Fresh from placing one of Europe’s biggest ever aircraft orders, Norwegian Air Shuttle chief Bjoern Kjos predicted more airline collapses in Europe this year and said the airline stood ready to plug the gaps, while setting its sights on Asia.
Norwegian last week ordered USD$21.5 billion worth of new planes at list prices and Kjos said he saw the airline expanding into Asia with the creation of new bases there.
“I think there will be lots of opportunities in Europe in 2012 because there are too many airlines that have way too old fleets to be profitable with the oil prices of today,” said Kjos, a former fighter pilot and mystery novel writer.
“I think you will see airlines collapsing… high costs and old planes are a dangerous mix,” he added.
Although some analysts see the firm’s purchase of 222 narrow-body planes as risky, shareholders have lined up behind Kjos, pushing the stock sharply higher in an outbreak of support rare in an industry otherwise dogged by problems.
Kjos, 65, who is working on his second mystery novel and still flies gliders, brushed aside suggestions his massive aircraft purchase was a risk.
“Not buying new planes would be taking the risk,” he said. “You benefit from the 12 to 15 percent lower fuel burn. There is no way you can fly an old airplane in the future given where fuel prices are going.”
He said Norwegian, which is set to receive its first wide-body Boeing 787 Dreamliner next year, will base the aircraft in Asia, the world’s fastest-growing major market, to bring Asian passengers to Europe.
“We foresee that if we’re able to fly with the Dreamliner, with an Asian crew, with our existing infrastructure, we should easily be able to operate the Dreamliner at 50 percent of the cost to our competitor,” said Kjos.
“When you are able to cut the cost in two, you can build your own volumes,” said Kjos, whose love of flying dates back to the age of eight, when his father built a hangar on their land to survey farmland from the air.
Norwegian has six 787s on order but says it could buy dozens more to expand its long-haul operations with particular focus on Asia.
LOW COST MODEL
Kjos, a lawyer by training, said the 787 and the Airbus A350, set to enter service in 2014, both offered the economics to make the low-cost model work and budget airlines would now expand into long-haul routes.
Kjos also would not rule out eventually setting up an Asia-based short-haul airline.
“It might be a possibility to do that in the future,” said Kjos, who, along with Chairman Bjoern Kise, holds 27.3 percent of Norwegian.
Kjos came to the airline business by accident when a regional airline, a friend’s employer, collapsed and Kjos could not find enough investors to put up cash for a new startup and keep friends employed.
He eventually sank over NOK1 million kroner (USD$170,000) of his own money into the airline and remains one of the last of the original investors.
Norwegian’s expansion to over 220 aircraft would put it in the same league as Ryanair, which operates about 275 aircraft.
Kjos added that Norwegian would not take over failing airlines but would jump into any vacuum that served its Northern European market, as it is already doing in Malaga, Spain.
“We are strong in the northern region and that’s where we’ll concentrate on. I think central Europe is very much covered,” Kjos said.
Whether Kjos gambled with the new order or not, shareholders have so far benefited as the stock now trades 19 percent higher than prior to the order.
Kjos added that Norwegian has cost targets rather than volume targets and rivals often joke that the airline’s acronyms, NAS, actually stands for Norwegian Air Slaves.
“Going from 4 planes to 60 in the last 10 years was a lot more challenging than going from 60 to 150 or 200,” said Lars Erik Moen, a senior portfolio manager at Danske Capital, which owns about 1.5 percent of Norwegian.
“It’s a brave and correct move, especially when you see that European airlines are slow in ordering,” he said, adding his fund has not sold any Norwegian shares since the announcement.
Another shareholder added that investors in the airline industry expect bold moves because standing still leads to failure.
“They’ve followed through on their strategy for seven or eight years and now the size changes but not the direction,” said a fund manager at a shareholder who asked not to be named. “We are committed because they are consistent.”