The North Atlantic has proven to be a hard region to crack for carriers trying to operate in a long-haul low-cost market. But Norse Atlantic Airways, a new airline headquartered in Arendal, Norway, is giving it a go.
Norse Atlantic Airways was established in 2021 and completed its first revenue flight in June 2022. The airline is one of the few examples of a long-haul, low-cost airline in Europe and, when looking at its operation and business model, it is hard not to draw comparison with other airlines, such as Norwegian, that preceded them in this market segment.
Charles Duncan joined Norse Atlantic as President in February 2023, bringing almost three decades of experience in the airline industry to the new role. Starting in revenue management at Continental Airlines, Duncan went on to take a succession of senior executive roles throughout the business, both in the United States and in the Asia-Pacific region. After Continental’s merger with United Airlines in 2010, Duncan remained at the airline where he oversaw several key commercial and operational areas.
In 2017 Duncan moved to Canada’s WestJet group, where he first held the position of EVP & President at WestJet Encore before taking on the role of EVP & Chief Strategy Officer in 2018 and finally Cargo, Strategy and M&A in 2020 until his recent move to Norse Atlantic. He also helped with the development of business units such as the group’s low-cost and regional subsidiaries.
In the latest instalment of AeroTime’s Executive Spotlight series, Duncan discusses how the airline is faring so far and what its plans are for the near future.
Duncan also shared how Norse’s executive team has learned from the airlines that attempted to bring the low-cost business model to the transatlantic market before them, and how Norse is tweaking the business model to better achieve product market fit and maximize operational efficiency while remaining faithful to the tried and tested low-cost formula.
Norse recently announced new routes between Europe and the United States, including some new destinations such as Paris and Rome, in addition to flights from Oslo, London, Gatwick and Berlin.
AeroTime asked Duncan about the current situation of the business and if there were any recent developments that he could share. While highlighting the difficulties of starting a new airline from scratch, Duncan sounded positive about the ongoing roll out and Norse Atlantic’s prospects for growth.
“We’re very much a startup airline,” Duncan said. “We announced our first routes in April 2022 and began flying in June 2022, so we’ve not yet been flying for one full year. And what’s really exciting for us right now is that we have had a lot of foundational work to get set up and established.
“There are so many complexities around traffic rights and getting the corporate setup, the operating certificate. We have two: one in the UK and one in Norway. We really spent this first year, the last 12 months, just getting organized and prepared. And what’s exciting is that we now have a full schedule, which is out for sale. It’s only been out for sale since the end February, and we have five daily flights from London Gatwick to seven destinations in the United States. We’re also flying from Oslo, we’re flying from Berlin, Rome, Paris.”
He added: “We have got all the destinations on the European side, in addition to London Gatwick, so we have a full fleet, a full slate of flying for this summer – and that’s just really exciting!
“Every day we’ve been setting records in terms of new booking volume, revenue coming in and that’s also just been very positive and very exciting for our team.”
But how is this growth translating into specific figures? AeroTime asked Duncan about Norse’s goals for the end of the year and how many passengers the airline expects to carry in 2023. Duncan is aware of the issues caused by having a ‘growth at all costs’ approach to business and focused the conversation on the simple financial goal of breaking even rather than passenger numbers.
He said: “More importantly, we have created what I call a ‘strategy on a page’. There’s a financial pillar, a people pillar, and operations and commercial and we’ve got lots of goals within that.
“The most important goal within that one-page document that we’ve shared with everyone at Norse is that for the second half of this year, July to December, we want to make $1, to break even. We have been losing money, obviously, as a startup for our first year. But we want, first and foremost, to make money to stay in business and, as part of that, we also have a goal of $500 million in top line revenue for the year.”
He continued: “The number of passengers is not top of my mind, but we’ve got really clear goals around ancillary revenue, aircraft utilization, our crew utilization, air cargo revenue, charters, you name it. And it’s just really exciting. It’s an exciting time to be part of this. This is a young airline.”
Since Norse Atlantic is a listed company in Oslo, it is possible to check its financial reports to best understand the airline’s business model. One piece of interesting information included in the startup carrier’s income statement is that ancillaries represent around one third of the Norse’s revenue. But what percentage of ancillary revenue is Norse Atlantic aiming for in the long run?
“At a rough level, in terms of our KPIs, we’ve set internally a goal of $100 per passenger in ancillary revenue,” Duncan explained. “So, ultimately, whether that’s one third or how that shakes out, we will see.”
