Nor Air Transport Market 2012

7/31/2019 Nor Air Transport Market 2012

1/90

RAPPORT 1205

Svein Brthen, Nigel Halpern and George Williams

THE NORWEGIAN AIR TRANSPORT

MARKET IN THE FUTURE

Some possible trends and scenarios


2/90


3/90

SveinBrthen,NigelHalpernandGeorgeWilliams

TheNorwegianAirTransportMarketintheFuture

Somepossibletrendsandscenarios

Rapport1205

ISSN:08060789ISBN:9788278301692

MreforskingMoldeAS

11.april

2012


4/90

Tittel TheNorwegianAirTransportMarketintheFutureForfatter(e) SveinBrthen,NigelHalpernandGeorgeWilliamsRapportnr 1205Prosjektnr. 2379Prosjektnavn: LuftfartsmarkedetProsjektleder SveinBrthen

Finansieringskilde SamferdselsdepartementetRapportenkanbestillesfra: HgskoleniMolde,biblioteket,

Boks2110,6402MOLDE:Tlf.:71214161,Faks:71214160,epost:[email protected]

Sider: 82Pris: Kr100,

ISSN

08060789

ISBN 9788278301692

ShortSummary

ThepurposeofthisreporthasbeentoaddresstheNorwegianairtransportmarkettodayandinwhichdirectionitislikelytodevelopinthefuture.Themainobjectiveistoaddressthefollowingquestions:

Isthelongrunsustainabilityoftodayswellfunctioningnetworkdependenton

that

existing

airlines

maintain

their

position

in

the

Norwegian

market?

HowcanotherairlinesbeexpectedtoentertheNorwegianmarketifoneormoreoftheincumbentsreducestheirlevelofservice,beitfromfinancialorotherreasons?

Willthestructureofairlinesorairlineownershiphaveaninfluenceonthelevelofservicethatisofferedtothemarket?

Howwillpolicyframeworkconditionsandthecurrenteconomicsituation(influencinge.g.airtransportdemandandthelevelofcompetitionintheairlineindustry)affectthesupplyofairtransportservices?

Thefindings

indicate

that

there

are

challenges

in

Norwegian

air

transport,

connected

to

the

weak financial state of affairs for SAS, Norwegians expansion plans with a unit fleet oflarger aircraft and a network of 800 metre local airports with a limited number ofcompetitors for the PSO routes and scarce aircraft availability. For the two first factors,possiblemarketdrivensolutionscanbeseenwithoutanyseriousbarrierstoentry,whereasthesituationforthe800metreairportsremainsasachallengewithageingaircraftincaseswhere more than 19 seats aircraft are demanded, no known plans for developing newaircraft types replacing the Dash8100/200, operations with demands for specializedtraining of crew and short time span for preparation of operations after a tender isawarded.ThereportgivesreasontoexpectthatperhapsthelargestvolatilitywillbeonthethinnerdomesticcommercialrouteswhereSASandNorwegianarecompetingtoday.


5/90

Preface

ThisdocumentaddresseshowtheNorwegianairtransportmarketmaydevelop inthefuture.Thework iscommissionedbytheNorwegianMinistryofTransportand

Communications.

Theauthorswanttothankthefollowingpersonsforsharingtheirviews:

AlfReidarFjeld(SandefjordLufthavn,Torp) ThorbjrnLothe(NHOLuftfart) KnutStabkandTorolfHolte(OsloLufthavn,Gardermoen)

Representatives from the Ministry of Trade and Industry and the Ministry ofTransportandCommunicationshavegivenvaluableviewpoints.TrondKrkeneshas

beenthe

principals

representative.

Theauthorsaresolelyresponsibleforallviewpoints,analysesandconclusions.

Molde,11April2012

TheAuthors


6/90


7/90

TABLEOFCONTENTS

A Summaryandconclusivecomments..................................................................7

1 Introduction.......................................................................................................13

1.1 Background................................................................................................13

1.2 Mainobjectives..........................................................................................13

1.3 Researchapproach.....................................................................................14

1.4 Thereport..................................................................................................14

2 TheNorwegianairtransportmarket.................................................................15

3 FactorsaffectingtheNorwegianairtransportmarket......................................29

3.1 Macroenvironmentalfactors....................................................................29

3.2 Keyairlineissues........................................................................................33

3.2.1 Ownership............................................................................................33

3.2.2 Operations............................................................................................36

3.2.3 Strategy................................................................................................40

3.2.4 Financialperformance.........................................................................43

3.2.5 Futureprospects..................................................................................45

3.3 Barrierstomarketentry............................................................................51

3.3.1 Airserviceagreements(ASAs)............................................................51

3.3.2 Globalairlinealliances.........................................................................52

3.3.3 FrequentFlyerProgrammes(FFPs).....................................................53

3.3.4 Pricingandstateaid.............................................................................54

3.3.5 Sunkcostsandoperationalchallenges................................................55

3.3.6 Airportslotsandcompetition..............................................................56

3.3.7 GroundHandlingServices(GHSs).......................................................56

3.3.8 ComputerReservationSystems(CRSs)...............................................57

4 AirlinebusinessmodelsservingtheNorwegianMarket...................................59

5 Possiblescenarios..............................................................................................77

References..................................................................................................................81


8/90


9/90

A SUMMARYANDCONCLUSIVECOMMENTS

A.1 MainobjectiveofthestudyThepurposeofthisreportistoaddresstheNorwegianairtransportmarkettodayandinwhichdirectionitislikelytodevelopinthefuture.Themainobjectiveofthestudyistoaddressthefollowingquestions,wheretheanswersaresummarizedinsectionsA.3A.6below:

1. IsthelongrunsustainabilityoftodayswellfunctioningnetworkdependentonthatexistingairlinesmaintaintheirpositionintheNorwegianmarket?

2. HowcanotherairlinesbeexpectedtoentertheNorwegianmarketifoneormoreoftheincumbentsreducestheirlevelofservice,beitfromfinancialor

otherreasons?

3. Willthestructureofairlinesorairlineownershiphaveaninfluenceonthelevelofservicethatisofferedtothemarket?

4. Howwillpolicyframeworkconditionsandthecurrenteconomicsituation(influencinge.g.airtransportdemandandthelevelofcompetitionintheairlineindustry)affectthesupplyofairtransportservices?

There are a lot of underlying uncertainties affecting the air transport marketworldwide, as chapter 3.1 in particular illustrates. Therefore, we have made noattempts to conclude with certainty about the future development in theNorwegianairtransportmarket.However, inouropinionthereportoutlinessomerealisticdevelopmentpaths.

A.2 TodayssituationinNorwegianairtransport

Twoindependentairlines(previouslySASandBraathensbutmorerecentlySASand

Norwegian)haveservedthedomesticroutesatthemainandmediumsizedairports

over the years. Moreover, the Norwegian airline market has also had smaller

carriers operating at the regional airports but with one dominant market player,

Widere. Another smaller carrier, Danish Air Transport (DAT) is now serving

domesticroutesfromOslo,Moss/Rygge,Stavanger,Bergen,FlorandTrondheim.

From April 2012, DAT will serve the routes from Bod to Rst, Leknes, Svolvr,

StokmarknesandNarvik,whereasWiderewilltakeoverDATsroutesfromOsloto

FlorandBergen.

SAS and Norwegian are competing on the three main trunk routes between Oslo

and Stavanger, Bergen and Trondheim. In addition, these airlines are also

competingonthinnerroutes.Thethreemainrouteswillbeallowedtoreintroduce

the Frequent Flyer Programmes (FFPs) that were banned in 2002 and 2007 for a

period of 5 years. The main claimed reason for this is that the volumes on these


10/90

8 A Summaryandconclusivecomments

three routes are considered as robust. The competitive situation is considered as

toofragileonthethinnerroutes.

One concern at present is that SAS is struggling with higher costs and lower

productivitythanitscompetitors,andwithratherweakfinancialresultsandfuture

liabilities.

Norwegianis

apparently

in

amuch

stronger

position,

with

lower

costs,

higher productivity and an extensive fleet renewal program. Therefore, one main

challengeinthisstudyhasbeentoaddressthesituationintheeventofSAShaving

toreduceorceasetheiroperations.

A.3 Whatarethelikelydevelopmentpaths?

Noairlinesareimmunefromfinancialturmoilsoanyoftheairlinesoperatinginthe

Norwegianairtransportmarketcouldexperiencefinancialcrisisthatleadstothem

ceasing operations. Some threats and possibilities in the Norwegian air transport

marketare

discussed

in

Chapter

3.

Norwegian has performed well in recent years and will continue with their

expansionplan.Newandlargeraircraftwillbegoodforcostefficiencybuttheneed

tofindrouteswithsufficientdemandfortheirincreasedfleetcouldbeachallenge.

Thisunitfleetcouldalsoposeachallengewithrespecttomaintainingcompetition

on thinner domestic routes. Norwegians planned move into lowcost longhaul

operationsappearsasasignificantrisk.

The situation for SAS is fairly precarious. Rumours about the sale of government

sharesin

SAS

were

raised

by

the

media

on

15

February

2012

with

Lufthansa,

Finnair

andQatarAirwaysbeingmentionedasmostlikelycandidatestobuytheshares.The

longrunsustainabilityofthecompany in itscurrentstateofaffairs isencumbered

withahighdegreeofuncertainty.

Still, Scenario A is a possible scenario that reflects the status quo but also the

immediatefleetandrouteplansofexistingairlines intheNorwegianairtransport

market.

ScenarioA StatusQuo

SAScontinuesasa fullservicenetworkcarrierwith thecurrentownershipstructure.

NorwegiancontinuestoestablishaunitfleetofB737800with186seats. Norwegian pulls out of the thinner routes in Norway because of the

mismatchbetweenaircraftandmarketsize,andfocusesonthemaintrunk

routes in Norway along with new short and mediumhaul routes within

Europe. Norwegian also attempts to establish longhaul routes to/from

Europee.g.toAsiaandtheUSA.

