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The unlikely support for Norwegian strategy as an unexpected SAS’s growth strategy turns to green light for the Norwegian low cost carrier

Thursday, 21 June 2012
As SAS decides to cut down international routes and limits long hauls, Norwegian. Its Nordic rival which wants to expand into that section just got the green light and sees this as a blessing from SAS.

At a time when many have been sceptical of the Norwegian low cost carrier, Norwegian’s upcoming long-distance effort, the move taken by SAS could give a little bit of positive feeling to their international long haul expansion. Bjørn Kjos, the boss of Norwegian is confirms that their strategy will be helped by arch-rival SAS.

In an interview with the air carrier news portal, Air Transport World, SAS’s CEO, Rickard Gustafson, said that SAS still need to find new ways to improve profitability.

“We still need to find a way to further strengthen our profitability and generate more cash,” SK president and CEO Rickard Gustafson told ATW on the sidelines of last week’s IATA annual general meeting and summit in Beijing. He said the carrier has a “very strong financial base today” but it also relies on credit. Gustafson said it needs to be more self-sufficient, which “means even more cost-saving efforts.”

“Currently, strong partnership for us is the key to growth in the long routes,” says Gustafson, pointing among other things, the joint venture that SAS has just signed with Singapore Airlines. This cooperation shall strengthen existing routes and the establishment of new routes between Singapore and Scandinavia.

That is good news for Norwegian, the competitor, which begins its long-range effort in 2013, writes analyst Dan Togo Jensen at Handelsbanken Capital Markets in a trading update on Wednesday morning.

In order to expand the intercontinental traffic SAS has to invest in new aircraft and the resulting competition in relation to Norwegian. But according to statements by CEO Rickard Gustafson, SAS has now decided not to extend the intercontinental product and instead rely on their partners to take care of long-haul destinations, writes a Danish analyst.

Initiative from SAS is positive for the Norwegian, who will see less competition when they initiate their long routes, analysts pointed out.

Already in the New Year, Norwegian will sell round trip tickets as low as Nkr2.000 to New York and Nkr3,000 to Bangkok, Oslo and Stockholm. That is about half the price from current levels.

The reason is that is with the new Boeing 787 Dreamliner, it is determined that there are the possibilities to fly cheap on those long stretches.

So far, no airlines has succeeded in making money with discount long routes, and sceptics have a hard time believing that it is possible to make money by selling tickets at prices so low that Norwegian plans.
By Team

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