Unless the discount carrier’s financial condition deteriorates further, therefore, it’s a good guess that Norwegian’s first-year performance at Stewart has been sufficiently solid to make elimination of its flights to and from the Hudson Valley unlikely in the short term. The prototype Norwegian has established at Stewart is still undergoing its proof of concept. How much further expansion at Stewart is in the cards, therefore, is still hard to read, particularly in an uncertain financial climate.
The magnitude of the New York City market creates niches for all manner of airlines. For ones with winning strategies for meeting consumer demand, the potential is enormous. If Norwegian can hang in there at Stewart, the reward may be significant not only for Stewart but also for the Hudson Valley region.
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