SAS

and/or

Widere

operate

the

thin

routes,

perhaps

in

competition

with

regionalcarrierslikeDATorFlybeNordic.


11/90

A Summaryandconclusivecomments 9

Othernetworkand lowcostcarriersbased inEuropeprovidean increasingnumberofinternationalservicesfromairportsinNorway.

Additional competition for PSO routes occurs at non800 metre runwayairports.

AvariantofScenarioAcouldbethatNorwegianuses theirB737800stocapture

thepeakmarketsonthethinnerroutes,leavingtheremainingpartsofthemarket

for SAS and/or Widere. The result may be reduced departure frequencies, with

uncertaineffectsonfarelevels.

BankruptcyofSASor(lesslikelyatpresent)Norwegianwouldhavequiteanimpact

on the Norwegian air transport market, leaving a big gap in the domestic and

international route networks in the short term. Two possible scenarios in caseof

thisevent

are

discussed

here:

ScenarioB OngoingStruggleforProfitability

SAScontinuestoincurfinanciallosses. TheNorwegianandSwedishGovernmentsselltheirshareholdingsinSAS. SASisforcedtodownsizeanddropsnonprofitableandmarginallyprofitable

domesticandinternationalroutes.

NorwegiantakesoverthedomesticandinternationalroutesdroppedbySASandcontinuestogrowsuccessfully.

OthernetworkandlowcostcarriersbasedinEuropeprovideanincreasingnumberofinternationalservicesfromairportsinNorway.

AdditionalcompetitionforPSOroutesoccursatnon800metrerunwayairports.

ScenarioC MajorAirlineFailure

AsaresultofitsworseningfinancialpositionSASisforcedintobankruptcyanditsassetsaresold.

WidereisboughtbyinvestorsinNorway. Danishinvestors(includingtheGovernment)acquiretheCopenhagen

operationsofSAS.

NorwegiantakesovermanyofthedomesticandinternationalroutespreviouslyoperatedbySAS.

Anotherlowcostcarrier(possiblyeasyJet)opensabaseatGardermoenandbeginsoperatingbothinternationalanddomesticservices.

OthernetworkandlowcostcarriersbasedinEuropeprovideanincreasingnumberofinternationalservicesfromairportsinNorway.

Asaresultoftheincreasedcompetition,Norwegianfindsitincreasinglydifficult

to

expand

profitably.


12/90


AdditionalcompetitionforPSOroutesoccursatnon800metrerunwayairports.

A.4 WhichairlinescouldentertheNorwegianmarket?

Thelikely

impact

in

the

event

of

SAS

contracting

its

operations

or

going

bankrupt

will involve a mixture of existing operators increasing their services and new

entrantscoming into theNorwegianmarket. It isevident fromvery recentairline

failuresinEurope,notablyMalevandSpanair,thatreplacementservicesarerapidly

providedbyexistingcarriersand/ornewentrants.

LinkstoInternationalHubAirports

In terms of the links to international hubs the table below lists the possible

outcomesinrespectofthecarrierslikelytoserveeachhubfromOsloGardermoen

Airport

(OSL).

TableA.1 CarriersservingdifferenthubsfromOSL

Hub Existingcarriersincreasingservices Newentrant(s)Amsterdam KLM/NorwegianBrussels BrusselsAirlines NorwegianCopenhagen Norwegian FinnairFrankfurt Lufthansa AirBerlin/NorwegianHelsinki Finnair/NorwegianLondonLHR BritishAirways NorwegianMunich Lufthansa/Norwegian AirBerlin

NewYork United NorwegianParisCDG AirFrance/Norwegian easyJetRome Norwegian AlitaliaStockholm Norwegian AirBaltic/FinnairZurich Swiss Norwegian

Inaddition (and independentof thesituation forSAS) itcouldbe thatNorwegian

willbeanewentrantonOsloBangkok,whichisservedbyThaiatpresent.

LinkstoInternationalnonHubAirports

Inrespectofpredominantlybusinessdestinationsitismostlikelythatineachcase

replacement services would be provided by the network carrier based at the

destinationairportorwithasignificantpresencethere.

As regards destinations that have a large proportion of nonbusiness traffic

(VFR/long and short stay holidays), it is highly probable that any replacement

services would be provided by low cost carriers. For example, to Spanish

destinations this could involve Vueling and/or easyJet, whilst to Austrian cities it

couldbeFlyNiki.Someroutesmaybelost.


13/90

A Summaryandconclusivecomments 11

DomesticTrunkRoutes

While it is fairly certain that Norwegian would increase the number of services it

providesontheseroutes,itisverylikelythatthesemarketswillbeenteredbyother

carriers.Thepossibilities includeeasyJet,FinnairandWidere(assumingthatwith

independence

Widere

acquires

jet

aircraft).

The

latter

may

be

well

placed

to

operateserviceswithjetsseatingnomorethan100passengers,particularlygiven

that Norwegians fleet will soon comprise only aircraft equipped with 186 seats

whichmayprovetoolargeforsomenonpeakflights.

SecondaryDomesticCommercialRoutes

Anumberofregionalcarriers,suchasAirBaltic,FlybeNordicandan independent

Widere, are likely to show interest in operating these routes given SASs

withdrawal from this market. As indicated above, Widere or another regional

carrierwithsmallerregionaljetsmayprovideagoodadaptationtomarketneeds.

PSORoutes

Toairportsequippedwith runwaysof1200metresormoreanumberofregional

carriers, such as Air Baltic, DAT, Flybe Nordic and an independent Widere, are

likely to show interest inproviding services. To airports with 800 metre runways,

only airlines operating Dash 8100 or 200 aircraft will be possible contenders.

Competitionfortendersonsuchroutesislikelytocontinuetobeverylimited,given

theveryfewairlinesinEuropethatoperatethistypeofaircraft,DATrecentlybeing

onerareexample.DATspresenceintheNorwegianmarketisfairlylimitedandany

withdrawalfrom

the

market

would

probably

involve

quick

replacement

by

Widere,

especiallyonthePSOroutes.

A.5 Generaltrends

At present, Danish airline DAT is the only foreign airline operating scheduled

domestic routes in Norway. Approximately 30 foreign airlines operate scheduled

internationalroutesto/fromNorway,mainlyatOSLbutalsoatotherairportsinthe

Oslo fjord area and the larger regional airports such as Bergen, Trondheim and

Stavanger. It is likely that the number of foreign airlines serving scheduled

internationalroutes

to/from

Norway,

and

the

range

of

routes

offered,

will

increase

in the future as demand for air travel within and to/from Norway continues to

grow.Itisalsopossiblethatmoreforeignairlineswillenterthescheduleddomestic

market inNorway,especially intheeventofsituationstakingplaceas indicated in

ScenarioBandCabove.

A.6 BarrierstoentryTherearesomebarrierstoentryintheNorwegianairtransportmarket.Theseare

discussedinChapter3.3.Themostimportantbarriersfornewentrantsarerelated

to

the

800

metre

runways

operations

in

the

Norwegian

PSO

network:

the

availability of replacements for the ageing aircraft in cases where more than 19


14/90


seats aircraft are demanded, no known plans for developing new aircraft types

replacing the Dash8100/200s, operations with demands for specialized training of

crewandshorttimespanforpreparationofoperationsafteratenderisawarded.In

addition,availableslotcapacityatOSLatpeaktimescanbeamatterofconcern.


15/90

1 INTRODUCTION1.1 BackgroundTherewerearound38millionarrivalsanddeparturesatNorwegianairportsduring

2011, and around 50/50 share of domestic and international passengers. In

domesticairtransport,theairlinesNorwegianandSASareservingthetrunkroutes,

while Widere and one smaller operator (Danish Air Transport, DAT) are serving

mainlythe localairports,partlyunderthePSOregime.DAT isalsoexpandingtheir

program from Moss Airport, Rygge. In the international market, SAS, Norwegian,

Ryanair,KLMandLufthansaarethebiggeroperators.Norwayiscurrentlyamarket

with relatively strong air passenger growth of around 10 % from 20102011. It is

worth

noting

that

some

of

this

growth

can

be

explained

by

the

EyafjallajkulleruptioninSpring2010.

1.2 MainobjectivesThepurposeofthisprojecthasbeentoaddresstheNorwegianairtransportmarket

todayandinwhichdirectionitislikelytodevelopinthefuture.Themainobjective

istoaddressthefollowingquestions:

IsthelongrunsustainabilityoftodayswellfunctioningnetworkdependentonthatexistingairlinesmaintaintheirpositionintheNorwegianmarket?

HowcanotherairlinesbeexpectedtoentertheNorwegianmarketifoneormoreoftheincumbentsreducestheirlevelofservice,beitfromfinancialorotherreasons?

Willthestructureofairlinesorairlineownershiphaveaninfluenceonthelevelofservicethatisofferedtothemarket?

Howwillpolicyframeworkconditionsandthecurrenteconomicsituation(influencinge.g.airtransportdemandandthelevelofcompetitioninthe

airline

industry)

affect

the

supply

of

air

transport

services?

Furthermore, the report contains an assessment of possible scenarios where

differentairlinesareoperatingintheNorwegianmarketandhowthiswillaffectthe

levelofservice.


16/90

14 Chap.1 Introduction

1.3 ResearchapproachTrends and developments in the Norwegian air transport market are contrasted

againstexperiencesfromrelevant internationalmarkets.The following factorsare

addressed:

Theincumbentairlines,theirbusinessmodelsandfinancialresults. Theexternalfactorsthatmayaffectairlineoperations,liketaxation,

developmentsindomesticandinternationalmarketsandairportinfrastructureissuesincludingtheroleofOSLandtheadjacentairportsintheOslofjordarea.

Possibleforeignairlinesthatmayenterand/orexpandintheNorwegianmarket.

Widerchanges

in

the

business

environment

are

likely

to

affect

the

Norwegian

air

transportsystem.Webrieflyaddresspolicyframeworkconditionsandthecurrent

economicsituation.

Data sources on airlines are ICAO, Flightglobal Pro (formerly Air Transport

Intelligence,ATI),OAG,IATAandairlineannualreports.DataontheNorwegianair

transportmarketaresuppliedbyAvinor.

