Hard times for Norwegian
Been beaten to death a few times on several threads. The low-cost/low-fare model is simply not sustainable for longhaul. On shorthaul, if done with discipline like RyanAir or Wizz, it is possible to achieve a good 50% cost advantage over the full service network model. High aircraft utilisation, secondary airports, local crew bases (no overnighting), simple product and strictly no connecting traffic (except on two tickets at passengers risk) can achieve this. On longhaul much of the cost advantage disappears (network carriers also squeeze out 16-18 hours from the longhaul fleet), due to stage lengths cannot do away with hotel layovers, fuel is a much larger % of total cost, etc. On the revenue side, the low-fare model is able to induce a substantial amount of discretionary spending on shorthaul (who cares for the 20 euro airfare if one can save twice that amount on five beers on a friday night...), whereas on longhaul even the lower fares are above the discretionary spending threshold for the majority of customers, so traffic will have to be captured from others rather than inducing additional travel. By forfeiting premium service, the most stable part of longhaul revenues are missing. Network airlines play with offering low fares for a one-stop product while charging premium for the point-to point, meaning that there will always be a full service network airline matching the lower point to point fares through their hub, eliminating much of the fare advantage, and on longhaul a transfer does not add substantially to total journey time. It simply does not add up, period.
Last edited by andrasz; 29th Dec 2020 at 20:34.
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Except he neglected to mention that the lack of short turnarounds on long haul networks enables cargo to be carried, which covers a significant amount of the cost of the operation, as it did for Norwegian. Virgin, BA and TUI have proven that a 787 can cross the Atlantic with ZERO passengers and still make money.
As has also been said to death, a certain proportion of the Norwegian long haul network, specifically out of LGW and Oslo, was profitable.
He also used ‘Wizz’ and ‘discipline’ in the same sentence, which is where he lost me. Wizz have been anything but disciplined in the last year or so.
As has also been said to death, a certain proportion of the Norwegian long haul network, specifically out of LGW and Oslo, was profitable.
He also used ‘Wizz’ and ‘discipline’ in the same sentence, which is where he lost me. Wizz have been anything but disciplined in the last year or so.
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Vokes55
Yeah, the idea of "low cost long haul doesn't work" is just lazy. There are some segments of it that worked, and actually worked well. Norwegian was just unorganized and undisciplined in the way it implemented its operation, and went overboard on its expansion. If Norwegian had operated strictly to LGW and OSL to a handful of destinations to the States, with a fleet of 10-12 787s, and invested a bit into a more robust operations center, it could have worked. But instead they ordered close to 100 787s, tried flying anywhere and everywhere, and tried to do it out of an operations center more suited to a small regional airline instead of an airline with 140 airplanes and a global presence.
Yeah, the idea of "low cost long haul doesn't work" is just lazy. There are some segments of it that worked, and actually worked well. Norwegian was just unorganized and undisciplined in the way it implemented its operation, and went overboard on its expansion. If Norwegian had operated strictly to LGW and OSL to a handful of destinations to the States, with a fleet of 10-12 787s, and invested a bit into a more robust operations center, it could have worked. But instead they ordered close to 100 787s, tried flying anywhere and everywhere, and tried to do it out of an operations center more suited to a small regional airline instead of an airline with 140 airplanes and a global presence.
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AQUAPLANE1
In normal times there are plenty of routes across all airlines that are only viable due to their carriage of freight, which covers the bulk of the cost of the operation. And whilst the freight charges have gone up, the levels of freight actually decreased during the height of the pandemic. Key industries like car manufacturing, which is the bulk of a lot of transatlantic cargo routes had a massive decrease in demand throughout the spring and summer.
Don’t underestimate the importance of cargo to all long haul operations. Saying low cost long haul doesn’t work is short sighted when there could be £100k+ worth of goods in the hold.
In the case of Singapore, the route was profitable largely due to the cargo carried. Unfortunately due to take off performance issues, the cargo was often offloaded instead of passengers and baggage, which led to the company losing the contract. Poor management yes, proof that the concept doesn’t work, absolutely not. I believe they learned their lesson from this and capped passenger numbers on the Buenos Aires to Gatwick route which was also often performance limited with a sizeable cargo load.
In normal times there are plenty of routes across all airlines that are only viable due to their carriage of freight, which covers the bulk of the cost of the operation. And whilst the freight charges have gone up, the levels of freight actually decreased during the height of the pandemic. Key industries like car manufacturing, which is the bulk of a lot of transatlantic cargo routes had a massive decrease in demand throughout the spring and summer.
