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.
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.
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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Adam Levine-Weinberg is short shares of United Continental Holdings. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.