IAG and Norwegian

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  • Tom Otley

    Quite a strange article in The Economist.

    The headline (at least in the print edition) is The little airline that could, but the article seems to reach the opposite conclusion, and ends…

    “If Norwegian gets into trouble, there is at least an obvious solution: a takeover by a rival with deeper pockets. Ryanair and easyJet are not interested because they do not want to complicate their business models. But Willie Walsh, the boss of IAG, a London-based group made up of several flag-carriers, seems eager to take on Mr Kjos in the low-cost long-haul market. British Airways, one IAG airline, has started to run cheap long-haul flights on the same routes as Norwegian from London’s Gatwick. In March IAG launched Level, a long-haul LCC, in Barcelona, to fight off Norwegian’s new long-haul hub there. The gossip among analysts is that IAG is readying itself to snap up its rival if it weakens further. If full-service airlines can’t beat LCCs, the answer may be to join them.”

    It suggests that a cash crunch will come at Norwegian when it has to pay for 19 new A320neo jets “that it cannot currently use or lease because they have engine problems may explain the CFOs sudden departure.”

    I think most of us welcome the extra competition that has been brought into the market by Norwegian, and I wonder what the competition authorities would think of IAG claiming another airline, but is this even likely….?


    I think The Economist article recognises that the conditions are now right for Norwegian (and others) to make a success of low-cost longhaul flying, but that there’s a risk that it does so absorbed by a bigger rival.

    I for one think it would be a shame to lose Norwegian given all it’s done to shake-up aviation and it’s potential to continue to do so. If the airline became vulnerable, personally, I think there would be no shortage of buyers. I doubt the competition authorities would present much of an issue for IAG – I find the regulators are typically behind the curve when it comes to airline deals, focused on very rigid definitions of the market. IAG might be happy for Norwegian to fall by the wayside, but would probably enter the bidding to stop it falling into the hands of a stronger rival. Despite fleet and other practical differences, there’s every reason to believe easyJet and Ryanair would be interested too for the same reason, but also as for an easy route into longhaul flying.

    But I think calling time on an independent Norwegian is premature. I remember similar doubts being expressed when they brought their 787s in and there were questions about its financial stability in tandem with the teething troubles they had with the new aircraft. Certainly they’re not going to win awards for caution or lack of ambition, but they’ve made it through rougher patches before.


    Twelve of Mr Kos’s A320NEO’s will go on lease to Hong Kong Express.
    The first three are already in service there…


    IAG has learned its lesson from history that it cannot let start ups come in and cannibalise its home markets, regardless of how peripheral those markets are. If IAG wanted Norwegian, looking at the relative market capitalisations, it could make an offer that would be compelling to Kjos and the other shareholders relatively easily (ie, out of cash).

    Looking at its numbers, Norwegian has an exceptionally high debt to equity ratio, which is going to rise even further when imminent accounting standard changes relating to leasing become effective and even more debt, that is currently off balance sheet, goes on balance sheet. Also, despite paring its costs down to the bone, whether by fair means or by foul, it doesn’t make any real money. Its operating margins are pathetic and net margins often negative. There are people who would regard a business that hasn’t proved it can make money consistently in its home markets venturing to set up operations in low risk, stable, culturally similar and not-at-all remote countries such as Argentina in a very dim light.

    Hence why IAG has determined to compete by growing itself organically rather than by acquiring Norwegian.


    Have a read of this for more thoughts. I couldn’t find part 1 (I didn’t look very hard!)


    Reading between the lines and understanding IAG;s recent past and BA’s actions throughout the year, I’m going to create a wee list…….

    British Caledonian

    And there is probably more examples, but in the above 3 cases, sustained and in some instances, underhand and immoral business pressures were applied by the dominant carrier.
    I fear Norwegian, in some guise or another will be fall to a predatory approach by BA, or in other words BA.

    Having said that, and travelsforfun and wastedlife’s comments combined lead me to have no real sympathy for Norwegian, because their management team haven’t really learnt the lessons from history.

    Love him or loathe him, Michael O’Leary did pay attention.


    mkcol74 – the first article on Norwegian is at the bottom of the link you gave and titled “Is Norwegian in trouble?”. Both articles are interesting and things do not bode well for Norwegian which is a shame.


    @Cyberstreak1 Thanks – told you I hadn’t looked very hard 😉

    Tom Otley

    New article by Bloomberg yesterday

    Norwegian Air Shuttle Is Flying On a Wing and a Prayer

    It discusses Norwegian’s plans to launch a new airline in Argentina – also mentioned here

    Norwegian Plans New Flights in $4.3 Billion Argentine Expansion

    “Norwegian is targeting $4.3 billion of investment in the country over the next decade and plans direct international flights between Buenos Aires and destinations such as Los Angeles and New York, Bloomberg News reported on Wednesday.”