Don’t underestimate the importance of cargo to all long haul operations. Saying low cost long haul doesn’t work is short sighted when there could be £100k+ worth of goods in the hold.
In the case of Singapore, the route was profitable largely due to the cargo carried. Unfortunately due to take off performance issues, the cargo was often offloaded instead of passengers and baggage, which led to the company losing the contract. Poor management yes, proof that the concept doesn’t work, absolutely not. I believe they learned their lesson from this and capped passenger numbers on the Buenos Aires to Gatwick route which was also often performance limited with a sizeable cargo load.
Only half a speed-brake
I don't know where did this myth of cargo being a prime revenue source on longhaul flights originate, but it is just that, a myth. In the best of times (and let's ignore the current unprecedented and certainly transient situation) generic cargo rates from Singapore to Europe were around $2 per kilo, roughly half of the yield of an average economy passenger counted at 100kg with bags. Passenger aircraft are optimised for a maximum passenger load (plus baggage), so there is not much cargo space left with a full pax load at the edge of the range envelope, 3-5 tonnes at most. Add to this the variable headwinds, on a 14 hour sector to Europe the winter winds will reduce cargo capacity to nil (and sometimes even reduce pax load). With all this variability and uncertainty, critical cargo shippers will not chose passenger airlines, they will use dedicated freighter services of which there is plenty. Pax airlines are left with non-time critical generic cargo, which is good to fill underload if there is not a full pax load, but it is not a stable revenue to base a route on. Also this cargo is one-way only, on Asian routes the east-to-west cargo flow is about 10x the volume of west-to-east (where the winds would permit a higher load), thus usually pax flights carry very little cargo eastbound (cargo airlines manage this by operating continuously westbound round the world services).
PS. I'm no fan of Wizz, but I have to grudgingly admit that they are very disciplined when it comes to sticking to their cost model. Their adventure this past year with routes is a different story, we'll see what comes out of that.
PS. I'm no fan of Wizz, but I have to grudgingly admit that they are very disciplined when it comes to sticking to their cost model. Their adventure this past year with routes is a different story, we'll see what comes out of that.
Last edited by andrasz; 3rd Jan 2021 at 15:54.
Controversial, moi?
Passenger aircraft are optimised for a maximum passenger load (plus baggage), so there is not much cargo space left with a full pax load, 3-5 tonnes at most.
I listened to a presentation by Rod Eddington where he talked about why he loved the B777. He directly contradicted some of your assertions.
But then he was only the CEO of a large and successful airline so what did he know?
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I found the following analysis quite interesting, and although it leaves out some key components (such as freight, which is a very fickle business at the best times), it does have some good research behind it.
Large, yes. Successful ... ? In all fairness I think his obsession with costs did more damage than good on the long run. I have not met him, but have dealt personally with both his predecessor and his successor, it was two different worlds (as was the experience on-board).
I agree generalisations don't always apply (they do in the case of Norwegian), with the relatively short transatlantic stage lengths out of LHR the T7 did have a substantial cargo capacity, as it was built for 10+ hour routes. However the cargo market was very different in those days, 20 year have passed and specialty operators have in the meantime captured most of the premium market. BA was/is in a special position with slot constrained LHR (which is the reason it survived to this day, not because of any stellar corporate performance) which does change bits of the equation. It all boils down to network which drives everything else, and I agree no two airlines are the same.
I agree generalisations don't always apply (they do in the case of Norwegian), with the relatively short transatlantic stage lengths out of LHR the T7 did have a substantial cargo capacity, as it was built for 10+ hour routes. However the cargo market was very different in those days, 20 year have passed and specialty operators have in the meantime captured most of the premium market. BA was/is in a special position with slot constrained LHR (which is the reason it survived to this day, not because of any stellar corporate performance) which does change bits of the equation. It all boils down to network which drives everything else, and I agree no two airlines are the same.
Last edited by andrasz; 31st Dec 2020 at 09:02.
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Norwegian is going bust because is managed by amateurs. Dot. Talking more than this is a waste of our time. Been both and in nas and fr, Is like night and day the way operations are organized.
fr is at top level of industry efficiency, while Nas is runner by Norwegian guys that believes to know it better than a 500+ 737 operator
fr is at top level of industry efficiency, while Nas is runner by Norwegian guys that believes to know it better than a 500+ 737 operator
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Not really optimistic regarding LGW recovery in any shape or form, the current fares advertised on the US routes from April for NAS are about 35-50% more than the offering BA have as a full service airline. Hubris and arrogance have put us in an "unrecoverable jet upset!"