He continued: “I was at an investor conference earlier this week and the CEO of Frontier Airlines was touting in his presentation that they’re achieving right now $82 per passenger, and they’re number one globally and their goal for this year is $85 [per passenger].
“Now, it’s a bit different [with] long-haul versus short haul and so forth. But if we achieve our goal of $100, and I believe we will, that means we’ll be number one in the world in terms of ancillary per passenger and that’s exciting for us as well.”
He added: “It’s very easy to have a low entry-level fare but for the long-haul, low-cost model to work, we really do need to have interesting products, seat bags, onboard food, and so on, and collect the ancillary revenue.”
At this point in the interview, we took a step back to talk about the product Norse Atlantic is currently offering. Basically, it’s a two-class offering: with both “economy” and “premium” cabins. AeroTime asked Duncan about the features of both and whether it would be accurate to call the latter a premium economy product.
“We’re actually going to be calling it ‘Norse Premium’. We’ve had a lot of internal debate around that. It’s a fantastic product, 56 seats in our premium class,” Duncan revealed. “It’s a 2-3-2 configuration and these have a generous pitch, fantastic recline, [and] leg rest. It’s not a flatbed seat, very much in keeping with our long-haul low-cost aspirations, but it’s very good.
“Upselling that premium seat is part of our ancillary strategy as well, and our airport teams have been very successful in selling that upgrade for us”
But more about the premium product. The seat is, of course, better with more space but what else would a passenger in North Premium be offered compared to someone flying on a regular economy fare? Would it be the food? The in-flight entertainment (IFE)?
“There’s IFE in both cabins,” Duncan explained. “The primary difference would be really around food and space and the experience. We’re trying to stick with the à-la-carte aspects of the model.
“So even within Premium, we do have two price points, one with checked bags, one without. And we’re also providing lounges as an à-la-carte fee as well. So even for Premium we give people the choice to pick and choose which services they want.”
Next, we moved onto the topic of fleet development. While we asked Duncan to clarify how many aircraft were currently available to Norse Atlantic, the answer was far from straightforward.
“Let me explain because it’s a little bit complicated,” Duncan said, “We have 15 aircraft in total. They are 12 787-9s and three 787-8s.”
But have all 15 been delivered? Duncan confirmed that they had. 15 were delivered, five of which have already been dry leased to another airline for a one-year term.
Norse has 10 aircraft available for its own operations during the summer season, and all are B787–9s.
“So, if you go and look at our flight schedules, and I’m sure some of your readers can do this quite easily, you’ll actually find nine lines of flight that are out for sale, and we’re keeping one aircraft back as a spare just to help ensure operational resilience,” Duncan added.
Most of these aircraft are 787s previously operated by Norwegian and now leased by Norse.
AeroTime asked Duncan whether the COVID-19 pandemic, rather than being a deterring factor when launching a new airline, may have facilitated the obtention of better lease rates than would have otherwise been possible?
“There is no question about that and in fact, our founder, our CEO, Bjorn Tore Larsen, had this idea that the lease rates being offered had never been seen before,” Duncan said. “We got very attractive pricing, because we were able to opportunistically sign the leases at the bottom of the market when no one else wanted these aircraft, and they’re on long term lease. We believe that helps to create a permanent structural advantage for us around cost.
“We believe this summer and for years to come we will be the lowest unit cost operator across the Atlantic and part of that is the low aircraft leases.
“But in addition to that, we’re focusing really hard on crew efficiency and just overall costs, aircraft utilization and so forth, to ensure that we have a cost advantage and maintain that, and we think that will help ensure our success competitively.”
He continued: “If we are the lowest cost provider that will allow us to offer the lowest fares and still make a profit and be able to not only survive but thrive in what is a very competitive industry. That’s the one thing I’ve learned in my almost 30 years in the business is how competitive it is. But if you have the lowest costs that sets you up best for success.”
Norse appears to be following the Norwegian playbook when it comes to long-haul operations, but its network is still far from the size and scope of Norwegian. At its peak Norwegian was flying from several cities that are not currently included in Norse’s network, such as Stockholm, Barcelona, and Copenhagen.
AeroTime asked Duncan whether there are any prospects for Norse to include these cities as its next long-haul base? In this regard, Duncan was keen to differentiate the current project from Norwegian’s.
“I did not work for Norwegian Airlines, so I don’t have that history. We are very much a different company, very separate and distinct,” Duncan said. “It is true that most, if not all, of our aircraft came from the last orders placed by Norwegian. But we are very much doing our own thing.
