Norwegian’s “Natural” Expansion in Nordics

Given its significant presence in the capital city markets of Scandinavia, it comes as no surprise that Norwegian, Scandinavia's second largest airline after SAS, has entered the Finnish market, where it will compete for passenger traffic with Finnair and regional carrier, Blue 1.

Norwegian currently has established bases in Oslo; Stockholm Arlanda (where it will add an eighth based B737 to handle new services to Gatwick from April 29, to Edinburgh from May 6 and Munich on May 7); Copenhagen; Bergen; Stavanger; Trondheim and Warsaw.

As part of its expansion programme, a phased roll-out of 70 B737-800s will continue until 2014. It currently operates a fleet of B737-300 and B737-800 aircraft and has phased out its MD-83 aircraft in October for the more cost-effective B737 model.

Norwegian's Rise

Norwegian built its airline and brand in Norway, but expanded into Sweden through the purchase of FlyNordic. Then in 2008 the demise of Sterling's base in Copenhagen allowed Norwegian to quickly move in to fill the void, opening its third capital city base in Scandinavia.

Today, the carrier serves 15 markets in Norway and Oslo Gardermoen remains its largest base in the country, with 52 destinations and 544 weekly departures. It has a market share of 30% of all scheduled weekly seat capacity to domestic and international destinations. (Flightbase: February 14-20, 2010).

In 2007, Norwegian established its Norwegian SE division, opening a base at Stockholm Arlanda and today it is the second largest carrier there with a 9% share of all scheduled seat capacity, operating to 15 destinations from the Swedish capital (second only to SAS).

After Sterling went bust in 2008, Norwegian moved quickly to replace Sterling capacity in Copenhagen and is the second largest carrier in Copenhagen, offering 24478 seats on a weekly basis (again second only to SAS).

Unlike some of its competitors, Norwegian has a clear focus on operating from primary airports rather than secondary gateways as it aims to be the carrier of choice for business and leisure passengers in Scandinavia.

Furthermore, with Norwegian inventory being available through the GDSs, the carrier's strategy appears to be edging away from its traditional low-cost routes and towards capturing business traffic on its Oslo and Stockholm to Helsinki routings.

Norwegian in Finland

Norwegian had previously avoided serving Finland, with its smaller O&D market and a strong national carrier. However, with Norwegian reaching its limits on growth opportunities at its existing three Scandinavian country markets, it was only a matter of time before the carrier looked to Finland. In fact Norwegian recently announced that Helsinki is ‘a natural focus area'.

Norwegian has been successful in capturing market share at Stockholm and Copenhagen from Scandinavian legacy carrier SAS. Over the past two years, SAS has reduced capacity in the Stockholm and Copenhagen markets as Norwegian has entered the market. In February 2007, SAS operated 104,517 weekly seats in Stockholm, however in February 2009, the Star Alliance member will operate just over 89,388 seats.

In Copenhagen, from February 2008 SAS enjoyed a 53% market share in 2007, but after Norwegian entered the market, SAS's share fell to 47% market share in 2009 (Source: Flightbase).

Norwegian now has the following market share at CPH, ARN and OSL:

Finland: Can Norwegian Replicate this Model in Helsinki?

There is limited low-cost airline activity at Helsinki, with the airport having traditionally been perceived as expensive; inbound traffic potential is not as strong as other destinations; and geographically it is more peripheral than the other Scandinavian cities.

The table below demonstrates current scheduled weekly seat capacity for the week February 14-20, 2010.

Source: Flightbase February 14-20, 2010

The Helsinki market is still led by legacy carriers, with only Air Berlin and easyJet appearing in the top 10 carriers in terms of seat capacity, and still only accounting for approximately 4% of all capacity.

Norwegian will face competition with Finnair and Blue 1 on its Oslo route. The Helsinki-Oslo sector has seen over 157,000 O&D passengers fly the route in the last 12 months. Norwegian will be confident that it can stimulate new traffic in a market where the average one-way yield is close to US$170 (IATA BSP Data Airport IS).

At Stockholm, Norwegian will go head-to-head with Finnair, Blue1 and SAS on a sector that has seen over 559,350 O&D passengers fly the route directly in the 12-month period between November 2008-2009 (IATA BSP Data Airport IS).

Where to Next?

Norwegian will seek to join the dots on its network by utilising the deals it has with other airports and maximising the benefits of scheduling to existing points. Markets that are served from its current bases from Stockholm, Oslo and Copenhagen would be obvious starting points for any future expansion of its Helsinki operation.

The table below illustrates all the existing destinations served from ARN, CPH and OSL. It also shows the existing weekly frequency from Helsinki by all carriers, showing where Norwegian may face competition if they target existing destinations.

Source: Flightbase

Despite Finland being a relatively small market and a long sector from many of these non-served markets, Norwegian will be confident that its mix of business and leisure markets and brand awareness in Scandinavia will lead to succeed at Helsinki.

With easyJet adding major markets such as London and Paris, it would seem that Norwegian believes there is clear strength in the market and a need to enter before other LCC competitors.

Additionally, Helsinki is one of the wealthiest capitals in Europe with the city's GDP being 1.5 times the national average - making it an attractive proposition for Norwegian.