The ‘Walmarting’ of the Airline Industry

Norwegian Air Shuttle’s ambitious plans involve some complex logistics
Norwegian Air Shuttle’s ambitious plans involve some complex logistics

Many companies choose to employ a global strategy where different pieces of the process are completed in different regions of the world. These global processes can be accomplished in numerous combinations and it is up to the company to find the most effective one.

In this article, Norwegian Air Shuttle, an airline that specializes in low-cost flights around Europe, is bringing it business model to the United States and Asia, to the dismay of U.S. airline companies.

Their strategy is a complex one that has different cost-effective parts. Norwegian is “moving its long-haul operations from Norway to Ireland, basing some of its pilots and crew in Bangkok, hiring flight attendants in the United States, and flying the most advanced jetliner in service — the Boeing 787 Dreamliner.” Other airlines have tried but failed to do a low-fare approach on long-haul flights.

Bjorn Kjos, Norwegian’s CEO, is confident that they can offer fares that are 50 percent cheaper than the competition’s, which will ultimately drive out competition. American Labor groups, “see it as a backhanded attempt to outsource cheaper labor and undercut competition” as well as taking advantage of the open-skies agreement made with the EU (even though Norway isn’t part of the EU).

“United Airlines and American Airlines said the low-cost airline wanted to skirt labor laws by resettling its long-haul operations in Dublin, while using a Singapore-based company to hire pilots on its behalf in Thailand. The result would give it ‘a competitive advantage on trans-Atlantic routes in direct competition with U.S. carriers.’”

In class, we talked about competitive advantages in relation to globalization. According to the lecture there are many reasons to globalize:

  1. Improve the supply chain
  2. Reduce costs
  3. Improve operations
  4. Understand markets
  5. Improve products
  6. Attract and retain global talent

I think that the way that Norwegian Air Shuttle is globalizing falls in line with these points and it is effectively improving supply chain, reducing costs, and improving operations better than their American counterparts. They improve the supply chain by finding the most beneficial process to establish their airline. They lower direct and indirect costs by eliminating unnecessary expenses and finding the cheapest way to provide labor, and reducing taxes and tariffs. They also improve operations by understanding differences in how business is handled in different countries, and using it to their advantage.

There are also strategies for competitive advantage: differentiation, cost-leadership, and response. I believe that the Norwegian Air Shuttle company is competing on cost; they are they are providing the maximum value as perceived by the customer at the lowest cost and it is creating the most demand.

Do you think that the way Norwegian Air Shuttle handles their business model is considered a strategic competitive advantage or is it an unfair advantage? Why?

Source:  Long-Haul Expansion by a Norwegian Carrier Upsets U.S. Airlines

5 thoughts on “The ‘Walmarting’ of the Airline Industry

  1. Great Post! I don’t believe that what Norwegian Airline is doing is an unfair advantage. I believe the opportunity was presented and they took it. I think that by doing this change, they are really catering to people in the world today, meaning people who are looking for great deals and cheap flights. I think if they are successful they will have a competitive advantage over other airlines.

  2. I agree with this article. Norwegian Airline is driving out competition by ruthlessly using global strategy. I think it is time for US Airlines to step up the game to improve their aviation services. Moreover, it is not unfair on Norwegian Airline’s part since they are following the rules and laws of a certain country.

  3. Very interesting read! I found this company is not being unfair whatsoever, and rather shedding light on a very open international opportunity. Norwegian Airline is doing similarly what Southwest did a few years back and taking small yet hugely effective steps towards creating a name for themselves, and offering a good/service unmatched by their competition. Although Southwest did not have access to any unique resources or capital, they adapted the way a typical industry player operates in that business, and created a following much larger than other airlines.

  4. I see that you are talking about global strategy and how it is having a direct effect on American-based airlines. I think this is considered a strategic competitive advantage because they have found ways to reduce their expenses thus causing fares to go down for the customer. With the open skies agreement, any airline can compete as long as they can establish themselves in the environment and offer competition to attract customers. The other airlines that are trying to chase them out need to reevaluate their position and decide how to compete as well.

  5. The airline industry in the US is very possessive. It is very hard for new concepts and ideas to get through. We all know how hard it is to jump in the car and within couple of hours be at a meeting on other side of the country. The United States lacks sophisticated railways, and the only way to travel fast is via air. Airline companies in America know very well that there is a huge demand, and their lust and desire to produce as much of the profit cause them to forget about people like you and me. We live in a global world, and it shouldn’t surprise us any longer that product parts come from one part of the world and other parts of labor come from opposite side of the globe. Let’s look, for example, at the labor unions in our country. Their fees to organizations are very large, and there are many times that their competencies and costs should be cut. This way the money could be used towards other resources and improved decision making.
    I think it is about time for “outsiders” to come and prove that there is a possibility to be an effective, and cost-efficient company that is able to earn high revenues. I am very interested in how and if Norwegian Air Shuttle will succeed within American business competition. It is very hard for foreign companies to succeed in here, and mostly at the industry where we know how much money is at stake. Virgin airlines has a very rough road to become a competitor to other major airlines in United States. I just hope that another company will be able to prosper, and allow the domestic airline companies to rethink their strategy and become more open minded and friendlier.

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