“We want to be the first successful low-cost, long-haul carrier. We want to have a single fleet type and have very high utilization of the aircraft and be very efficient with our crew scheduling, and I don’t think Norwegian did many of those things.”
He added: “We also want to be very careful and deliberate in terms of our growth strategy, not to grow too much, too fast. We don’t want to be too complex with too many crew bases.
“There are many lessons that we can learn not only from Norwegian, but from all other low-cost, long-haul carriers who maybe have not been as successful in the past.”
For now, Norse Atlantic’s management is prioritizing the consolidation of its position at its current bases, particularly after a winter season that Duncan said was quite tough. Interestingly, it is the need to escape the ‘winter blues’ that may take Norse to some new – and rather unexpected – destinations.
“So, I think we are very happy with the cities we have right now. Our schedule for the summer is out for sale, the next step in our evolution,” Duncan said. “And you made reference to our financial reports. We are not satisfied with our performance in the current winter, the winter that has just ended. There are a lot of reasons for it. We were a startup, and we didn’t have all the traffic rights we wanted and so forth.”
“There were really two faults, I won’t call them mistakes, but two big faults,” he continued. “The first one is that we announced our schedule much too late, and we were very close to travel time. But we didn’t have the benefit of a wide, long booking curve.
“So, we want to get our current coming winter out for sale much earlier. The other change we want to make is much less cold to cold. Think of Oslo to JFK or Berlin to JFK. Those are very difficult markets in the winter months. We want to do less of that flying and do a lot more flying to warm sun destinations, whether they’re in the US, the Caribbean, maybe Mexico, we want to fly to markets like this from European points, from Europe, from the UK.”
He added: “We will be announcing even towards the end of March and through April, our planned flying for the coming winter and getting those out for sale. I’m actually very excited about that. It’ll be our first time with 10 airplanes in this new philosophy and strategy to be flying between cold European destinations and warm winter sun destinations. So that will be a big transformation.”
On May 3, 2023, shortly after the interview took place, Norse Atlantic Airways announced the launch of new routes from London-Gatwick Airport (LGW) to Barbados (BGI), Kingston (KIN) and Montego Bay (MBG), as well as from Oslo (OSL) to Bangkok (BKK) – editor’s note.
In the interview Duncan confirmed that the next significant step had been scheduled for summer 2024 when the airline plans to grow its fleet by taking delivery of the remaining five aircraft currently leased to another operator.
He continued: “We will be growing. I don’t know if we’ll add any more destinations or not. I see lots of opportunity to connect existing dots in our network. For example, we are flying from Paris to JFK daily from the end of March, and we’re very excited about Paris and this opportunity. Maybe next year, by next summer, we will fly Paris to JFK and Paris to somewhere else in the US, as an example. So, I think there’s room to thicken the routes.
“I love the idea of flying some routes more than daily and that can allow us to get a bigger presence in cities without being spread too thin. And I think [it] also helps us keep our costs low and build a following.
“I think that may have been one of our lessons, or distinction, from Norwegian. That history of being spread in many, many different places.”
He added: “So, stay tuned, we’ll see. But the most important goal for us is to make money. And we are unapologetic about that. And, again, our goal this year is for the second half of 2023 to make $1. If we do that, we’ll be happy.”
Norse has also entered into partnerships with several airlines. Passengers can now book itineraries combining flights flown by Norse with those operated by other low-cost carriers such as easyJet, Spirit Airlines and Vueling. These can be booked via a software platform developed by Icelandic company, Dohop, which allows independent and low-cost airlines to offer combine itineraries and connecting flights without an interline agreement.
But what is the importance of these partnerships when it comes to feeding Norse’s long-haul operations?
“I would say they’re important,” Duncan said. “We’re excited about that volume. What’s great about Dohop is that we are able to expand our reach, our network without the costs and complexity of traditional codeshare and interline relationships. It still looks to us like two different tickets, two reservations, and Dohop helps facilitate the connection and even provide travel insurance. So, it’s actually fantastic for us.
“As an example, one of our largest markets is JFK to Copenhagen. We don’t serve Copenhagen, but we do serve JFK and we have connections via both Oslo and London Gatwick. And so, through Dohop we can work with partners like Norwegian and easyJet for the short haul to get people to Copenhagen.”
He continued: “I would say it’s important, but it’s not critical to our success. We’re focused on our point-to-point demand and filling our airplanes, but I would sort of think of it like the gravy or the cream. The extra bit on top that helps to make a route more successful.”
