Norway
important market, but Norwegian also has bases in Stockholm and Copenhagen and opened a new base in Helsinki in April. The Norwegian market is different from other markets in at least two senses. Firstly, the domestic market is large compared with the international market and, secondly, there are two big home carriers of similar size, and they compete against each other more than they do against foreign carriers. Norwegian’s growing market share is mainly a result of SAS pulling back and the carrier’s total market share has been relatively stable since 2002. This competition has led to aggressive capacity offers, low yields and price campaigns.
Tough competition, poor balance sheets
The carriers’ balance sheets refl ect the fi erce competition in the market. SAS has produced large defi cits over recent years, which resulted in its needing two capital infusions, to the total of $2 billion. As SAS is 50% state owned, there has been criticism of this “state aid” in the media. In 2010, it again produced a loss of $500 million. A major problem for SAS is the huge pension liabilities and possible new tax ruling. In a worst-case scenario, SAS might have a negative equity and new capital would be needed to keep the company going. It, however, seems unlikely that the Scandinavian states would be able to take part in a third rescue mission. Norwegian’s 2010 results were worse than in previous years. Passenger revenue was $160 million lower than its costs. Ancillary revenue is a very important contributor to the balance sheet and it is steadily growing, making up about 12% of total revenue in 2010.
At the end of 2010, Norwegian had 53 B737s in its fl eet. This will grow to
70
73 aircraft by the end of 2014. Seat capacity will increase by 51% as a result of more aircraft and the change from B737-300 aircraft (148 seats) to B737- 800 with 186 seats. From April 2011, Norwegian has been aggressively attacking the largest domestic routes in Sweden by adding two more aircraft to its Stockholm base. It is also putting three aircraft in Helsinki and allocating one aircraft to charter operations. This in itself is impressive, but even more so is the fact that there are still 14 more aircraft coming in the next four years. The question is, where will they be based and how will their arrival affect yields and the competitive situation with SAS?
SAS has chosen different tactics. Through its ‘Core SAS’ strategy, it is pulling capacity from leisure-dominated markets and focusing on the business market. SAS is increasing load factors and massively cutting costs in administration and increasing crew productivity. This is vitally important to survival, but the production cuts partly offset the cost improvements because of the negative effects of scale effect. Still, the company has a long way to go to catch up with Norwegian in terms of Cost of Available Seat Kilometre (CASK).
First Ryanair base in Norway In October 2007 the new airport, Rygge, was opened, which is situated 60km south east of downtown Oslo. Rygge was originally a military airport, but private capital was allowed in order to establish a civil sector at the airport, which is now a competitor to Oslo Gardermoen and Sandefjord in Torp on the other side of the Oslofjord.
Norwegian was the fi rst carrier to start operations in 2008 using two B737-300s. Then, in September 2009, Ryanair started operations and from April
Norwegian has postponed plans to start long-haul operations until 2012, due to aircraft deliveries. Images courtesy of Norwegian.
2010, it established a base of three aircraft offering 1.5 million new seats in the fi rst nine months. Of Ryanair’s 26 new destinations, only four were in direct competition with Norwegian. The latter has reacted to the competition by focusing on domestic routes and changing international destinations in order to avoid competition with Ryanair. Norwegian’s latest move involved transferring its two Rygge-based aircraft to other airports. The remaining international network is very limited and there is speculation as to whether Norwegian will cease operations at the airport entirely. Ryanair has operated from Torp Sandefjord on the western side of the Oslofjord since 1997. After opening the Rygge base, it scaled down its Torp operations, as Rygge is closer to downtown Oslo. In January this year Ryanair celebrated its one millionth passenger at
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