1.4 ThereportTherestofthereportstartswithashortdescriptionoftheNorwegianairtransport

market, given in Chapter 2. For a more comprehensive discussion about the

importance of air transport for Norway, we refer to Lian et al (2005). Chapter 3

proceedswithanassessmentofexternalfactorsthatcan influencetheNorwegian

market. This chapter also discusses key airline issues with focus on strategies.

Chapter 4 discusses airline business models. Chapter 5 presents future scenarios

andlikelydevelopmentpathsrelatedtotheNorwegianairtransportmarket.

SummaryandconclusivecommentsareprovidedinChapterA.


17/90

2 THENORWEGIANAIRTRANSPORTMARKETAirtransportisthemainmodeforlongerjourneysbothwithinNorwayandabroad

(Vganeetal,2011).Thecountrystopographyisanobviousreasonforthis,aswell

asthe

geographical

distances

to

popular

destinations

on

the

European

continent

andelsewhere. Moreover,theairlineindustryiscrucialforamodernsocietytobe

abletomaintainadecentralisedsettlement(Lianetal,2005).Inadditiontoequity

and regional balance, it is also likely that the air transport system affects the

economicactivitylevelingeneralandalsotheindustrialstructure.Thisisduetothe

factthatmultinationalcompaniesandnetworkindustrieshavelocatedthemselves

inmanyareas,andtheyareclearlydependentonreliableairservices.Anotherissue

isrelatedtothefactthatsomeindustriesarelessfootloosebecausetheyareeither

dependenton localskillsand local industrialnetworksor theexistenceofnatural

resources(oil,

gas,

fish)

that

needs

rapid

transport

of

people

and

time

urgent

cargo.

If this kind of resource base becomes less productive without an airport in the

vicinity, then there are productive effects present that are likely to affect the

nations resource base. A third issue is related to how economic players in more

remote areas interact with their markets in buyersupplier relationships.Apriori,

the probability of finding markets and collaborators are significantly higher for

businessesincentralareas.Hence,theairtransportsystemmayplayanimportant

role inexploiting thescaleeffects inbothhumancapitalandnatural resources in

remote areas. However, there will certainly be large variations among regions

dependingon

their

existing

resource

base.

Table2.1showsafewkeyfiguresonhowtheairtransportmarkethasdevelopedin

comparisonwithothertransportmodes.

Table2.1 Development of transport modes (*=indicative numbers. Source: SSB andVgane&Rideng2011).

Consumerpriceindex

2004 2005 2006 2007 2008 2009 2010 2011*)

CPI 113.3 115.1 117.7 118.6 123.1 125.7 128.8 130.4Transportintotal

115.8 120.8 124.8 127.2 132.2 134.2 137.0 139.7

Air 110.6 120.4 125.3 126.9 134.5 132.5 124.0 121.0%changeinpassengerkilometers,domestic

Car 0.9 0.4 1.7 2.9 2.0 1.0 1.0 n.a.Rail 6.8 3.6 3.0 4.4 5.4 0.8 2.6 n.a.Sea 1.4 1.3 1.2 0.8 1.0 6.0 3.7 n.a.Air 6.4 2.4 3.7 2.7 2.6 0.6 1.5 n.a.

Airtransporthasapriceleveltodayatapproximately2005level,whereastheprice

levelfortheothermodeshasincreasedsteadily. Priceshavedroppedbymorethan


18/90

16 Chap.2 TheNorwegianairtransportmarket

10% on average since 2008. Currently, the business market has the largest price

decrease(down12.5%between3rdand4thquarterof2011,4%decreaseforleisure

traffic).

Apartfrom

after

the

financial

crisis

in

2008,

the

number

of

passenger

kilometres

has

grown by 2.4 3.7% per year after 2004. In a longer time perspective, the

Norwegianairtransportmarkethasbeengrowingsteadily,albeittherehavebeen

somedownturnsrelatedtobusinesscycles,asshowninFigure2.1and2.2.

Figure2.1 Arrivals/departures,19822011.(Source:Avinor)

Figure2.2 Annualgrowthrates.(Source:Avinor)

Figure2.2indicatesthatairtransportissubjectedtobusinesscyclefluctuations,and

thatinmostcasestheamplitudesarelargerfortheinternationalmarket.

0

5000 000

10000 000

15000 000

20000

000

25000 000

30000 000

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Passengers

Growthinarrivals/departures,allairports

Domestic

International

15

10

5

0

5

10

15

20

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

AnnualGrowth

Annualgrowthinarrivals/departures,allairports

Growthdomestic

GrowthInternational


19/90

Chap.2 TheNorwegianairtransportmarket 17

TheairportcoverageinNorwayisgood,andtwooutofthreecitizenshasaccessto

an airport within one hour (Lian at al., 2005). Although the airports represent a

network with good international connections, several destinations cannot be

reached directly. Travelers are therefore dependent on a hubandspoke system

(Lian

at

al.,

2005).

Oslo

is

the

national

hub,

with

Bergen,

Trondheim,

Bod

andTromsasregionalhubswherethemainroutes(servedbyB737andthelike,120+

seats)andthelocalroutes(mostlyDash8/100andATR42)areconnected.

Figure2.3 Avinor`snetworkofairports.(Source:WilliamsandBrthen2010)

TheNorwegianairlinemarkethasbeenratheruniquecomparedtoothercountries

inEuropeastwoindependentairlineshaveservedthedomesticroutesatthemain

and mediumsized airports over the years. These dyads have been Braathen

SAFE/Braathensand

SAS,

later

on

Norwegian

and

SAS

Braathens/SAS.

Most

other

countrieshaveonlyhadonedomesticcarrier(Strandenes,2004, inBjerkvik2012).

Moreover,theNorwegianairlinemarkethasalsohadsmallercarriersoperatingat

the regional airports but with one dominant market player, Widere. Another

smaller carrier, Danish Air Transport (DAT) is now serving domestic routes from

Oslo,Moss/Rygge,Stavanger,Bergen,FlorandTrondheim.FromApril2012,DAT

willservetheroutesfromBodtoRst,Leknes,Svolvr,StokmarknesandNarvik,

whereasWiderewilltakeoverDATsroutesfromOslotoFlorandBergen.


20/90


Table2.2 Direct routes between the regional and main airports in Norway, perFebruary

2011.(Theroutesarelistedonlyonce,andthelocalairportnetworkisnotfullyincluded)

Route Carrier RemarksOsloBergen SAS,Norwegian

OsloStavanger SAS,Norwegian OsloTrondheim SAS,Norwegian OsloTroms SAS,Norwegian OsloBod SAS,Norwegian OsloAlta SAS,Norwegian OsloKirkenes SAS,Norwegian OsloAndenes Norwegian FromSummer2012OsloBardufoss NorwegianOsloBrnnysund WidereOsloFagernes DOT/DAT North Flying from 1 April

2012OsloFlor DAT Widerefrom1April2012

OsloHarstad/Evenes SAS,Norwegian OsloHaugesund SAS,Norwegian OsloKristiansand SAS,Norwegian OsloKristiansund SASOsloLakselv Norwegian FromMay2012OsloLongyearbyen SASOsloMolde SAS,Norwegian OsloRros DOT/DAT

Oslo

Sandane

Widere

OsloSandnessjen WidereOsloSogndal WidereOsloStavanger SAS,Norwegian OsloStord DATOslorland AirNorwayOslorsta/Volda WidereOslolesund SAS,Norwegian Moss/RyggeStavanger DATMoss/RyggeBergen DAT

Moss/Rygge

Trondheim

DAT

Sandefjord/TorpHarstad/Narvik

Norwegian

Sandefjord/TorpBod Widere DuringSummerSandefjord/TorpBergen Widere,

NorwegianNorwegian from 1 March2012

Sandefjord/TorpStavanger WidereSandefjord/TorpTrondheim

Widere,Norwegian

Norwegian from 1 March2012

KristiansandStavanger WidereKristiansandBergen WidereStavangerSkien DAT


21/90


Route Carrier RemarksStavangerKristiansand WidereStavangerBergen SAS,Norwegian StavangerFlor DATStavangerTrondheim SAS

HaugesundBergen WidereBergenvarious localairportsontheWestcoast

Widere,DAT

Bergen lesund SASBergenMolde WidereBergenKristiansund WidereBergenTrondheim SAS,NorwegianBergenBrnnysund WiderelesundTrondheim SASMoldeTrondheim Krohn/Helitrans

KristiansundTrondheim WidereTrondheimvariouslocalairports

Widere

TrondheimBod SAS,Norwegian Bodvariouslocalairports Widere,

LufttransporttoVry

DATtakesoverBodRst/Leknes/Svolvr/Narvikfrom1April2012

BodHarstad/Evenes WidereBodBardufoss NorwegianBodTroms SAS,Norwegian

Harstad/EvenesAndenes WidereHarstad/EvenesTroms WidereTromsvariouslocalairports

Widere

TromsAlta SAS,Widere,Norwegian

TromsKirkenes

TromsLongyearbyen

Widere,Norwegian

SASAltaKirkenes Widere

Altavariouslocalairports WidereKirkenesvarious localairports

Widere

Figure2.4showstheroutesthataresubjectedtocompetitionperFebruary2012.

SAS and Norwegian are competing on the three main trunk routes between Oslo

and Stavanger, Bergen and Trondheim. In addition, these airlines are also

competing on thinner routes. If the Ministry of Government Administration,

Reforms and Church Affairs will approve the recent recommendations from the

Norwegian Competition Authority, the three main routes will be allowed to

reintroduce theFrequentFlyerProgrammes (FFPs) thatwerebanned in2002and


22/90


2007 foraperiodof5years.Themainclaimedreason for this is that these three

routes are considered as robust and they may also be more attractive for other

entrantsiftheFFPsarereintroduced.ThisstatementisquestionedinChapter3.3.3.

