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APEX Editor's Blog—Norwegian business model faces challenges from labour in EU and US

By Admin

[As published by Christine Negroni in the APEX Editor’s Blog]

Is Norwegian’s plan to offer no-frills, discount fares between the US/Europe and Asia a boon for consumers; the first step toward making travel to the world’s far flung places even more affordable? Or is it the “Walmart-isation” of an industry that will depress salaries and threaten aviation safety?

This question is at the heart of the dispute between Norwegian CEO Bjorn Kjos and his would-be global low cost carrier and American and European legacy airlines working in a rare partnership with their unionised employees.

In less than a year, Norwegian has seen tremendous success in its attempts to begin low cost, long haul service between a number of cities in the United States, Europe and Asia. Load factors suggest passengers are happy to buy tickets that can be 40 percent lower than the competition, and the airline’s press releases indicate it is having no trouble finding employees in the United States, Europe and Thailand willing to work for the carrier.

Nevertheless, a controversy over Norwegian’s business tactics and its need to relocate the long-haul segment of its business outside of Norway threatens to slow the airline’s steady ascent. There’s no sign that the rough ride will end anytime soon.

With a business model that precludes paying the higher labour costs required in his home country, Kjos has created an airline called Norwegian Air International and located it in Ireland where it has also registered its Boeing 787 Dreamliners.

Not that the airline will actually fly from Ireland. Many companies register airliners there including about half of the world wide fleet of leased airplanes.

Norwegian’s application for an Irish air operating certificate, (AOC) would be “one of the smallest AOCs issued in Ireland to date,” according to Kevin Humphreys, director of safety and regulation for the Irish Aviation Authority.

An AOC from Ireland, though, is step one of a two-step process. If it is successful, Norwegian must then convince the U.S. Department of Transportation to issue an AOC to this new Irish company.

All this rigmarole has one goal, to circumvent the labor laws of Norway, according to Edward Wytkind, the president of the Transportation Trades Department of the AFL-CIO, an organisation made up of 32 unions in the United States. In a letter to Ireland’s minister for transport, he charged the airline is “basing its crews in Thailand and employing them on individual contracts governed by the laws of Singapore.”

Airlines with expensive labor contracts will not be able to compete against the lower salaried workers in Asia. This is why pilots and flight attendants and some of the airlines that employ them have taken on fighting Norwegian like it’s their jobs. They see a future where it could indeed be their jobs.

Last week, the Air Line Pilots Association’s (ALPA) president Lee Moak and an entourage of political and policy experts went to Oslo to make a case to government officials. They may have expected that the Norwegian government would be just as upset about what the ALPA president called a “subversive business model” to undermine the nation’s labour laws.

It remains questionable whether in traveling to one of the most expensive cities in the world, ALPA’s money was well spent though, because while the group was making nice in Norway, the minister of transport and communications Ketil So vik-Olsen had already written a letter to US transportation secretary Anthony Foxx, supporting the low cost carrier.

Government “should not hinder the establishment of new business models just because we cannot know for sure how they will develop,” vik-Olsen writes. If things turn bad, as Norwegian’s opponents suggest, national and international legislation will “put an end to unacceptable developments.”

That Norway had already endorsed the airline’s plan came as a surprise to Moak. But the unions aren’t relying entirely on the Norwegians anyway. A full scale campaign is underway with lobbying on Capitol Hill to pressure the US DOT not to give Norwegian an AOC even if Ireland does. And ALPA is not stopping in Washington either.

In a letter to the mayor of Orlando, where Norwegian has plans to begin service this spring, the union is also raising the safety card. Moak warned Mayor Buddy Dyer that enthusiasm about low fares and new international service in the city should be tempered by questions over how well the airline’s operations would be monitored.

“How can the Irish government exercise their oversight responsibility of an airline that will never stop or transient through Ireland? Will they abandon their oversight responsibilities entirely to someone else”, he asked in the letter.

While the IAA won’t consider the labor issues, the safe operation of Norwegian is under its purview. The airline’s bases in the U.S. and Bangkok have already been audited, Humphrey said and making sure Norwegian is a safe carrier is no different from what it already does with Ryanair.

“In the event the NAI AOC is granted, we will continue to inspect the stations and operations on an ongoing basis, within the context of the IAA’s safety regulation,” he said. “The oversight of Norwegian Airlines International would not constitute a significant expansion of our existing international aviation safety surveillance.”

Humphreys could not say when the Irish government will make a ruling on the Norwegian question. But the energy with which the airline’s opponents are taking on the cause makes it likely that even if Kjos gets the nod from Ireland, his airline will face more challenges when it comes to America.