One topic that I would like to revisit is the discussion
about global airlines and whether or not foreign airlines are given an unfair
advantage over the US carriers. Under
this topic I discussed how the Open Skies Agreement created a hands off policy
by government in routes and pricing. The stipulation to this is the airline
under the Open Skies Agreement must be self-sustaining and not receive
government subsidies. Many US carriers said that airlines like Qatar Airways
and Emirates are breaching the Open Skies Agreement. Emirates had to receive a
bailout be the Investment Corporation of Dubai after a bad call on fuel
hedging (Kane 2015). Another topic that has US
carriers on the fritz about foreign air carriers is their ability to buy
aircraft at lower interest rates through the export-import bank (Simon 2014). I discussed
how the export-import bank really helps Boeing compete with Airbus. The topic
that I would like to discuss is the approval of US routes for Norwegian
Air International. In this post I will discuss what exactly Norwegian Air
does and what the new US approval for routes means. I would like to go over why
there was a huge opposition to Norwegian Air being approved for routes in
the US and who opposed it. I will then conclude with the question of whether or
not Norwegian Air practices are right under the Open Skies Agreement and other opinions concerning their operations.
First off, it is very important to know that Norwegian Air International is a subsidiary of Norwegian Air Shuttle based in Norway, but created and located in Ireland. It is important to understand that the Norwegian Air brand name operates under four different operating certificates (Sumers 2016). Two of which are in Norway, one in Ireland and another in the UK. They all operate under the same name. Now Norwegian Air Shuttle has flown Europe to US routes since 2014 (Sumers 2016). As of December 2, 2016, the United States Department of Transportation has issued a final permit for flight into the Unites States with NAI’s Irish based operation. The Department of transportation stated, “Regardless of our appreciation of the public policy arguments raised by opponents, we have been advised that the law and our bilateral obligations leave us no avenue to reject this application (Martin 2016).” With the DOT’s approval, Norwegian Air’s Irish based operation can now fly into the United States. The new approval will add more routes to different cities in the Unites States. The Irish based Norwegian carrier can add more routes to the US (Sumers 2016).
Norwegian Air's US approval for the Irish airline has brought up many disputes between US carriers and organizations. Norwegian Air outsources most of its operations. For example, Norwegian Air uses a hiring agency based in Singapore and bases the flight crews in Bangkok (Bachman & Matlack 2015). In addition they are hiring flight attendants based in the United States. By being a subsidiary of a carrier in Norway but operating out of Ireland, the airline can take advantage of the less strict labor laws, wage differences and decreased taxes in Ireland. Norway's tax and labor laws are more restrictive to the business (Mouawad 2016). By doing this they can have much cheaper ticket prices than US carriers. According to Jad Mouawad, Norwegian's Air Shuttle that had previous routes to the US from the Norway airline has had ticket prices of $509 between Oslo and Kennedy airport (US) while the same route offered by United Airlines was $895 (2014). This shows that despite being the Norway certificate operator and not the Irish subsidiary, the outsourcing of labor is still enough for decreased ticket prices. The opposing party against Norwegian Air Internationals approval claims that the airline is not only trying to avoid the tax and labor laws of Norway but are essentially shopping around by outsourcing much of what they do in countries where the airline can save money (Bachman & Matlack 2015). The three major US air carriers strongly disapprove of the approval because they feel the business practices NAI operates under is a huge advantage (Jansen 2016). This advantage is feared by US air carriers because cheaper tickets will hurt their business as people will follow the cheaper tickets. Organizations such as the Air Line Pilots Association oppose the approval because it is feared that air line pilots and flight crews working under the US carriers will be hurt also. ALPA has also stated, "If one company is allowed to ignore the principles of U.S. air transport agreements, others will try to do so as well, and the result could jeopardize billions of dollars that airlines and their workers contribute to the U.S. economy (ALPA 2016)."
In my opinion, I don't feel that Norwegian Air's operating practices are a breach of the Open Skies Agreement. NAI doesn't receive government subsidies. The advantage they have are a result of business. There is nothing that states outsourcing is not allowed. Competition is fierce within the domains of the airline industry. According to Ted Reed, the profit margin of airlines is quite small, close to 0.1% (2013). That being said, it is quite easy to see why any kind of advantage in the airline industry would create some heated debate. However, as stated by the DOT, legally the US has no right to not allow the carrier to operate despite their operating practices. That being said I still don't condone these operating practices. If other carriers decide to follow these practices it would definitely hurt the US economy. If an airline decides to outsource everything they do, jobs would move over seas and in essence, airlines will search for the cheapest sources of labor. I think it goes without saying that safety is the highest priority. I think that the operating practices that Norwegian operates under needs to be looked over cautiously to make sure they are also doing everything in the bounds of regulations and safety if everything is outsourced in different countries. By having the majority of their practices outsourced to different countries it would be easy to have something overlooked where an airline that does everything in-house with the same country is easily watched over. At the end of the day, with Norwegian Air offering such low ticket prices I would foresee other airlines try to compete by lowering their ticket prices also. If this was to happen it would be good news for passengers as ticket prices would be lower.