AccordingtotheNorwegianCompetitionAuthorities,evenifthenumberofroutes

withcompetition

has

increased

from

4to

23

during

the

last

10

years

(see

Figure

2.4), the competitive situation is considered as too fragile on the thinner routes

becauseofthevolatilityinthemarketforbusinesstravelwithrespecttothequality

oftheFFPs.

Figure2.4 Domesticrouteswithcompetition.(Source:NorwegianCompetitionAuthority)

Table2.3shows the top10 internationalairportsasdestinations fromNorwegian

airportsownedbyAvinor,whereasTables2.4and2.5showsthemarketsharesfor

the top 10 airlines on the foreign and domestic routes, measured in number of

passengers on all departures from Avinors airports in 2011. Copenhagen has the

highest market share as a destination, with 13%, followed by Amsterdam and

London.

The

SAS

Group

(SAS+Widere)

has

60%

of

the

domestic

departures

(passengers)fromAvinorsairports,Norwegianhas36%.SASandNorwegianhave

thesamemarketshare(29%)ontheinternationalroutesfromAvinorsairports.Itis

worth noting that the departures from Sandefjord/Torp and Moss/Rygge are not

included here. Ryanair is presumably the third largest airline in terms of

internationaldeparturesfromNorwegianairports.


23/90


Table2.3 Marketsharefortop10internationaldestinations,departuresfromAvinorsairports,2011.(Source:Avinor)

Airport Marketshare,%,passengersCopenhagen 13Amsterdam/Schiphol 9

Stockholm/Arlanda 8London/Heathrow 5Frankfurt 4London/Gatwick 4LasPalmas 3Antalya 3Helsinki 2Munich 2Others 47Total 100

Table2.4 Market share for top 10 airlines, domestic routes from Avinors airports,departures,2011.(Source:Avinor)

Airline Marketshare,%,passengersSAS 45,98Norwegian 36,24Widere 14,61CHCHelikopterService 1,51DanishAirTransport 0,95DOTLT 0,24

HeliTrans

0,08

AirBaltic 0,05Lufttransport 0,05Icelandair 0,05Total 99,76


24/90


Table2.5 Marketsharefortop10airlines,internationalroutesfromAvinorsairports,departures,2011.(Source:Avinor)

Airline Marketshare,%passengersNorwegian 29SAS 29

KLM 7Lufthansa 5ThomasCookAirlines 4Widere 2BritishAirwaysPlc. 2AirBaltic 1NovAir 1TUIfly 1Others 17TOTAL 100

Figures 2.52.15 show the market shares for the 10 busiest airports in Norway,measuredintermsofpassengersdepartedfromOslo.

Figure2.5 Marketshares,OsloTrondheim(passengers=873000).(Source:Avinor)

0%10%20%30%40%50%60%70%80%90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MarketshareofairlinesTRD,departuresfromOSL

SAS

Norwegian

Other


25/90


Figure2.6 Marketshares,OsloBergen(passengers=837000).(Source:Avinor)

Figure2.7 Marketshares,OsloStavanger(passengers=717000).(Source:Avinor)

0%10%20%30%40%50%60%70%80%90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MarketshareofairlinesBGO,departuresfromOSL

SAS

Norwegian

Other

0%10%20%30%40%50%60%70%80%90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MarketshareofairlinesSVG,departuresfromOSL

SAS

Norwegian

Other


26/90


Figure2.8 Marketshares,OsloTroms(passengers=474000).(Source:Avinor)

Figure2.9 Marketshares,OsloBod(passengers=363000).(Source:Avinor)

0%10%20%30%40%50%60%70%80%90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MarketshareofairlinesTOS,departuresfromOSL

SAS

Norwegian

Other

0%10%20%30%40%50%60%70%80%90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MarketshareofairlinesBOO,departuresfromOSL

SAS

Norwegian

Other


27/90


Figure2.10 Marketshares,Oslolesund(passengers=288000).(Source:Avinor)

Figure2.11 Marketshares,OsloKristiansand(passengers=243000).(Source:Avinor)

0%

10%

20%

30 %

40%

50%

60%

70%

80%

90%

100 %

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MarketshareofairlinesAES,departuresfromOSL

SAS

Norwegian

Other

0%10%20%30%40%50%60%70%80%90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MarketshareofairlinesKRS,departuresfromOSL

SAS

Norwegian

Other


28/90


Figure2.12 Marketshares,OsloEvenes(passengers=251000).(Source:Avinor)

Figure2.13 Marketshares,OsloHaugesund(passengers=209000).(Source:Avinor)

0%10%20%30%40%50%60%70%80%90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MarketshareofairlinesEVE,departuresfromOSL

SAS

Norwegian

Other

0%10%20%30%40%50%60%70%80%90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MarketshareofairlinesHAU,departuresfromOSL

SAS

Norwegian

Other


29/90


Figure2.14 Marketshares,OsloMolde(passengers=166000).(Source:Avinor)

Figure2.15 Marketshares,Oslo the10busiestairportsfromOslo(passengers=4.4millions).(Source:Avinor)

There are reasons to expect that markets below around 250000 passengers oneway from Oslo could become exposed to a certain volatility in the tradeoff

betweenaircraft

size

and

the

number

of

departures.

On

several

of

these

airports,

Norwegianhasa40%marketshare, leavingamarketsize (in theory) to filla186

0%

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

10 0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MarketshareofairlinesMOL,departuresfromOSL

SA S

Norwegian

Other

0%

10 %20

%

30 %

40 %

50 %

60 %

70 %

80 %

90 %

10 0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MarketshareofairlinesTop10airports,departuresfrom OSL

SA S

Norwegian

Others


30/90


seataircraftontwodailydepartureswithapayloadof73%orless.IfaunitfleetofB737/800willbethefutureforNorwegian,itislikelythattheymayeitherreducetheirnumberofdeparturesonthisgroupofairportsortheymaywanttobecomethedominantoperatorona largernumberofthesemediumsizedairportstotakeadvantageofthescaleeffectsfrom largeraircraftoperations.Withtwoplayerson

relativelythin

routes,

there

are

reasons

to

expect

clustering

of

departures

around

themorningandafternoonpeaks,aspointedoutinBjerkvik(2012).Whatcouldbethelikelyoutcomewilldependonanumberoffactorslikeaircraftsize,marketsizeand composition of the market (business/leisure and the daily and weeklydistribution of demand). Airline business models and strategies will be furtherdiscussedinthesubsequentchapters.


31/90

3 FACTORSAFFECTINGTHENORWEGIANAIRTRANSPORTMARKET

Thischapter investigatesfactorsaffectingtheNorwegianairtransportmarket.The

chapterisinthreemainparts.Thefirstpartprovidesabriefsummaryofthemacro

environmentalfactorsthataffectthemarket.Thesecondpartprovidesadiscussion

ofkeyissuesrelatingtothemainairlinesthatoperateinthemarket.Thethirdpart

providesabriefsummaryofpotentialbarrierstoentryinthemarket.

3.1 MacroenvironmentalfactorsPESTEL

analysis

provides

a

framework

for

investigating

macroenvironmental

factorsaffectinganindustryandinfluencingcompaniesinthatsector.PESTELisan

acronym for political, economic, sociocultural, technological, environmental and

legal/regulatory. Table 3.1 provides a PESTEL analysis for the Norwegian air

transport market. Some factors listed in Table 3.1 are interrelated and could

therefore be placed under multiple headings. The analysis identifies factors that

specifically affect the Norwegian air transport market. However, the macro

environmental nature of the analysis means that many of the factors listed also

affect air transport markets worldwide. Separate columns have been included to

indicatewhether

each

factor

is

athreat

or

an

opportunity

for

airlines.

Some

factors

offer both threats and opportunities. However, the most likely impact over the

shorttermisindicated.

FromTable3.1,itcanbeseenthatmanyopportunitiesexistincludingthehighGDP

per capita and high propensity to travel, growing and increasingly diverse

population, and increaseddemand forair travel and tourism. However, thereare

also many threats. High and fluctuating fuel prices and the global economic

situation,especiallyintheEurozone,arekeychallengesfacedbyairlinesservingthe

Norwegian air transport market at the moment. These challenges are likely to

continueintoandbeyond2012.

The analysis in Table 3.1 focuses on macroenvironmental factors affecting the

Norwegian air transport market and influencing the airlines in that market.

However,therearealsoanumberofkeyissuesrelatingtotheinternalairtransport

market in Norway that may have implications for the future. These issues are

related to the ownership, operations, strategy and financial performance of the

mainairlinesthatoperateinNorway.


32/90


33/90


34/90

Table3.1 PESTELanalysisforthe(Norwegian)airtransportmarketcontinuedEnvironmentalFactors

TheEmissionsTradingScheme(ETS)willbeintroducedin2012;promotingunityregardingaglobaltradesystemforemissionrightswhereairlineswillbeallocatedemissionrightsbasedontrafficvolumein2010.Airlinescanachieveexpansionandkeepcostsforemissionrightsdownbyimprovingfuelefficiency.ThesystemisbeinglegallychallengedbyUSairlinesandmoretha

100non

European

states

are

against

it.

AmbitioustargetsagreedattheUNconferenceinCopenhagenin2009andtheclimatemeetinginCancun(whereitwasdecidedthatafundshouldbecreatedtofinanceclimatechangeindevelopingcountriesitisunclearhowthiswillbefinanceandthereisariskthataviationmaybecomeasourceofincome).

Legal/RegulatoryFactors

ECconsultationsareunderwayonregulationsforslotallocationatairportsandforpassengerrightsintheeventofcancellatioordelayedflights.ThiscouldhaveimplicationsfortheNorwegianairtransportmarketbutalsomarketsservedbyairlinesinNorway.

IncreasinglycomplexandcostlyEUregulationsmayconflictwithnationallegislationincountriesoutsidetheEUandweakenthecompetitivenessoftheEuropeanairlineindustry.

NewairservicesagreementshavebeenreachedbetweenScandinaviaandChina. TheEUcompletedairserviceagreementnegotiationswiththeUSandinitiatednewnegotiationswithBrazilandIsrael. AirserviceconsultationsatICAN2011inOctobertookplacebetweenScandinaviaandAustralia,Ethiopia,India,Iraq,Iran,

Kenya,Oman,Pakistan,SriLanka,Turkmenistan,Uganda,UnitedArabEmiratesandZambia.