Many moons ago I was called to a high office at an airline that is now history. On most flights I was invited up front, and after doing away with niceties and distractions like takeoff and landing, the conversations usually revolved around how the airline should be run, with me mostly doing the listening. After a while I took on the habit of offering helpful advice to the flight crew, like a little bit to the right, now a little to the left... The smarter ones took the hint
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As a pilot I often get called by the cabin crew telling me there is a funny noise, a funny smell, a peculiar vibration, etc. I always listen carefully. Most of the time is nothing but I always listen and try my best to avoid the "buff, what now? what do they know..." You never know when you might learn something quite important. I was also at high office at a couple of airlines once, I applied the same logic then and listened to the crews carefully. Among the very abundant chaff there was plenty of wheat, I found. Maybe that is smarter than sitting there basking in your own smugness.
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andrasz
You prioritized passengers over cargo ("so there is not much cargo space left with a full pax load, 3-5 tonnes at most."). If the order of priority is pax+bags and then fill the remaining available lift capability with cargo, it will loose money as you claim. If the order of priority is cargo, then fill the remaining lift capability with passengers and bags, routes more often become profitable, or at least break even. This is why Norwegian's lack of communication to its front line workers was so fatal. Crews and operations folks would refuse cargo to accommodate passengers and bags, when the route was opened on the basis of the cargo contract. This is why the route was closed when the shipping agent cancelled the contract.
It has been said more than enough times, and validated in financial reports, that there were aspects of Norwegian's long haul operation that worked, and worked well. LGW to the US, and OSL to the US was making money overall (and I believe, but am not positive, that OSL/CPH/ARN to BKK was strong as well). LGW to South America, and CPH/ARN/CDG/AMS/BCN/MAD/FCO to the US were money losers. Norwegian expanded too much and too quickly, and the debt incurred could not be sustained with trying to carry all the unprofitable routes. I strongly believe if Norwegian has expanded a bit more slowly, and only operated 10-14 787s with limited routes, it would have worked.
You prioritized passengers over cargo ("so there is not much cargo space left with a full pax load, 3-5 tonnes at most."). If the order of priority is pax+bags and then fill the remaining available lift capability with cargo, it will loose money as you claim. If the order of priority is cargo, then fill the remaining lift capability with passengers and bags, routes more often become profitable, or at least break even. This is why Norwegian's lack of communication to its front line workers was so fatal. Crews and operations folks would refuse cargo to accommodate passengers and bags, when the route was opened on the basis of the cargo contract. This is why the route was closed when the shipping agent cancelled the contract.
It has been said more than enough times, and validated in financial reports, that there were aspects of Norwegian's long haul operation that worked, and worked well. LGW to the US, and OSL to the US was making money overall (and I believe, but am not positive, that OSL/CPH/ARN to BKK was strong as well). LGW to South America, and CPH/ARN/CDG/AMS/BCN/MAD/FCO to the US were money losers. Norwegian expanded too much and too quickly, and the debt incurred could not be sustained with trying to carry all the unprofitable routes. I strongly believe if Norwegian has expanded a bit more slowly, and only operated 10-14 787s with limited routes, it would have worked.
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Ignore the "smugness" jibes, Andrasz. Unnecessary.
You clearly understand more about running an airline than us pilots....(WW was an exception, but he was never a career pilot).
Top management in the multi-dimensional and fast-changing arena that is the airline world requires a totally different skillset from that used by the experienced captain/trainer/Chief Pilot. As a short/long haul pilot myself, I have been bored silly listening to the 'wise' pontifications of colleagues about what must be done to run the airline properly. The only carrier I worked for that survived in part was bmi. (Swallowed up by BA/IAG) The rest fell flat on their faces, for a multitude of reasons.
(Never worked for FR....they are the likely European survivors of the present crisis, along with some legacy carriers.) As for the rest, EJ included, disappearance and subsequent reappearance in a different size and form is likely. Sad times indeed.
You clearly understand more about running an airline than us pilots....(WW was an exception, but he was never a career pilot).