References:
ALPA. (2016, July 28). ALPA Hails Congressional Opposition to Norwegian Air International. Retrieved December 13, 2016, from http://www.alpa.org/news-and-events/news-room/2016-04-28-ALPA-hails-congressional-opposition-norwegian-air-international
Bachman, J., & Matlack, C. (2015, February 12). Budget Airlines Shop the World for Cheaper Pilots. Retrieved December 13, 2016, from https://www.bloomberg.com/news/articles/2015-02-12/budget-airlines-shop-the-world-for-cheaper-pilots
Jansen, B. (2016, December 05). Norwegian Air plans U.S. expansion. Retrieved December 13, 2016, from http://www.usatoday.com/story/travel/flights/todayinthesky/2016/12/05/norwegian-air-plans-us-expansion/94986022/
Kane, F. (2015, March 18). Emirates Airline president denies US rivals’ charges of government bailout over fuel losses | The National. Retrieved November 04, 2016, from http://www.thenational.ae/business/aviation/emirates-airline-president-denies-us-rivals-charges-of-government-bailout-over-fuel-losses
Martin, H. (2016, December 2). Norwegian Air International gets final approval for flights to U.S., despite opposition. Retrieved December 13, 2016, from http://www.latimes.com/business/la-fi-norwegian-air-20161202-story.html
Mouawad, J. (2014, February 6). Long-Haul Expansion by a Norwegian Carrier Upsets U.S. Airlines. Retrieved December 13, 2016, from https://www.nytimes.com/2014/02/07/business/international/long-haul-expansion-by-a-norwegian-carrier-upsets-us-airlines.html?_r=1
Reed, T. (2013, February 25). Airlines, Not Yet Where They Want To Be, Make 21 Cents Per Passenger. Retrieved December 13, 2016, from http://www.forbes.com/sites/tedreed/2013/02/25/airlines-not-yet-where-they-want-to-be-make-21-cents-per-passenger/#1d0340ab2410
Simon, M. (2014, August 8). The Ex-Im Bank is hurting my business. Retrieved November 04, 2016, from http://www.chicagobusiness.com/article/20140808/OPINION/140809833/the-ex-im-bank-is-hurting-my-business
Sumers, B. (2016, December 02). Approval of More Norwegian Air Flights Opens Door for Cheaper Transatlantic Travel. Retrieved December 13, 2016, from https://skift.com/2016/12/02/dot-approval-of-more-norwegian-air-flights-opens-door-for-cheaper-transatlantic-travel/
First off, it is very important to know that Norwegian Air International is a subsidiary of Norwegian Air Shuttle based in Norway, but created and located in Ireland. It is important to understand that the Norwegian Air brand name operates under four different operating certificates (Sumers 2016). Two of which are in Norway, one in Ireland and another in the UK. They all operate under the same name. Now Norwegian Air Shuttle has flown Europe to US routes since 2014 (Sumers 2016). As of December 2, 2016, the United States Department of Transportation has issued a final permit for flight into the Unites States with NAI’s Irish based operation. The Department of transportation stated, “Regardless of our appreciation of the public policy arguments raised by opponents, we have been advised that the law and our bilateral obligations leave us no avenue to reject this application (Martin 2016).” With the DOT’s approval, Norwegian Air’s Irish based operation can now fly into the United States. The new approval will add more routes to different cities in the Unites States. The Irish based Norwegian carrier can add more routes to the US (Sumers 2016).