Newflightsafetydemandsarerisinginfrastructurecostsmayimpactonairlinefinancialperformance. ThebanonfrequentflyerprogrammesfordomesticflightsinNorwayhasbeenunderreview(investigationinitiatedbythe

NorwegianCompetitionAuthorityinDecember2010).ThedecisionisthatFFPscannowbereintroducedonthethreemaintrunkroutesOSLBGO/SVG/TRD.

Datasources:WorldBank,StatisticsNorway(SSB),TransportEconomicsInstitute(TI),InnovationNorway,Avinor,andthe2010

Widere.


35/90

Chap.3 Factorsaffectingthemarket 33

3.2 KeyairlineissuesFourmainairlinesoperateinNorway.SASandNorwegianservethemaindomestic

routes and a large number of international routes. The routes served by both

airlines

are

mainly

shorthaul

Nordic

and

intra

European.

However,

SAS

serves

intercontinental routes from Scandinavia to Asia (Bangkok, Beijing, Tokyo and

Shanghai) and the USA (Chicago, New York and Washington D.C.). Norwegian

servesintercontinentalroutesfromScandinaviatoNorthAfrica(Morocco)andthe

Middle East (Israel and Dubai). Widere and Danish Air Transport (DAT) serve

mainlydomesticrouteswithinNorway including localroutesthatcomeunderthe

scopeof thePSOregime.WiderealsoservesotherpartsofScandinaviaand the

UK.DATalsoservesDenmark.

There are a number of foreign operators serving international routes to/from

NorwayincludingRyanair,Lufthansa,KLMandBritishAirways.However,thefocus

ofthischapterislargelyonthefourmainairlinesthatservethedomesticmarketin

Norway;SAS,Norwegian,WidereandDAT.

3.2.1 OwnershipTheownershipstructureofthefourairlinesissummarisedinTable3.2.

Table3.2 OwnershipstructureofthemainairlinesoperatinginNorwayAirline Ownership

SAS 50%government,50%privateinvestors

Norwegian 100%privateinvestors

Widere 100%SASGroup

DAT 60%Rungholmfamily,40%privateinvestors

The SAS Group is a consortium of taxable entities under which SAS Norway, SAS

SwedenandSASDenmarkbelong.It isthroughtheSASGroupthattheSASairline

business

operates,

and

the

financing

and

leasing

of

aircraft

is

carried

out.

The

consortiumalsoholdstheAirOperatorCertificate(AOC)andtrafficrightsforSAS.

The SAS Group owns Blue1 (Finnish regional airline serving around 1.5mn

passengersand20destinationsinFinland,ScandinaviaandotherpartsofEurope),

Widere,andtheSASCargoGroup.Figure3.1showsthelegalstructureoftheSAS

Group as of 15 March 2011 including operations that have, or are due to be,

divested.Spanairceasedoperationson27 January2012whiletheSASGroupstill

hada10.9%stakeintheairline.


36/90

34 Chap.3 Factorsaffectingthemarket

Figure3.1 SASGroupslegalstructure,15March2011Source:SASGroup(2011)

The SAS Group is owned 50% by private interests and 50% by the Scandinavian

governments of Norway (14.3%),Sweden (21.4%)and Denmark (14.3%).TheSAS

Group islistedonthreestockexchanges(Oslo,StockholmandDenmark).Asof31

December 2011, there were 66,917 shareholders. Table 3.3 lists the principal

shareholdersas

they

appear

in

the

shareholder

register.

The

list

does

not

include

institutions/bankswithmultipleholdingsintheSASGroupcontrollingalargershare

than presented in the list. Under Danish law, disclosure of Danish registered

shareholdersispermittedonlywhenthestakeexceeds5%.

Table3.3 PrincipalshareholdersintheSASGroup,31December2011Shareholder Total Accumulated

TheSwedishgovernment 21.4% 21.4%

TheDanishgovernment 14.3% 35.7%

The

Norwegian

government

14.3% 50.0%Knutand AliceWallenberg'sfoundation 7.6% 57.6%

A.HVrdepapperAB 1.4% 59.0%

Frskringsaktiebolaget,AvanzaPension 1.4% 60.4%

Unionen 1.4% 61.8%

Denmark'sNationalBank 1.4% 63.2%

RoburFrskring 0.9% 64.1%

AndraAPfonden 0.5% 64.6%

NordnetPensionsfrskringAB 0.5% 65.1%

JPMChaseNA 0.5% 65.6%

PonderusSecuritiesAB 0.4% 66.0%

SwedbankRoburSverigefond 0.4% 66.4%

SwedbankRoburSverigefondMega 0.3% 66.7%

HandelsbankenSverigefondIndex 0.3% 67.0%

AMFAktiefondSmbolag 0.3% 67.3%

Source:SASGroup(2012)

TheNorwegianGroupconsistsof theparentcompanyNorwegianAirShuttleand

the fullyowned subsidiaries Norwegian Air Shuttle Polska (a company based in

Warsaw that manages administrative services for the parent company) and

NorwegianAir

Shuttle

Sweden

(a

company

based

at

Stockholm

Arlanda

Airport

that

suppliescrewandprovidestechnicalservices,butflightoperations inSwedenare


37/90


operatedbytheparentcompany).Additionally,NorwegianAirShuttleowns100%

of the communication services company Call Norwegian, 99.9% of NAS Asset

Management, 100% of NAS Asset Management Norway and 20% of Norwegian

Finans Holding. NAS Asset Management Ireland owns the remaining 0.1% in NAS

AssetManagement.

Figure

3.2

shows

the

legal

structure

of

Norwegian

Air

Shuttle

asof31December2011.

Figure3.2 NorwegianAirShuttleslegalstructure,asof31December2011Source:Norwegian(2012)

NorwegianAirShuttleislistedontheOsloStockExchange.Attheendof2010,the

companyhad4,598 shareholdersconsisting of institutional andprivate investors.

80% of the shareholding is with Norwegian investors, 6% British, 5% Finnish

(Finnair),5%American,3%Swedishand1%other.Theprincipalshareholdersare

listedinTable3.4.

Table3.4 PrincipalshareholdersinNorwegianAirShuttle,31December2010Shareholder Total Accumulated

HBKInvestAS 27.5% 27.5%

AwilcoInvestAS 6.5% 34.0%

SkagenKonTiki 4.9% 38.8%

FinnairPLC

4.8% 43.5%

VitalForsikringASA 4.3% 47.9%

SkagenVekst 3.8% 51.7%

JPMorganChaseBank 2.7% 54.4%

DNBNORNorge(IV)V 2.4% 56.8%

StateStreetAN 2.0% 58.8%

GoldmanSachsInt. 1.6% 60.5%

Source:Norwegian(2011)

DATis60%ownedbytheRungholmfamilyand40%byprivateinvestors.DATowns

100%of

DOT

LT

(a

Lithuanian

airline

that

offers

ACMI

services

with

asmall

fleet

of

passenger and cargo aircraft) and owned 15% of Vildanden (a virtual, regional


38/90


airline that was based at Skien Airport from 2005 with operations to Bergen

FleslandAirport,TrondheimVrnesAirportandStavangerSolaAirportbutceased

operationson16January2011).

3.2.2 OperationsBetweenthem,thefourmainairlinesserve201nonstopdestinations (seeFigure

3.3). 39% of those destinations are within Norway, a further 13% are within

Scandinavia,anda further42%arewithinEurope.Theremaining6%are to/from

North America, AsiaPacific, Africa and the Middle East. SAS serves 37% of the

destinations, Norwegian 35%, Widere 23% and DAT 5%. Widere is the largest

operator of nonstop destinations in Norway, serving 41 of the 79 nonstop

destinationsinNorway.SASandNorwegianbothserve15nonstopdestinationsin

Norway,

DAT

serves

eight.

Figure

3.3

does

not

include

destinations

served

by

interlining,codeshareoralliancepartners,which includesasignificantnumberof

destinations worldwide in the case of SAS and Widere because of their Star

Alliance membership. In addition, Figure 3.3 only shows nonstop destinations

servedbyscheduledservicesandnotthoseservedbycharterservices.

Figure3.3 Nonstopdestinationsserved,1117January2012Datasource:FlightglobalPro

Betweenthem,thefourmainairlineshave242aircraft inservice(seeFigure3.4).

SAS operates 57% of those aircraft, Norwegian 26%, Widere 14% and DAT 3%.

WidereandDATonlyoperateturbopropswhileSASandNorwegianonlyoperate

jetaircraftwiththemajoritybeingnarrowbodyaircraft.

0

10

20

30

40

50

60

70

80

DAT Widere SAS Norwegian

No

.ofnon

stopdestinations

Nonstopdestinationsserved

Otherworld

OtherEurope

OtherScandinavia

Norway


39/90


Figure3.4

Aircraft

in

service,

1February

2012

Datasource:FlightglobalPro

Fleet sizeand composition has an impact on capacity providedby the respective

airlines. Data on available seat kilometers (ASKs) by airline from 20032011 is

providedinFigure3.5.ASKdataisnotavailableforDAT.

Figure3.5 Availableseatkilometers(ASKs)Datasource:FlightglobalPro

ThethreeairlinesinFigure3.5providedatotalof56.6mnASKsin2011.Thisisan

increaseof21.2mnASKssince2003.59%ofASKs in2011wereprovidedbySAS,

39% by Norwegian and 2% by Widere. Norwegians share of total ASKs has

increasedfromjust3%in2003to39%in2011.Wideressharehasreducedfrom

0

30

60

90

120

150

180

No

.ofaircraft

Aircraftinservice,1February2012

Norwegian

SAS

Widere

DAT

05

1015202530354045505560

2003 2004 2005 2006 2007 2008 2009 2010 2011

mnASK's

Year

Availableseatkilometres(ASK's)

Widere

SAS

Norwegian


40/90


3% to 2%, SASs share has reduced from 94% to 59%. In 2011, passenger load

factorswere59.9%forWidere,74.6%forSASand79.3%forNorwegian.

