Norwegian redux

To survive and succeed, upstart discount carrier Norwegian Air needs more stories like it’s carving out at New York Stewart International Airport. The core of Norwegian’s strategy is to increasingly fill its planes with additional paying passengers, raising the proportion of occupied seats (passenger load factor) while managing the substantial debt level it has incurred from buying new planes. 

So far, so good. The September update on Norwegian’s passenger traffic at Stewart continued to indicate considerable progress. And the complex third-quarter financials for the Scandinavian air carrier have been greeted largely with equanimity in a suspicious marketplace.

The passenger load figures continued promising and positive. Since Norwegian started flying in and out of Stewart in June 2017, the third quarter of this year was the first occasion year-to-year changes in passenger counts were possible. Year to year, Norwegian passenger traffic at Stewart in the third quarter increased 35 percent, from 76,854 paying passengers last year to 103,776 this year.

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At least part of the year-over-year passenger traffic increase was a confirmation of Norwegian’s basic value proposition that low-fare, no-frills flights have sufficient attraction for price-conscious air travelers from the huge New York metropolitan area to fill the Norwegian planes at Stewart.  The airline’s passenger load factor at Stewart has improved.

Fortuitously for the management of the Hudson Valley airport, domestic passenger traffic has also been growing rapidly, thanks mainly to Allegiant Air’s flights to and from Florida. At this pace, the total number of paying passengers at Stewart — both domestic and international — will hit close to 700,000 this year. Whatever the exact number, it will be the most passengers at the Newburgh airport since the brief pre-recession peak of 2007-2008.

Norwegian Air has targeted European-American service as a main priority for expansion. The Scandinavian carrier is a player at three New York City area airports: JFK, Newark and Stewart. At JFK, it ranks an impressive fourth among airlines with 1,104,800 paying passengers for the year ending this August. It ranks thirteenth at Newark, with 345,000 paying passengers. And of course it’s in first place year-to-year at Stewart, with its 292,000  passengers — projected to be pushed over 300,000 before the end of 2018.

There have been route adjustments. The week before last Norwegian stopped flying between Stewart and Belfast. It’ll be in heavy negotiations regarding Scottish government charges on flights departing from Edinburgh to Stewart. Norwegian has threatened to terminate Edinburgh flights on March 29. 

Norwegian operates 40 flights per week between JFK and London’s Gatwick Airport. It would like to test the market between Stewart and Gatwick.

Norwegian presently flies two daily planes from Stewart to Dublin and one to Shannon. Last week it announced it will drop one of the daily Dublin flights on January 12 and resume it on March 31. The daily flight to Shannon will cease on January 12 and resume on a five-day-a-week basis on March 31. 

Norwegian’s experience last winter was that the number of revenue passengers to and from Stewart dropped by half from the peak summer period to the winter (November through March). In both North America and Europe, more passengers fly east-to-west or west-to-east in summer and north-south in winter. 

The European airline market model encourages the use of secondary airports from which passengers can take trains or buses to their final destinations.

Norwegian Air does not seem to be going down the financial drain. Its lightly disappointing third-quarter results announced October 25 failed to stir an investor panic. Pre-tax profit came in a little lighter than expected, and the airline’s debt-equity ratio increased. But its passenger load factor system wide continued at over 90 percent in the third quarter, though down slightly. Analysts remain worried, however, about how the industry will be affected by increased fuel expenses. 

Norwegian has been increasingly aggressive in undercutting its rivals for transatlantic business. It’s also establishing routes to other international markets. According to Bernstein analyst Dan Roeska, the United States now represents its largest market in terms of revenue after Norway. Airline  CEO Bjorn Kjos has been forecasting slower growth, increased attention to cost control, and an improved balance sheet. 

When it started service to Stewart, Norwegian also established routes at Bradley Airport near Hartford and T. F. Green Airport near Providence. It soon suspended direct flights from Bradley, and has reduced its presence at T.F. Green to a daily flight to and from Dublin. 

Though of considerable magnitude, the population of southern New England is dwarfed by a four-to-one ratio by that of the New York metropolitan area. As Norwegian seems to have learned, a secondary airport in a huge market will attract more passengers for a discount carrier than a secondary airport in a smaller market can.

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