European discount carriers are dropping like old people at a church picnic, with Danish discounter Primera Air calling it quits last month, and WOW Air being an eleventh-hour cash infusion from Frontier away from total disaster this October. Now, it seems Norwegian Air, who blew up the transatlantic flight game a couple years ago with $99 fares from the US to London, Oslo, Milan, and other destinations is teetering on the brink of ruin. Like an over-extended holiday shopper, the airline is facing massive year-end debt payments that it may not be able to make.
Danske Bank reported this week that Norwegian might be in serious trouble if it doesn’t find cash by the end of the year. Analyst Martin Stenshall told newspaper Dagens Næringsliv that if the struggling airline can’t sell off aircrafts to raise money, it will have to report the issues, causing suppliers of fuel and landing fees to demand cash up front. This would be part of what Stenshall called an “evil spiral,” causing the crisis to escalate.
This might not come as a great surprise to anyone who wondered, as any sensible person might, how you could make money charging less than a hundred dollars to cross an ocean. But the issue isn’t that simple. In order to finance its massive expansion into the US, Norwegian Air borrowed a ton of money. That money is now due, but the airline’s revenues haven’t kept up. Add in an ill-timed fuel hedge — where Norwegian locked in its fuel prices at a fixed price, before fuel prices dropped — and you’ve got more headaches than Santa Claus’ logistics manager.
Matters weren’t helped much this week when a couple of illegal drones were spotted hovering like vultures over Norwegian’s hub at Gatwick Airport in London. The airport was subsequently shut down, stranding over 100,000 passengers and disrupting 760 flights.
In addition, a recent Norwegian flight leaving Dubai was forced to make an emergency landing in Iran after reporting engine problems and has been stuck there ever since. Because the plane, a Boeing 737, is American-made, the airline has been unable to get repair parts due to US sanctions against the country.
Norwegian has a few options to pull itself out of this “evil spiral.” Though it’s still hemorrhaging money from the operation of its longer routes, it’s hoping for a big jolt of cash from its two biggest shareholders, Bjørn Kjos and Bjørn Kise. It has also discussed dealing 140 aircrafts to a new airline that would form a “joint venture,” though no other details are available at this time.
Norwegian may also opt to sell off to British Airways’ parent company IAG, who purchased 5 percent of the airline in April. While Norwegian declined IAG’s offer to buy the entire airline, that offer may be revisited with debt collections looming.
This, ultimately, would be the endgame to larger, legacy carriers’ loss-leading strategy to compete with discount upstarts on price, ultimately sustaining losses that the little guys could not. When discount carriers can’t sustain the losses, the big airlines step in, acquire their assets, and go back to charging what they used to.
This doesn’t mean doomsday for cheap flights to Europe, but it may be the end of the golden age of cheap, transcontinental travel. While buying a ticket on Norwegian might be a little risky right now, it still might be the last chance you have to cross the pond for almost nothing. And if you think your Euro trip FOMO is bad now, think about how bad it’ll be once you can’t afford to go.
The post Norwegian Air may be donezo by the end of the year appeared first on Matador Network.