Competition from Norwegian, but also from other European carriers in what has

traditionallybeen

the

main

market

for

SAS

(to/from

and

within

Scandinavia)

can

be

seen inFigure3.6.ASKshave increasedfrom161bn in2000to364bn in2011;an

increaseof203bn.90%ofthatgrowthhasbeenprovidedbyfourlowcostcarriers;

Ryanair47%,easyJet24%,AirBerlin13%andNorwegian6%.

Figure

3.6

Additional

ASKs

to/from

and

within

Scandinavia,

2000

2011

Source:dataextractedfromGustafson(2011)

Figure 3.7 shows the share of SAS shorthaul revenues that are exposed to

competitionaccordingtoeachofthemaincompetitors.About70%ofSASsshort

haul revenues are exposed to competition from lowcost carriers including

Norwegian, Ryanair, easyJetandAir Berlin. Norwegian alone competes for about

60%. Mega carriers including British Airways, Air France, Lufthansa and KLM

compete for about 18%, other network carriers including Brussels Airlines, Swiss

and

Finnair

compete

for

about

6%,

and

regional

carriers

including

Cimber

Sterling

andMalmAviationcompeteforabout10%.

96

48

26

16

134

0 20 40 60 80 100

Ryanair

easyJet

AirBerlin

Lufthansa

NorwegianOthers

AdditionalASK's(bn)

AdditionalASK'sto/fromandwithinScandinavia


41/90


Figure3.7

Competitor

presence

on

share

of

SAS

short

haul

revenues,

April

2011


Note:Sharesarenotmutuallyexclusiveandthereforedonotneedtoequal100%

Figures 3.8 and 3.9 further emphasise the increased competition for SAS from

Norwegian in recent years. Norwegian has stimulated new demand for air travel

butalsoincreaseditsshareofthemarketforpassengersandRPKs.

Figure3.8 TotalpassengersDatasource:FlightglobalPro

Note:datanotavailableforDAT

6015

87

6444

3222

2

0 10 20 30 40 50 60

NorwegianRyanair

BritishAirwayseasyJet

CimberSterlingMalmAviation

AirFranceLufthansa

BrusselsAirlinesKLM

AirBerlinSwiss

Finnair

ShareofSASshorthaulrevenues

CompetitorpresenceonshareofSASshorthaulrevenues

0

5

10

15

20

25

30

35

40

45

2003 2004 2005 2006 2007 2008 2009 2010 2011

000passengers

Year

Total

passengers

Widere

SAS

Norwegian


42/90


Figure3.9

Revenue

passenger

kilometers

(RPKs)


Note:datanotavailableforDAT

3.2.3 StrategyWhen considering future prospects for the air transport market in Norway, it is

useful todiscuss the routeand fleetplans of themainairlines,and theirgeneral

strategyforfutureoperations.

DAT has six ATR turboprop aircraft inservice (four ATR42 200s and two ATR

72200s) and two narrowbody MD80 aircraft. DAT is currently expanding its

presence in Europe and will launch a twiceweekly service between Blackpool

InternationalAirport intheUKandAlbertPicardieAirport inFranceusinganATR

72. Inaddition,DATwillstopoperating thePSOroutesFlorBergen/Oslo from1

April 2012 but will instead operate PSO routes in Lofoten (Bod

Leknes/Narvik/Rst/Svolvr), probably with leased Dash8 aircraft. The Lofoten

routes are currently operated by Widere. If DAT is successful on those routes,

theremight

be

increased

competition

on

PSO

routes

in

Norway

in

the

future,

which

is importantbecausecompetitionmayhelptoreducethe levelofsubsidyneeded

forPSOroutes.DAT isalsoextendingtheirpresenceatairports inandaroundthe

Oslo fjord area including at Moss Rygge Airport, Oslo Gardermoen Airport and

SkienAirport.

Widere currently has 34 Dash8 turboprop aircraft inservice with options on a

numberofDash8400s.Theairlineplanstoreplaceoldermodels in itsfleetwith

newer models available from the used market. The airline has not announced

whether

it

plans

to

expand

its

total

fleet

size,

or

the

timescale

or

targets

for

0

10

20

30

40

50

2003 2004 2005 2006 2007 2008 2009 2010 2011

mnRPK's

Year

Revenuepassengerkilometres(RPK's)

Widere

SAS

Norwegian


43/90


replacing older aircraft in its fleet. However, the replacement plan is likely to

consist of replacing older Dash8s with newer models available from the used

market,carryingoutmidlifeextensionontheirnewerDash8100s,andincreasing

the number of Dash8 400s, if good market conditions prevail (Sanders, 2011).

Widere

is

likely

to

continue

to

focus

on

defending

and

growing

its

domestic

networkinNorwayincludingPSOandcommercialroutes,andinternationalroutes

(e.g. to/from theUK). Theairlinehas increased its presenceatOslo Gardermoen

AirportandSandefjordTorp Airport in recent years providing both domestic and

internationalservicesto/fromthoseairports.

SASiscurrently intheprocessofharmonisingitsfleetandaspartofthatprocess;

SASannouncedanorderfor30newA320nextgenerationaircrafton20June2011

(see CAPA, 2011). From 2015, SAS plans to operate two types of short range

aircraft;Airbus

A320s

at

Copenhagen

Airport

and

Boeing

737NGs

at

Stockholm

Arlanda Airport and Oslo Gardermoen Airport. The MD80s that SAS currently

operates at Copenhagen Airport will be replaced by leased Airbus A320s by the

endof2014andthoseleasedaircraftwillbereplacedfrom2016bythe30Airbus

A320neo aircraft that are onorder. The MD80s that SAS currently operates at

StockholmArlandaAirportwillbereplacedbyleasedBoeing737NGsby2013and

the Boeing 737 Classics that SAS operates at Oslo Gardermoen Airport will be

replacedbyBoeing737NGsby2014.

SASlaunched

astrategy

called

Core

SAS

in

2008

that

targeted

cost

reductions

of

SEK 7.8bn by 2012, increased commitment to business travellers, and a more

streamlined organisation. Core SAS was very much targeted on business

passengers.Theairlinehas,alongwithitssubsidiaryWidere,claimedtopplacesin

European and world rankings for punctuality in recent years. The airline also

claimed about 55% of the business travel market in the Nordic region in 2010,

givingtheairlinesubstantialreachandpricingpower(CAPA,2011).Afocusonhigh

yield business passengers makes sense given that SAS is infamous in the airline

industry forhavinghighcosts.However, theairlinesshareof thebusiness travel

market in the Nordic region has declined to 55% in 2010 from 63% in 2006,

reflectingadditionalcapacityaddedbycompetingairlinesbutalsoagrowingtrend

for lowcostairlinestotargetthebusinesstravelmarket.Inaddition,SASforecast

thatfuturegrowthintheNordicregionwillbestrongestintheleisuremarket(see

Figure3.10).TheNordicmarketisexpectedtogrowfrom90mnpassengersin2010

to 134mn in 2020. The leisure market is expected to grow from 57mn to 91mn

passengers(averageannualgrowthof6.0%)whilethebusinessmarketisexpected

to grow from 32mn to 42mn passengers (average annual growth of 3.1%). The

leisurepassengershareoftotalpassengersisthereforeexpectedto increasefrom

63%in2010to68%in2020.


44/90


Figure3.10

Nordic

passenger

development

per

segment,

2010

2020


NorwegianandRyanairaretwoofEuropesmostefficientairlines.Theydominate

the leisure market in Scandinavia and as has been shown in Figure 3.7, SAS is

alreadyheavilyexposed tocompetition fromsuchairlinesonshorthaulroutes in

thatmarket.SASs increasedfocusontheshorthaul leisuremarketwilltherefore

mean that further cost reduction will be necessary in order for them to be

competitive.Renewaloftheirageingandrelativelyinefficientfleetwillhelpbutthe

airline

will

also

focus

on

implementing

an

improved

network,

offering

lower

headlinefares,facilitatingmoreefficientdistributionincludingonlinesales,andan

increaseduseofancillaryservices(CAPA,2011).

Sinceevolvingintoalowcostairlinein2002,Norwegianhasbecomequiteaforce

and will continue with their rapid expansion during the next few years. On 25

January 2012, the airline announced an order for 222 new aircraft worth US$

21.1bn (see Parker, 2012). The order includes 100 Boeing 737 MAX aircraft, 22

Boeing 737800s and 100 Airbus A320neos. The order is Boeings largest ever

Europeandeal

and

the

first

European

order

for

Boeings

737

MAX

aircraft.

The

new

aircraftwillreplacesomeofNorwegiansexistingaircraft.However,theywillalso

help the airline to achieve itsexpansion plans increasing its fleet size from 62 to

150200by2020.ThisisalargeexpansionplancomparedtothatofSASandwillno

doubt have an impact on the proportionate share of ASKs that the respective

airlines offer. Some analysts such as Andrew Lobbenburg at the Royal Bank of

Scotland (RBS) says that Norwegians order looks like a gamble on SAS failing

(Parker,2012;p1).TheairlineisfocusedonexpandingintheNordiccountriesand

plans to open a new operating base in March 2012 in Malaga, Spain. Norwegian

0

20

40

60

80

100

120

140

2010 2015 2020

mnpassengers

Nordicpassengerdevelopment

Leisure

Business


45/90


alsohasplansto launcha longhauloperation in2013,possiblyservingNewYork

andBangkokfromabaseinScandinavia.

Lowcost longhaul is yet to be proven as a viable business model. A number of

airlineshave

tried

but

ended

in

failure,

e.g.

