Entrepreneurism grounded?

TESTCustomwebLP TESTCustomwebLP
By TESTCustomwebLP TESTCustomwebLP March 9, 2015 15:37

Entrepreneurism grounded?

The number of strikes at airlines across Europe these past ten months has been one of the worst on record, but the current Norwegian Air Shuttle strike looks to be one of the most damaging. As aircraft continue to sit idle on the ground while cashflow is being eroded through the need to compensate booked passengers, we have to ask how long NAS can hold out without giving-in to pilot demands? That is perhaps one of the most important questions of the moment.

Yesterday the latest round of talks between pilots –who have been on strike now for nine days (this is day ten) – and airline management, far from yielding any agreement, seemed to further entrench both sides. The pilots have extended their strike leading Norwegian to cancel all domestic flights in Norway and Sweden, many flights within Denmark, and all but a few flights between the three Scandinavian capitals, that will mean another round of passenger compensation for approximately 25,000 pre-booked individuals. The full ten days of strike action has now affected some 150,000 ticket holders.

The problem revolves around the airline’s 650 Scandinavian pilots who want a collective agreement with the parent group instead of the current deal with its Norwegian Air Norway subsidiary. The airline stated that during mediation it presented an offer that will give the Scandinavian pilots: a job guarantee for three years; unchanged salaries (average salary for a captain, approx. 1.1 million NOK (€126.4k) per year before insurance and  pensions, first officers approx. 740,000 NOK (€87k) per year before insurance and pensions); a minimum of 184 days off per year (almost the same as today); and the highest rate on contributory pension (innskuddspensjon), including  benefit pension scheme (ytelsespensjon) for those who have ten years or less left until retirement. Management also offered A Loss of License insurance of 40G; a tax-free payment of approximately 3.5million NOK.

Some Ryanair pilots, and indeed pilots from many other European airlines, low cost and full service, would salivate over such a deal. Senior Ryanair pilots (as an example) are paid up to €100k. There is the rub – citizens of Norway, Sweden and Denmark enjoy some of the highest average salaries in the world and the pilots know full well that they are paid well over the £78,356 / $126,000 / €99,000 Western European average for a pilot. The simple fact is that NAS is not able to be a full LCC because labour costs are just too high on Scandinavian flights, and yet look how well the airline has done to date.

The striking pilots have a problem also as they are demanding that the airline does not hire pilots from other areas of the EU. If the airline put that in writing then I am fairly sure that they would have broken a number of EU laws on employment, so at least one of the main demands cannot be met by management without repercussions in any event.

As explained NAS labour costs are far too high on its core Scandinavian flights and it has to move now to start to reduce the same. Potential competitors have looked on with envy for some time as NAS has created a large new market in Scandinavia and, although Ryanair and easyJet (primarily) are encroaching on the NAS core sectors, NAS continues to enjoy, to a greater extent, something of a niche market. This will not last however and if the airline were to commit its future to ever increasing pilot costs from this current very high base rate, then come the day a full LCC came up against the airline, it would falter. Of course this will only be good for the future of NAS if it is able to force the pilots into a climb down. If NAS management end up having to wave the white flag then the damage to the airline’s long-term prospects could be very serious indeed.

One could argue that NAS management are ahead of the times, they think more globally than most airlines. If staff are available from another part of the world that are equally, if not better, trained and cost half as much as local staff then why should NAS not be able to hire them?  Could we not argue that the Middle East majors have been doing the same thing for many years, albeit for very different reasons? The US regulators looked very closely at NAS due to its labour cost cutting with Asian staff on aircraft and yet no mention has been made of the truly multicultural Emirates cabin crews flying into the USA (quite rightly so). It will not be long before all airlines are looking for the best and cheapest staff from anywhere in the globe, the problems at NAS this past week will be repeated at all airlines wishing to follow suit.

It was also confirmed over the weekend that NAS is the airline behind West Force Aviation, established in December 2014 in the United Kingdom. This entity plans to be a long-haul operator running flights between the UK and South Africa. NAS management is running a full service on all long-haul routes and most flights originating or arriving in cities outside of Scandinavia.

Meanwhile, low cost Icelandic carrier Wow Air aims to have up to 30 aircraft by the end of the decade concentrating on connecting Europe with North America via Reykjavik. Wow will take delivery of two A321s this month for flights between Iceland and Boston (from March 27) and to Baltimore-Washington International Airport from May 8.

Wow currently has a load factor above 90% on flights and routing planes via Iceland means Wow’s A321s will be operating 20 hours per day on a Berlin-Reykjavik- Boston flight, offering better utilization than all other competitors, including the 787s of NAS. WOW is hoping that they can keep its load factors very high – the A321 should help with that.

TESTCustomwebLP TESTCustomwebLP
By TESTCustomwebLP TESTCustomwebLP March 9, 2015 15:37