OSLO (Reuters) - When Scandinavian airline SAS cast off a tiny Norwegian partner carrier in 2002, few people thought it could survive, let alone threaten within a decade to bury its former master.
Norwegian Air Shuttle (NWC.OL), run by mystery novel writer Bjoern Kjos who once flew Cold War-era jet fighters, has risen again to become one of Europe’s fastest-growing budget carriers.
Looking beyond SAS, Norwegian now competes with its two bigger low-cost rivals, Ryanair (RYA.I) and EasyJet (EZJ.L) which together have turned European air travel upside down and cast doubt on the future of many traditional carriers.
In some ways, Norwegian and SAS have become opposites.
SAS got another state lifeline on Monday just to survive and runs an ageing fleet at high cost. The airline, whose major shareholders are the governments of Sweden, Denmark and Norway, has not made a full-year profit since 2007 and its shares have lost 23 percent since the start of the year.
By contrast, Norwegian’s shares have risen 122 percent this year as the airline lowers costs even as it expands at a break-neck pace.
Kjos, 66, criticised the SAS rescue. “It doesn’t make sense that taxpayer money is being used for this,” he told Reuters. “It should be food for thought that private investors don’t want to be involved in SAS. If private money is reluctant to invest, then why should states?”
Kjos has been around planes for almost as long as he can remember. His father built a private hangar on his land and often took his son up in the air, surveying farmland and selling the pictures to local landowners.
Despite having flown Lockheed F-104 Starfighters for the Norwegian air force, Kjos later failed to find work as a commercial pilot with SAS and spent years as a lawyer.
But then a friend, a pilot at Norwegian, called for help. SAS had just terminated a regional service contract with Norwegian after taking over Braathens, which had struck the original deal. This left Norwegian with little business and threatened the jobs of several friends.
Kjos searched for investors to bail out the company but raised less than half the required sum, so he sank what he says was “several million” crowns of his own money into it.
Norwegian now operates over 60 planes and placed the biggest-ever order by a European airline this year with a deal for 222 aircraft, worth $21.5 billion at list prices. The aircraft are due to start being delivered from 2016, although under previous deals it will get other jets in the meantime.
It offers free wi-fi on board many aircraft and is steadily installing the service on the rest of its fleet.
Norwegian scores highly on cost control. Its unit cost - measured by operating cost per available seat kilometre - is about $0.08 compared with about $0.12 for SAS, while personnel expenditure is just 16 percent of its revenue versus about 30 percent for SAS.
SAS CEO Rickard Gustafson earned 9.2 million Swedish crowns last year plus another 2.7 million in pension premium. This is more than the combined salaries of the top seven executives at Norwegian.
SAS says this is an unfair comparison as Kjos - who controls 27 percent of Norwegian through his investment vehicle - takes far more than his basic salary in the form of dividends.
Norwegian planes fly 45 percent more each day compared with SAS and its aircraft are less than half the age.
While SAS is selling assets, including regional airline Wideroe, Norwegian is expanding. It has established new bases in Spain and London and expects short haul capacity to rise 20 percent in 2013.
Next year it will also launch long-haul services as it takes the first of eight Boeing (BA.N) Dreamliners, and sells tickets to Thailand and New York at less than half the SAS fare. Norwegian will also establish a base in Bangkok, flying to Europe with Asian staff, allowing big cost savings.
Kjos says the biggest challenge will be coming from the east. “There is a very rapidly expanding middle class in Asia who will spend more and more on travel,” Kjos said. “So the future is horribly stiff competition from Asian companies.” (editing by David Stamp)