While the low-cost, long-haul model has had some success in Asia, the North Atlantic market has been resistant to those attempting to introduce the business model and the entry of low-cost players. AeroTime asked Duncan what he would attribute this difficulty to? Why is it difficult to expand the low-cost model to the long-haul segment? And why does he think that this time will be any different?
“What we are doing is not easy and we are under no illusion that this is going to be an easy path to take,” Duncan explained. “But I do believe we’ve got the building blocks, the right foundation, to be successful and I wouldn’t have joined the company otherwise. I’m actually quite excited about the opportunity and the possibility. But that’s not to say it’s going to be easy. And that’s part of the attraction as well.”
He said: “I think each geography is different. If I think about the North Atlantic, I think the reason we’ve had challenges as an industry, why anyone hasn’t been successful up to this point, is the challenge of the winter. The summer is relatively easy. There’s a very, very strong demand. Everybody makes money in the summer, and then most carriers lose money in the winter.
“It becomes a question then of how much are you losing? Is your winter loss larger than your summer profit or not? So, this is why we are thinking very differently about the coming winter. In pursuing a sun strategy, we’re going to be really changing our network quite a lot, east to west, if you will, across the Atlantic between North America and Europe for the summer, and then very much pointing south and towards some destinations in the winter.”
“I think that that piece is a bit unique,” he continued. “We’ve not seen other carriers do that and change the network so much and what’s interesting is it’s very similar to what we did it at my former airline WestJet, in Canada, where there is the same seasonal dynamic, and the network shifts quite a lot between winter and summer. We’ll be trying that out and pursuing that strategy.
“But I think that there’s always a demand for air travel. It’s important for us to fly also between existing markets that are quite large and to provide a competitive offering.”
Duncan added: “It’s a wonderful product, and we’re able to provide it by keeping the lowest cost base and offering the best fares we can provide and, hopefully, we will also be able to stimulate and grow the market at the same time. And all that’s exciting to me, so I believe there is a path here for us to be successful.
“The whole team at Norse knows what a challenge it is, and I think that’s also how we think of ourselves, as being disruptors. We’re motivated by that challenge.”
With the ever-increasing range of single aisle aircraft such as the Airbus A321LR and XLR, as well as the Boeing 737 MAX with extended range, we are witnessing some low-cost carriers in Europe operating longer and longer segments. Could long-haul, low-cost become more mainstream in just a few years’ time and could it attract more competition?
AeroTime asked Duncan about his views regarding the future of the long-haul, low-cost market, whether he sees other carriers attempting to follow Norse along this path, and how this might affect a wide-body aircraft operator such as Norse Atlantic?
“The one constant in our industry has been the evolution of technology and aircraft and range and so forth. I think we’re going to continue to see evolution and new business models,” Duncan said.
“I think the XLR [Airbus A321 XLR – ed. note] is a fantastic airplane and has fantastic range, and we’ve been seeing some B737NGs flying across the Atlantic for a number of years and [also] some Airbus operators [flying] the neo. So, I think we’ll continue to see some of that service.
“There’s no question the wide-body product is superior in terms of comfort and so on, with twin aisles, access to lavatories and so forth. So, I think we [will] get a bit of a marketing benefit from that.”
He continued: “The other really big benefit that we get as a wide-body operator, as a 787 operator, over narrow-body [aircraft] is cargo, and cargo is a huge part of our overall offering. And as we are flying to JFK and other big markets these are also big cargo markets and can in some ways help to make a route sustainable for the full year when passenger demand is a little bit weaker. In a narrow-body aircraft, there’s no room for a ULD, a cargo container, they don’t have the payload or the volume to carry cargo.
“There’s probably room for both types [of aircraft] and what we’ve begun to see on the LR [is] service to secondary airports, Stewart for New York or Hamilton, and these are fine airports but they’re not the city center airports.”
He added: “So, I think that we’ll all pursue our different models, and competition is good. We’ll let the consumer choose ultimately what they want to do and how they want to travel.”
Duncan could not be clearer regarding this point. For the foreseeable future Norse Atlantic will remain committed to operating at large airports and this will apply to both sides of the Atlantic.
“We have 282 seats in economy class and 56 seats in our Norse Premium product,” Duncan said. “It’s a lot of seats to fill and it’s very, very challenging to do that from secondary airports. That’s why we operate at airports like [Rome] Fiumicino, [Paris] Charles de Gaulle, JFK, Boston. Maybe we’ll review this over time when our name and our brand are better known, and we have a bigger customer following.
“Secondary and tertiary airports are very challenging with a wide-body aircraft. I think with a narrow-body, it’s a different story.”