This European Low-Cost Carrier Is Recruiting Pilots in New York -- And It's a Brilliant Move

European budget carrier Norwegian Air Shuttle is less than a month away from the planned launch of flights from several U.S. cities to London Gatwick Airport. Yet it has thus far failed to gain Department of Transportation approval for its Irish long-haul subsidiary that will operate these flights.

All three U.S. airlines that fly globally -- American Airlines (NASDAQ: AAL  ) , Delta Air Lines (NYSE: DAL  ) , and United Continental (NYSE: UAL  ) -- have vocally opposed Norwegian Air Shuttle's application for certification to fly to the U.S. The largest U.S. pilots' union has also opposed the application, claiming that Norwegian is promoting a race to the bottom in airline pay.

Delta Air Lines has led the U.S. opposition to Norwegian Air Shuttle's long-haul operations. Photo: The Motley Fool

Norwegian Air Shuttle has vigorously denied these accusations. However, escalating the war of words is not a good tactic for overcoming the opposition. Fortunately, it has a much better defense: hiring staff in the U.S. It has already recruited hundreds of flight attendants in Fort Lauderdale, Fla., and New York, and now it is looking for pilots in New York. This shows that there is more to Norwegian's business model than cheap labor.

Cheap flights to Europe, against all odds
Last year, Norwegian Air Shuttle branched out into long-haul service between Europe and the U.S. The airline started with flights between a few top U.S. destinations and Scandinavia.

Next month, Norwegian Air Shuttle hopes to begin flights between a base at Gatwick Airport near London and three U.S. destinations: New York, Los Angeles, and Fort Lauderdale. It has offered one-way fares as low as £149 (roughly $250 at today's exchange rate) for the New York-London route. Not surprisingly, its plans have raised the ire of American Airlines, Delta Air Lines, and United Continental.

U.S. carriers like American Airlines are not eager for low-cost competition. Photo: American Airlines.

The three airlines, along with their joint-venture partners, control the vast majority of traffic between Europe and the U.S. Indeed, they collectively have a much more dominant position on routes to Europe than for domestic flights.

The three legacy carriers have made a show of solidarity with the Air Line Pilots Association. They have argued that Norwegian would violate the spirit of the Treaty on Open Skies by flying between the U.S. and the U.K. despite having its headquarters in Norway and its long-haul subsidiary registered in Ireland, while using pilots recruited in Singapore and based in Bangkok.

It's all about the Benjamins
However, the real issue is money. Transatlantic flights -- and particularly flights to London -- are extremely lucrative for American, Delta, United, and their European joint-venture partners. These flights also support high-paying pilot jobs, and due to the current profitability of the airline industry, pilots can hope for generous raises in the next few years. Nobody in the U.S. airline industry wants to risk new competition.

While opponents of Norwegian Air Shuttle's long-haul operations have claimed that the company is exporting jobs to low-wage countries, it is really just trying to avoid sky-high Norwegian wages. Norway is one of the wealthiest countries in the world, with a per-capita GDP almost twice that of the U.S.

In reality, Norwegian Air Shuttle is happy to pay the going global rate for pilots. It pays captains roughly $170,000 per year and first officers about half that amount. Ironically, while the pilots' union has accused Norwegian of undermining U.S. labor standards, ALPA complained just a few months ago that U.S. regional airlines have an average starting pilot salary of just $22,400.

Creating U.S. jobs
Norwegian Air Shuttle has an easy way to defuse much of the criticism it faces: hire more U.S.-based staff. It would be very hard indeed for U.S. regulators to reject an application for certification of an airline that would reduce airfares, create U.S. jobs, and buy U.S.-produced airplanes.

Norwegian should therefore accelerate its U.S. pilot hiring efforts. Once it has a significant number of happily employed U.S. pilots (and flight attendants), ALPA and the airlines will lose their most potent argument. Arguments based on whether Norwegian Air Shuttle has violated any technicalities in its corporate structure are less likely to persuade U.S. regulators.

Foolish final thoughts
Anyone planning to travel to Europe in the next few years should root for Norwegian Air Shuttle to receive approval to start its new long-haul U.S. flights. Norwegian has much lower unit costs than American, Delta, and United, because it packs 291 seats on the Boeing 787 Dreamliner (compared to 219 at United) and defrays its aircraft costs through very high utilization: about 18 hours per day.

If Norwegian Air Shuttle can build up a substantial low-cost trans-Atlantic business, it will force the legacy carriers to offer more competitive pricing, as they do for domestic routes. That would be a boon for tourism in the U.S. and in Europe. Plus, it could eventually save U.S. travelers billions of dollars each year.

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Read/Post Comments (9) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 09, 2014, at 4:13 PM, asdlkfad wrote:

    What is this person's qualifications to be portrayed as an informed writer? As bad as Motley Fool is, once and a while, admittedly I get fooled and open up a Fool article. Usually though when this happens, it only takes a few sentences to realize it is silly. With this particular contributor, it happens in a sentence or less.

    I fly over 250,000 miles per year, so I have a vested interest in low fares. That said, what Norwegian is trying to do is the same as Fung Wah Bus Lines, Lucky Star Bus and so many other lowest cost providers have done in the bus business. Try to cut corners to lower cost and assume a casualty rate that people will ignore for the low cost. Do you really want the lowest cost provider to carry you across the oceans, with the lowest cost (aka competent) staff? If you do, good for you, I hope you are one of my business competitors. What Norwegian is trying to do is very different from what Southwest, Easyjet and RyanAir did. They worked within the rules. Norwegian is blatantly trying to change the rules.

    How many miles a year does this sophisticated child "expert writer" fly per year? Here's an idea, lets all have him and the other writers for Motley Fool be forced to fly every day on Norwegian! Eventually, both problems will disappear.