Laker

Airways

Skytrain

between

1977

and 1982, Zoom Airlines between 2006 and 2008, and Oasis Hong Kong Airlines

between 2006 and 2008. A number of lowcost longhaul services are currently

operatedbyairlinesinAsiabutwithoutmuchsuccess.AirAsiaXlaunchedlowcost

longhaulservicesin2007.However,on12January2012,AirAsiaXannouncedthat

itwaswithdrawing its lowcost longhaulservicestoEurope (LondonGatwickand

ParisOrly)and India (MumbaiandNewDelhi)becauseofcontinuedhighjet fuel

prices and exorbitant government taxes. Many airlines have plans for lowcost

longhaul services. Singaporebased Scoot plans to introduce services from

SingaporeChangi

Airport

to

destinations

in

Australia

(Sydney

Airport

by

April

2012

and Gold Coast Airport at a later date). Philippinebased Cebu Pacific plans tolaunchservicestoAustralia,theMiddleEast,partsofEuropeandtheUSAby2013.

Another airline called Feel Air had been planning to launch services from

Scandinavia to theUSAandAsia in2010buthasnotyetdonesobecauseof the

riskynatureofthecurrenteconomicclimate.Despitetheuncertaintysurrounding

lowcost longhaul operations, Norwegian believes that they can be successful,

especiallygiventhecost andfuelefficiencyofthesixBoeing787sthattheyplan

to use for their intercontinental routes. Joining a global airline alliance such as

Oneworldmay

be

something

that

Norwegian

needs

to

consider

if

they

are

to

be

successfulwithrapidexpansionandamoveintolowcostlonghauloperations.

3.2.4 FinancialperformanceThe mixed fortunes of Norwegian and SAS are to some extent reflected by their

financialperformance.Figure3.11showstheoperatingresult forNorwegian,SAS

andWidere from2003 to2011.Figure3.12shows thenetresultover thesame

period and for the same airlines. Data is not available for DAT. A more detailed

analysisofoperatingcostsandrevenuesfor therespectiveairlines, inadditionto

otherairlinesinEurope,isprovidedinChapter4ofthisreport.

SAShasnotrecordedapositivenetresultsince2007andhasonlybeenintheblack

twotimessince2003.Theairlinehasbeenstrugglingforyearswithhighcostsand

strong competition from lowcost airlines such as Norwegian who has recorded

positivenetresultsforthelastthreeyearsandonlymarginalnetlossescompared

to SAS since 2003. Widere has maintained a positive operating and net result

between 20032011, although the gains are relatively small compared to

NorwegianandSAS.


46/90


Figure3.11

Operating

result


Figure3.12 NetresultDatasource:FlightglobalPro

The SAS Group made a pretax profit of SEK 276mn in the third quarter of 2011

againstalossofSEK1bninthethirdquarterof2010.Inaddition,theGroupspre

taxprofitfromthefirsttothirdquarterof2011wasSEK448mncomparedwitha

lossofSEK2.6bn for thepreviousyear.However, the thirdquarterpretaxprofit

for 2011 was below expectations and resulted in them lowering their full year

outlook due tojet fuel costs, competition and global economic developments,

particularly inSpainwhere theSASGroup owneda10.9% stake in the struggling

airlineSpanair.TheSASGroupwassettostruggletomakeaprofitin2011andthe

bankruptcyof

Spanair

on

27

January

2012

while

they

still

had

a10.9%

stake

in

the

150

100

50

0

50

100

150

200

250

300

2003 2004 2005 2006 2007 2008 2009 2010 2011Operatingresult(mnUS$

)

Operatingresult

Widere

SAS

Norwegian

500

400

300

200

100

0

100

200

2003 2004 2005 2006 2007 2008 2009 2010 2011

Netresult(mn

US$)

Netresult

WidereSAS

Norwegian


47/90


airline, led to the announcement of a profit warning in January 2012 with the

bankruptcyofSpanairresultinginaSEK1.7bnwritedownfor2011.

TheSASGroupreportedanet lossofSEK1.7bn for2011.ThewritedownofSEK

1.7bnfor

Spanair

obviously

had

asignificant

impact

on

the

results.

However,

fourth

quarterresultswerepoorwiththeSASGroupsustaininganetlossofSEK2.1bnand

earnings for2011would still havebeenverymarginalwithout thebankruptcyof

Spanair.Widere recordedanetresultofNOK267mn for2011whileNorwegian

recordedanetresultofNOK122mn.

ThesharepriceofSASandNorwegianhasgenerallydeclinedduring2011amidst

the global economic slowdown. However, recent events with the profit warning

from SAS in the aftermath of Spanair going bankrupt and Norwegians record

breakingaircraft

order

set

share

prices

for

the

two

airlines

on

adifferent

course

(seeFigure3.13).SharepricesontheOsloStockExchangeopenedatNOK8.05for

SASandNOK79.00forNorwegianon15February2012.

Figure3.13 5yearsharepriceforSASandNorwegian,asof15February2012Source:createdusinghttp://bors.e24.no.

3.2.5 FutureprospectsRestructuringprogrammessuchasCoreSAShavemadeSASmorecompetitive in

recentyears.AsCAPA(2011;p6)state:TheonetimebasketcaseofEurope,SAS

has emerged, particularly in 1H2011, as one of the strongest performers in

Europe.Theairlinehastakenstepstoharmoniseitsfleet,sellnoncoreoperations


48/90


andnegotiatemoreefficientworkingpracticeswithunions,bringingdownitscosts.

However,aspreviouslymentioned inthischapterofthereport,SAShasstruggled

for years with high costs and growing competition from lowcost airlinessuch as

Norwegian.Theglobaleconomicdownturnandhighjetfuelprices inrecentyears

haveadded

to

the

airlines

problems

and

it

is

likely

that

tough

times

are

ahead.

The

International Air Transport Association (IATA) has predicted that airline industry

profitsin2012willfall29%toUS$4.9bnfromUS$6.9bnin2011.

Large deficits in 2008 and 2009 resulted in the Board of SAS proposing equity

extensions in 2009 and 2010 respectively. As shareholders, the Norwegian

government took part for its proportionate share of the extensions, both equity

securitiesamountingtoNOK709mnandNOK582mnrespectively.Inaddition,the

Norwegiangovernmentsupportedtheestablishmentofaconvertiblebond issued

inApril

2010

for

SEK

1.6bn

that

can

be

converted

to

shares

in

2015.

The

basis

for

theequity extensions was theCore SASstrategy that targeted cost reductionsof

SEK 7.8bn by 2012, increased commitment to business travellers, and a more

streamlinedorganisation.CoreSAS,ledtosavingsofaroundSEK7.6bnbythethird

quarterof2011andcutunitcostsbymorethan20%.InSeptember2011,SASsaid

it would cut unit costs byan additional 35%annually until 2015 as part of their

4Excellencestrategythatseekstoachieveexcellenceinfourkeyareas(Commercial

Excellence, Sales Excellence, Operational Excellence, and People Excellence).

4Excellence has been met with a fair degree of scepticism by industry analysts,

especiallyin

light

of

strong

competition

from

Norwegian

(e.g.

see

Thomas,

2011).

In the caseof SAS, the three Scandinavian governments ownshares in apublicly

tradedcompanyandcoveredtheirstakesinpreviousrightsissues.Asowners,and

in linewithotherowners,theysimplyraisedequityfortheairline.This isnotthe

sameasstateaid.However,competingairlinessuchasNorwegianclaim that the

supportprovidedbythegovernmentstoSASisdistortingcompetition.easyJetgoa

stepfurtherbrandingitasillegalstatesupport(Steinmetz,2010).

Stateaid issometimesprovided to European airlines within the interpretationof

European Union (EU) law but the European Commission (EC) is under increasing

pressure to be more stringent, especially with stateaid for national airlines.

Hungarian flag carrier Malev ceased operations on 3 February 2012. Malev had

approacheditsowner,theHungariangovernment,witharequesttodoeverything

possible to save the airline. However, the Hungarian government was unable to

offersupportduetoECrulesonstateaid.Thecommissionruledon9January2012

that Malev would have to pay back about US$ 406mn that it received from the

governmentbetween2007and2010(Perry,2012).TheMaltesegovernmentsplan

toproviderestructuringaidtoAirMaltaiscurrentlyunderinvestigationbytheEC.


49/90


The current economic situation in Europe means that many governments are

lookingtoreducetheirdebtssostateownershipinairlinesisincreasinglyviewedas

asaleableasset,especiallygiventheamountofstateaidthat isbeingprovided in

some cases to persistently strugglingairlines and in countries where competition

fromcommercially

viable

airlines

exists.

There

is

also

atrend

towards

consolidation

thathasgatheredpace inEurope inrecentyears initiallywithAirFranceKLMand

morerecentlyBritishAirwaysIberia.Polandsgovernmentiscurrentlyintalkswith

potentialbidders includingTurkishAirlinesfor itsstake inLOTPolishAirlines.The

Irishgovernmentisinterestedinsellingits25%stakeinAerLingus.ThePortuguese

government isinterested inprivatisingTAPand interesthasbeenshownfromIAG

(holdingcompanyforBritishAirwaysandIberia)andunnamedGulfCarriers.

Of course, attracting investors is difficult, especially for airlines that have been

struggling

despite

continued

efforts

to

restructure.

Traditional

flag

carriers

will

needtooffersomethingspecialtoattract investorsgiventhe levelofcompetition

fromnewerairlinebusinessmodelsthathavenotbeenconstrainedbyahistoryof

national ownership and were effectively able to startup with a relatively clean

sheetofpaper includingwith lowercostsanda lessheavilyunionisedworkforce.

ThishasbeenhighlightedbytherecentcollapseofSpanairthatceasedoperations

and filed for bankruptcy on 27 January 2012 after its largest shareholder, the

regional government of Catalonia, announced that no further loans would be

forthcomingfollowingtheendoftalkswithQatarAirwaysoverapotentialrescue

deal.

SAShasemergedfromtheCoreSASstrategyasamuch leanerandmoreefficient

businessandcontinuestoaddresskeyweaknessescomparedtotheircompetitors

through fleetrenewalandcostreduction.The increasedfocuson leisuremarkets

andexposure tocompetitionstillposearisktotheairline,asdo labourrelations

issues resulting fromhavingaheavilyunionisedworkforce.Anotherkey issue for

the airline and its owners is whether the three governments should retain their

50%shareintheairline.