    “Norwegian can ill afford another fare battle. The company wants to expand its fleet by about two-thirds by 2019, yet it’s already highly leveraged and had only $700 million of cash and equivalents at the end of September.Ryanair Holdings Plc boss Michael O’Leary has asserted that Norwegian isn’t “long for this world,” a comment that needs to be treated with appropriate skepticism (Norwegian has pinched some Ryanair pilots). Kjos has proven adept at tapping new sources of aircraft finance. Even so, his globe-spanning ambitions do depend on a wing and a prayer.”


    Today the BBC announces that IAG has taken a stake in Norwegian with a view to a possible full takeover.
    “British Airways owner considers Norwegian bid”.


    This has been rumoured as a possibility for months, especially after Ryanair´s CEO questioning Norwegian´s viability.

    Various questions are posed. Any such takeover will fill in many gaps in IAG´s European network but not in the East so what are they planning on doing about that? Will they retain Norwegian as a seperate airline or merge it with Vueling? I would think maintaining Norwegian seperate would be wiser as then there would be two main bases – one in Southern Europe and the other in Northern Europe.

    Would Norwegian´s long-haul flights be split off and merged into LEVEL, or would it be the other way round? I would think merging them into LEVEL would make for a better long-haul operation.

    What will be done with the Argentinian operation? A potential 157 routes(or so) in that country would pose a strong threat to oneworld partner LATAM.
    What would be done with the long-haul operations which compete with the legacy airlines of IAG – BA, Iberia and Aer Lingus? Or would they be considered complementary?

    This is a potentially a very interesting taskeover but with great difficulties to be sorted out. What will IAG´s biggest shareholder (Qatar Airlines) have to say, especially as it also has a shareholding in LATAM?


    This reeks of predatory protectionism, not consolidation or long term investment in a up and coming brand.

    I’m not an aviation analyst so I might be off the mark, but it seems to me that IAG is once again resorting to their tried and tested tactic of removing a threat to their favoured child.

    Not sure how profitable the New York states routes from EDI are, but I’d bet a healthy wager that if IAG take control these routes would soon vanish.

    Will Norwegian follow BCal and BMI down the swanee?


    I think IAG are covering their backside here. With the new routes and bargain fares ex LGW (and elsewhere) they are surely a threat to BA.
    Norwegian are also starting a new route from MXP to New York and I wonder what would happen to that?


    Another point not considered yet is any competition to IAG for Norwegian from other potential suitors.

    Ryanair, Easyjet, Vueling, Wizz, Blue Air, Germania, Primera Air as well as Norwegian (without taking into account other smaller competitors)makes one consider that there are too many LCCs in the European market. Of the the main groupings IAG has Vueling and Lufthansa has Eurowings, which it is growing quite agressively. Air France-KLM has Transavia and the pledgling Joon so seems the less well placed to take advantage of the LCC short and long haul markets.

    Thus I would consider AF-KLM as a possible competitor for IAG with nothing to lose and a lot to gain. Easyjet is also well placed but is involved in an attempt to take over part of Alitalia. If it is really interested in Norwegian then it might have to drop its interest in Alitalia. Wizz is also strongly based to gain from consolidation with Norwegian but probably lacks financial muscle to go through with it. Thus it would be left open to interest from elsewhere.

    I tend to agree with Canucklad and LuganoPirate that any bid from IAG for Norwegian smells of predatory purchase with the aim of protecting one´s backyard. There does not seem to be much benefit to be gained by the travelling public. This should be a serious concern for competition authorities, especially in the UK.

    Tom Otley

    Good piece in The Times of London on this…

    It celebrates Norwegian’s achievements, details its challenges, and explains why the bid makes sense for IAG.

    april 13 2018, 12:01am, the times
    IAG bid must be on regulators’ radar

    Alistair Osborne

    It ends…

    Just think what it would bring: aircraft orders to replace BA’s ageing fleet, spanning Dreamliners, Airbus’s long-range 321LR and the Boeing 737 Max jet; an instant low-fare long-haul service under the Norwegian brand that would take ages to build via IAG’s fledgling Level carrier, itself an admission it was too late into this market; the biggest position at Gatwick, alongside Easyjet, to go with its dominance of Heathrow; and an entry into new Nordic markets.

    Moreover, it would take out a pesky rival. And Mr Walsh could shelve passenger-friendly services to Buenos Aires, say, and use Norwegian planes on other routes. Rival carriers may now join the bid fray —Air France KLM, say, or even Ryanair. But it’s not obvious that IAG ownership would be in consumers’ interests.

    If Mr Walsh fancies himself as the new face of Norwegian, regulators should take a long, hard look.”


    I’ve flown Norwegian and found them to be very good. I wonder how they feel now that their brand could be devalued by association with a collection of poorly-run no-frills airlines such as Vueling, Iberia and British Airways!

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