  • Report this Comment On June 09, 2014, at 10:25 PM, Inspectigator wrote:

    What is brilliant is that the U.S. now has the cheapest airline pilots in the world, and foreign airlines are wise to poach them while they can. The U.S. airline industry is now mostly low-budget and low-wage, with regionals and low-cost carriers making up the majority of airline operations.

    U.S. airline employees are the lowest cost because their workers are not allowed to engage in any kind of work action. Airlines have been free to cut compensation and increase workloads unopposed by unions, since congress added section 159a to the Railway Labor Act in 1981. And they have, airline pay is the lowest it has been since the 1960s, with the pilots losing the most. Almost every country other than the U.S. has signed and ratified a U.N. covenant establishing the right to strike as a basic human right. That is why it is brilliant to hire U.S. based aircrew, they are cheaper.

    Unfortunately, that won't last long. U.S. flight schools are filled with foreign students, over 90% in the biggest schools. Of the small number of Americans taking flight training, almost half are over 40 years old, instructors call them "bucket-list" students. So, not many American pilots will be coming out of flight schools for the next 8+ years, as very few can be bothered to suffer through it for such low pay. Meanwhile, the airline and business aviation industries are poised for dramatic growth, and over half the airline pilots in the country will be retired in the next 15 years.

    This isn't some future thing that we can deal with later, airlines are already running out of pilots, parking jets, pulling service out of markets. The larger airlines are going to be able to pick up pilots from the regionals for a long time, but half their flying is done by the regionals. This will be very profitable for the majors, but devastating for businesses and cities that rely on airline service in small and mid-size cities. This will turn into a crisis, that the major airlines again benefit from, as safety rules are relaxed to keep the industry and economy going.

  • Report this Comment On June 09, 2014, at 11:36 PM, vamplate wrote:

    ... as a 50 year+ businessman I understand general market-place rules; however, its an All-for-one OPEN FIELD, hence go to it !!

    A CUT-THROAT business... may the best company WIN. It can only be of benefit to the general populace...

    ALOHA.....

  • Report this Comment On June 09, 2014, at 11:58 PM, vamplate wrote:

    WHY not wait to see how matters fall into place ??

    There are too many judgmental whipper-snapper opinions here voicing a thought of inexperience, In other words: those who are NOT qualified....

    For being more than a half-century International businessman I suggest to withhold your inexperienced thoughts and pay attention while learning from results.

    ALOHA.. and

    Hau'oli La Hanau

  • Report this Comment On June 10, 2014, at 3:33 AM, YGBSM13 wrote:

    1. The public is always complaining about leg room yet you say [ 291 seats in an airplane currently holding 219] like it's a good thing.

    2. Fair competition is a good thing and I support free market ideals; but all companies should have to abide by the same rules and standards. Do some research & you'll see NAI does not. Reference the decline of the maritime industry. NAI wants to do the same thing.

    3. New options - great. But the reason airfares are what they are is because it takes capital to run a business. How many times has a new airline entered the field and started a price war that only drug down the industry as a whole before going bankrupt itself? And people wonder why there are no more free meals/blankets & pillows/unlimited bag allowance/etc.

    It's going to be a bad business model that will only be seen for what it is after it's too late. Sound familiar?

  • Report this Comment On June 10, 2014, at 10:49 AM, TMFGemHunter wrote:

    @YGBSM13: It's really only the people in business class that have plenty of legroom on a United plane. In fact, the NAS economy rows will have approximately the same distance between rows (at most, it will be 1" less). The main difference is that United is business traveler-focused, and has a large section of lie-flat business class seats.

    I've done my homework. What exactly do you think NAI is doing that is unfair? It's paying the going U.S. market rate for pilots and flight attendants. It is outsourcing maintenance to a Boeing affiliate, which makes sense since it's using state-of-the-art Boeing jets. Its operations are certified by the European safety authorities, the same as any other European airline?

    The only grounds for denying it the right to fly is that it's a Norwegian company and Norway is not part of the EU. It's a technicality, and NAI found a loophole in the technicality by setting up a subsidiary in Ireland. I would call it a draw, and let the market decide whether NAI has a viable business model.

    Adam

  • Report this Comment On June 10, 2014, at 3:52 PM, Inspectigator wrote:

    There is a market for dangerous but cheap products and services, I don't think we should let the market decide this one. Colgan Air managed to kill a planeload of passengers with U.S. trained and based pilots, they cut too many corners and ignored too many common safety practices that the FAA now is trying to put into law. U.S. pilots are no safer than any third-world pilots when management pushes them to cut corners. A company that focuses on cutting costs regardless of the consequences will always undercut safer companies, leaving only the least safe companies.

  • Report this Comment On June 10, 2014, at 4:41 PM, 65 wrote:

    Cheap fares wow sounds good UNTIL you have another MH750 disappear and your love ones are missing . You can't have safety and cheap fares rolled into one. You get what you pay for . Cheap fare equal poor training and bad maintenance. Airline industry is littered crashes from poor training and bad maintenance. So what is your life worth?

  • Report this Comment On June 10, 2014, at 4:55 PM, TMFGemHunter wrote:

    I completely disagree with the concept that cheap fares automatically means dangerous. There's absolutely no evidence for that. Southwest has a long record of operations and has a much better safety record than most U.S. carriers despite having much cheaper fares for most of its existence.

    JetBlue doesn't have quite as long a record, but it's also very safe. Heck, Allegiant flies 20+ year old planes almost exclusively. If I'm not mistaken, it has no injuries (let alone fatalities) in 15 years of service.

    In my opinion, unless you have evidence that Norwegian Air Shuttle is somehow cutting corners with pilot training or upkeep of its planes, you really should avoid scaremongering like this.

    Adam

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