Top management in the multi-dimensional and fast-changing arena that is the airline world requires a totally different skillset from that used by the experienced captain/trainer/Chief Pilot. As a short/long haul pilot myself, I have been bored silly listening to the 'wise' pontifications of colleagues about what must be done to run the airline properly. The only carrier I worked for that survived in part was bmi. (Swallowed up by BA/IAG) The rest fell flat on their faces, for a multitude of reasons.
(Never worked for FR....they are the likely European survivors of the present crisis, along with some legacy carriers.) As for the rest, EJ included, disappearance and subsequent reappearance in a different size and form is likely. Sad times indeed.
Last edited by MissChief; 31st Dec 2020 at 11:10. Reason: Grammar
No, you misunderstood. I was saying cargo pays about 50% per kg. than even low fare passengers. Yes, there is premium cargo, but only westbound, none eastbound. On the other hand passenger flow is pretty much balanced (most of those who go tend to also return, one-way is a minuscule component on longhaul). Simply put, there is no way a passenger airline can priorize cargo on a long Asian route without pissing off a lot of customers, and one mistreated passenger will put off another 100 from choosing that airline. Bad internal communication may have made matters worse for what was a bad choice in the first place.
Another thing is that it is a very tricky exercise to say whether this or that route made money or not. A large component of costs (around 30-35% on longhaul, higher on shorthaul) are allocated fixed costs that are spread based on some arbitrary measure (flight hours, seats, pax numbers, length of the chief purser's hair, whatever). Depending on the method used for the allocation of fixed costs and overheads, route profitablity changes dramatically, and it is the most common fallacy of inexperienced airline management to cut 'unprofitable' routes. That usually only results in the fixed costs being spread over a smaller base, making formerly 'profitable' routes unprofitable. Inversely, chasing growth it is easy to make more established routes profitable by adding loss making ones to spread the cost base. Overall, airline profitability can only be measured on a full network basis (that of course does not preclude measuring and ranking routes on a contribution basis, but even there connecting traffic, if it exists, muddies the picture), and I have yet to see numbers that support a low-fare model for longhaul operations.
Another thing is that it is a very tricky exercise to say whether this or that route made money or not. A large component of costs (around 30-35% on longhaul, higher on shorthaul) are allocated fixed costs that are spread based on some arbitrary measure (flight hours, seats, pax numbers, length of the chief purser's hair, whatever). Depending on the method used for the allocation of fixed costs and overheads, route profitablity changes dramatically, and it is the most common fallacy of inexperienced airline management to cut 'unprofitable' routes. That usually only results in the fixed costs being spread over a smaller base, making formerly 'profitable' routes unprofitable. Inversely, chasing growth it is easy to make more established routes profitable by adding loss making ones to spread the cost base. Overall, airline profitability can only be measured on a full network basis (that of course does not preclude measuring and ranking routes on a contribution basis, but even there connecting traffic, if it exists, muddies the picture), and I have yet to see numbers that support a low-fare model for longhaul operations.
Last edited by andrasz; 31st Dec 2020 at 11:46.
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Some observations are valid, some not so applicable. If the fixed cost relates to a set number of rotations of profitable routes it makes sense to amortise that cost base, on the other hand, if additional non-profitable rotations are added it may result in additional staffing and overheads and thus the previously stated "fixed costs" are now increased dragging down the overall group profitability. More frequent schedules on popular routes does not automatically lead to more profit as this model demands high pax numbers/ freight or combination of both. Having said that, even with full pax and headwinds a 787 can easily cope with the routes Norwegian were operating and still allow a modest amount of cargo, In normal weather conditions I've never seen a 777 or 787 with no underload. The issue appears to have been the lack of a proper load optimising system, communications and bad cargo contracts. If cargo timing is not critical then eventually it all gets shipped.
Getting back to the LC LH model, while some routes may have been revenue positive, taking the whole operation it was a financial disaster, bit like running a supermarket with one profit making product, eventually the overheads will kill the company. Some posts elude to the ticket pricing, frankly, compared to the majors it's not cheap and the most successful routes are those on which they created demand rather than try and poach customers from others.
You cannot borrow your way out of debt, this is what is being attempted now.
Getting back to the LC LH model, while some routes may have been revenue positive, taking the whole operation it was a financial disaster, bit like running a supermarket with one profit making product, eventually the overheads will kill the company. Some posts elude to the ticket pricing, frankly, compared to the majors it's not cheap and the most successful routes are those on which they created demand rather than try and poach customers from others.
You cannot borrow your way out of debt, this is what is being attempted now.