Norwegian Air's US approval for the Irish airline has brought up many disputes between US carriers and organizations. Norwegian Air outsources most of its operations. For example, Norwegian Air uses a hiring agency based in Singapore and bases the flight crews in Bangkok (Bachman & Matlack 2015). In addition they are hiring flight attendants based in the United States. By being a subsidiary of a carrier in Norway but operating out of Ireland, the airline can take advantage of the less strict labor laws, wage differences and decreased taxes in Ireland. Norway's tax and labor laws are more restrictive to the business (Mouawad 2016). By doing this they can have much cheaper ticket prices than US carriers. According to Jad Mouawad, Norwegian's Air Shuttle that had previous routes to the US from the Norway airline has had ticket prices of $509 between Oslo and Kennedy airport (US) while the same route offered by United Airlines was $895 (2014). This shows that despite being the Norway certificate operator and not the Irish subsidiary, the outsourcing of labor is still enough for decreased ticket prices. The opposing party against Norwegian Air Internationals approval claims that the airline is not only trying to avoid the tax and labor laws of Norway but are essentially shopping around by outsourcing much of what they do in countries where the airline can save money (Bachman & Matlack 2015). The three major US air carriers strongly disapprove of the approval because they feel the business practices NAI operates under is a huge advantage (Jansen 2016). This advantage is feared by US air carriers because cheaper tickets will hurt their business as people will follow the cheaper tickets. Organizations such as the Air Line Pilots Association oppose the approval because it is feared that air line pilots and flight crews working under the US carriers will be hurt also. ALPA has also stated, "If one company is allowed to ignore the principles of U.S. air transport agreements, others will try to do so as well, and the result could jeopardize billions of dollars that airlines and their workers contribute to the U.S. economy (ALPA 2016)."
In my opinion, I don't feel that Norwegian Air's operating practices are a breach of the Open Skies Agreement. NAI doesn't receive government subsidies. The advantage they have are a result of business. There is nothing that states outsourcing is not allowed. Competition is fierce within the domains of the airline industry. According to Ted Reed, the profit margin of airlines is quite small, close to 0.1% (2013). That being said, it is quite easy to see why any kind of advantage in the airline industry would create some heated debate. However, as stated by the DOT, legally the US has no right to not allow the carrier to operate despite their operating practices. That being said I still don't condone these operating practices. If other carriers decide to follow these practices it would definitely hurt the US economy. If an airline decides to outsource everything they do, jobs would move over seas and in essence, airlines will search for the cheapest sources of labor. I think it goes without saying that safety is the highest priority. I think that the operating practices that Norwegian operates under needs to be looked over cautiously to make sure they are also doing everything in the bounds of regulations and safety if everything is outsourced in different countries. By having the majority of their practices outsourced to different countries it would be easy to have something overlooked where an airline that does everything in-house with the same country is easily watched over. At the end of the day, with Norwegian Air offering such low ticket prices I would foresee other airlines try to compete by lowering their ticket prices also. If this was to happen it would be good news for passengers as ticket prices would be lower.
References:
ALPA. (2016, July 28). ALPA Hails Congressional Opposition to Norwegian Air International. Retrieved December 13, 2016, from http://www.alpa.org/news-and-events/news-room/2016-04-28-ALPA-hails-congressional-opposition-norwegian-air-international
Bachman, J., & Matlack, C. (2015, February 12). Budget Airlines Shop the World for Cheaper Pilots. Retrieved December 13, 2016, from https://www.bloomberg.com/news/articles/2015-02-12/budget-airlines-shop-the-world-for-cheaper-pilots
Jansen, B. (2016, December 05). Norwegian Air plans U.S. expansion. Retrieved December 13, 2016, from http://www.usatoday.com/story/travel/flights/todayinthesky/2016/12/05/norwegian-air-plans-us-expansion/94986022/
Kane, F. (2015, March 18). Emirates Airline president denies US rivals’ charges of government bailout over fuel losses | The National. Retrieved November 04, 2016, from http://www.thenational.ae/business/aviation/emirates-airline-president-denies-us-rivals-charges-of-government-bailout-over-fuel-losses
Martin, H. (2016, December 2). Norwegian Air International gets final approval for flights to U.S., despite opposition. Retrieved December 13, 2016, from http://www.latimes.com/business/la-fi-norwegian-air-20161202-story.html
Mouawad, J. (2014, February 6). Long-Haul Expansion by a Norwegian Carrier Upsets U.S. Airlines. Retrieved December 13, 2016, from https://www.nytimes.com/2014/02/07/business/international/long-haul-expansion-by-a-norwegian-carrier-upsets-us-airlines.html?_r=1
Reed, T. (2013, February 25). Airlines, Not Yet Where They Want To Be, Make 21 Cents Per Passenger. Retrieved December 13, 2016, from http://www.forbes.com/sites/tedreed/2013/02/25/airlines-not-yet-where-they-want-to-be-make-21-cents-per-passenger/#1d0340ab2410
Simon, M. (2014, August 8). The Ex-Im Bank is hurting my business. Retrieved November 04, 2016, from http://www.chicagobusiness.com/article/20140808/OPINION/140809833/the-ex-im-bank-is-hurting-my-business
Sumers, B. (2016, December 02). Approval of More Norwegian Air Flights Opens Door for Cheaper Transatlantic Travel. Retrieved December 13, 2016, from https://skift.com/2016/12/02/dot-approval-of-more-norwegian-air-flights-opens-door-for-cheaper-transatlantic-travel/
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