Norwayswhitepaperonstateownershipwasreleasedon4April2011.Thepaper

outlinesthegoalofthestate'sownership inSASasbeingtopromoteanefficient

route network for domestic and international travel to and from the country

throughaScandinaviancooperation1 (NorwegianMinistryofTradeand Industry,

2011; p84). The white papermentions that state ownership in the futurewill be

consideredinrelationtothechangesthathaveoccurredintheairtransportmarket

inrecentyearsandthatthisincludesconsiderationforthesaleofsharesinSAS,in

1ThequoteisbasedonatranslationbytheauthorsfromNorwegiantoEnglish.


50/90


connectionwithan industrialsolution.Thetarget isthatthecompany isoperated

onacommercialbasisandin linewiththis,thewhitepapersoughtapprovalfrom

parliamenttosellitssharesintheSASGroup,whichhassincebeenapproved.The

Swedish government also has approval to sell its shares. Approval has not been

soughtby

the

Danish

government

and

this

may

prove

to

be

astumbling

block

for

anypotentialsaleinthefuture,partlybecauseanysaleislikelytobedependenton

agreement from all three governments, but also because of the importance of

Copenhagen Airport to Denmark in terms of its contribution to jobs and the

nationaleconomy,andtheimportanceofSAStotheairport.

IfSASissoldtoanotherairlinesuchastheAirFranceKLMgrouporLufthansa,itis

possible that hub activities at Copenhagen Airport would be replaced by existing

hubs e.g. at Amsterdam Schiphol Airport or Frankfurt Airport. Oslo Gardermoen

Airportand

Stockholm

Arlanda

Airport

may

be

less

affected

by

such

asale

because

of their geographical location and importance for providing connections to their

domestic markets. The situation concerning Copenhagen Airport means that IAG

(British AirwaysIberia) or a Middle East carrier may be a more desired

consolidation option for SAS. Rumours did in fact circulate in January 2011 of a

biting war for SAS shares held by the three Scandinavian governments by Air

FranceKLM,LufthansaandBritishAirwaysbutnothingmaterialised,atleastinthe

public domain, to suggest that a genuine interest was present. There were also

media reports in March 2011 that Qatar Airways was interested in buying SAS

sharesas

part

of

their

global

expansion

plans

but

again,

nothing

materialised.

RumoursaboutthesaleofgovernmentsharesinSASwereraisedyetagainbythe

media on 15 February 2012 with Lufthansa, Finnair and Qatar Airways being

mentionedas most likelycandidates tobuy theshares (seeKaspersen, 2012). As

with earlier rumours, the governments of Norway, Sweden and Denmark do not

confirmthattheyhavetakenstepstoselltheirshares inSAS.Inaddition,SASwill

notcommentonrumoursthattheScandinaviangovernmentsarepreparingtosell

theirsharesinSAS.

Ideally,governmentsharesinSASwouldnotbesolduntilthefinancialperformance

ofSASimproves.Shorttermforecastsarenottoopositivegiventhelossesincurred

from the failure of Spanair but also the high and fluctuating fuel costs, current

economicsituationandincreasedcompetition.SASalsoneedsto includepensions

and the redemption of Bonus Points from their EuroBonus Frequent Flyer

Programme(FFP)ontheiraccountsfromnextyearsotheshorttermforecast,for

2012atleast,isfairlybleak.Thisisdespitemakingimportantstepstoreducecosts

inrecentyears.ThereisalsotheneedforanindustrialsolutionatSASandfromthe

Norwegian governments perspective; an agreement to sell is likely to be


51/90


dependent on securing a deal for longterm investment, a commitment to

maintainingservicestoNorway,andtheprotectionofjobsinNorway.

Noairlinesareimmunefromfinancialturmoilsoanyoftheairlinesoperatinginthe

Norwegianair

transport

market

could

experience

financial

crisis

that

leads

to

them

ceasing operations. DATs presence in the Norwegian market is fairly limited and

anywithdrawalfromthemarketwouldprobablybequicklyreplacedbyWidere,

especially the PSO routes. As seen in Figures 3.11 and 3.12, Widere has

experiencedlongtermfinancialstability;somethingthatisquiterareintheairline

industry. A change in ownership of SAS would of course have implications for

Widerehowever;itisunlikelythatsubsequentownerswouldwanttomakemajor

changes to the airlines operation, as long as it remains part of the SAS Group.

Norwegian has performed well in recent years and will continue with their

expansion

plan.

Newand

larger

aircraft

will

be

good

for

cost

efficiency

but

the

need to find routes with sufficient demand for their increased fleet could be a

challenge.Theplannedmoveintolowcostlonghauloperationsisalsoasignificant

risk. The situation for SAS is fairly precarious. The airline needs to start making

moneyandtodevelopacommerciallyviablebusinessmodelthatisnotdependent

on raising equity from its owners. Future scenarios for the airline are that it can

turn its business around and start to make a profit. The governments may then

decidewhethertoselltheirsharesandifso,underwhatconditions.Analternative

scenario is that the airline continues to make a loss and requests further equity

fromits

owners,

which

ifnot

forthcoming,

may

eventually

result

in

bankruptcy.

BankruptcyofSASorNorwegianwouldhavequiteanimpactontheNorwegianair

transport market, leaving a big gap in the domestic and international route

network.ItispossiblethatanSASNorwaytypeoperationwouldemergetoreplace

SAS if theywentbankruptbut ifnot; it is likelythatWiderewouldsurviveasan

independentairline(that isperhapssoldtoprivateinvestors)orasasubsidiaryof

another airline. Widere would probably expand their domestic network, and a

Widere that is freed from the SAS Group might be seen to expand into the

mediumsizedregionaljetaircraftmarket.NorwegianwouldprobablyreplaceSAS

onthickerrouteswheretheydontalreadycompete,andmay increasefrequency

onthickerrouteswheretheypreviouslycompetedwithSAS.Marginalroutesmay

bevulnerableandmayresultintheneedforPSOimposition,reducedfrequency,or

a loss of route altogether. The latter has implications for the airport system in

Norwaybecausesomesmallerairports,especiallythosewhereairportsubstitution

is viable, may no longer have air service connections. There would be reduced

competitiononsomerouteswhereSASandNorwegiancurrentlycompetebutthe

overallimpactonthenetworkisnotlikelytobethatgreat.Norwegianmayneedto


52/90


join an alliance in order to connect with other world regions as this would be

greatlyreducedifSASceasedoperations.

Asimilarsituationcould beexpected if Norwegian ceased operations in thatSAS

(orWidere)

would

probably

increase

frequency

on

routes

where

they

currently

competeandreplaceNorwegianonrouteswheretheydonotcurrentlycompete.

Servicestoanumberofleisuredestinationswouldprobablybelostorreplacedby

foreignairlinesbutoverallnetworkcoverageto/fromandwithinNorwaywouldbe

retained.

Intheeventofairlinefailure,itislikelythatgapsinthenetworkwouldbeplugged

fairly quickly although question marks would remain for marginal commercial

routes in Norway and a number of international routes to leisure destinations.

Evidenceof

the

speed

with

which

other

airlines

step

in

to

fill

the

gaps

left

by

a

failedairlineisavailablefromtherecentcollapsesofSpanair(ceasedoperations27

January2012)andMalev(ceasedoperations3February2012).Forinstance,inthe

caseofMalev,Ryanairannounced26newroutesfromBudapestwithinaweekof

MalevfailingandplansafurtherfiveroutestobeoperatedbyApril.Ryanairplans

tobasefouraircraftinBudapest.WizzAirprovidedflightsforstrandedpassengers

affectedbythefailureofMalevandincreaseditsBudapestbasedfleetfromthree

tofiveaircraft.LufthansaaddedadailyflightfromHamburgandBerlintoBudapest

within a few weeks of the Malev failure. Air Berlin added a flight from Berlin to

Budapest.SmartWings

started

flights

from

Budapest

to

Tel

Aviv

within

weeks

of

the

airline failure and plan to serve Paris by April and several other European

destinationsbyMay.Ofcourse,someroutesmayneverbeservedbyotherairlines

and it isestimated thatBudapestAirportmay loseabout20routesasaresultof

thefailureofMalev(DunaiandSzakacs,2012).

At present, Danish airline DAT is the only foreign airline operating scheduled

domestic routes in Norway. Approximately 30 foreign airlines operate scheduled

internationalroutesto/fromNorway,mainlyto/fromOsloGardermoenAirportbut

also to/fromotherairports in theOslo fjordareaand the larger regionalairports

suchasBergenFlesland,TrondheimVrnesandStavangerSola.Itislikelythatthe

numberofforeignairlinesservingscheduledinternationalroutesto/fromNorway,

andtherangeofroutesoffered,willincreaseinthefutureasdemandforairtravel

withinandto/fromNorwaycontinuestogrow.Itisalsopossiblethatmoreforeign

airlineswillenterthescheduleddomesticmarketinNorway.However,thiswillbe

subjecttoanumberofpotentialbarrierstomarketentry.


53/90


3.3 BarrierstomarketentryThe Norwegian air transport market, especially the domestic market, might be

consideredtobearelativelydifficultmarketforforeignairlinestoenter.SAS,along

withWidere,

provide

an

extensive

network

of

domestic

and

international

routes.

Inaddition,Widerehasyearsofexperiencewith thePSO tenderingprocessand

withoperatingNorwaysextensivenetworkof PSO routes.Norwegian isastrong

and successful airline that has grown rapidly in recent years and has established

itselfasoneofEuropes leading lowcostairlines.Thecurrentpresenceofstrong

competitioninNorwaymaythereforeactasabarriertoforeignairlinesseekingto

enter the air transport market in Norway. However, there are also more general

barrierstoentrythattypicallyaffectairtransportmarketsworldwide.

3.3.1 Airservicesagreements(ASAs)The European air transport market is fully deregulated so there are no barriers

relating to ASAs on intraEuropean routes. ASAs still limit market access on

intercontinentalroutesto/fromNorway.Thereare55ASAsbetweenNorwayand

Documents

Nor Air Transport Market 2012