BA owner IAG swoops on budget rival Norwegian

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The owner of British Airways has snapped up a stake in low-cost rival Norwegian – and may launch a bid to buy the increasingly powerful airline.

International Airlines Group (IAG) has built up a 4.6 per cent holding in Norwegian, worth around £44million.

IAG boss Willie Walsh yesterday said this could lead to a full-blown takeover offer for the airline, which was founded by former fighter pilot and crime writer Bjorn Kjos.

International Airlines Group (IAG) has built up a 4.6 per cent holding in Norwegian

International Airlines Group (IAG) has built up a 4.6 per cent holding in Norwegian

International Airlines Group (IAG) has built up a 4.6 per cent holding in Norwegian

Such a deal would give IAG a major boost in the battle for skies over the Atlantic. But it is feared a takeover could cut competition and push up prices for customers.

Experts said that the acquisition could cost IAG more than £2.5billion, as Norwegian is worth around £952million but a deal would also include its £2billion debt.

Traditional carriers such as BA are facing an onslaught from booming budget airlines.

Until recently these have focused on short-haul flights, but airlines such as Norwegian have applied the model to longer trips, triggering a price war.

Norwegian’s take-off

÷ Norwegian was founded in 1993 out of bankrupt regional airline Busy Bee

÷ It was set up by ex-Air Force pilot Bjorn Kjos, 71, who is now chief executive

÷ The firm is the world’s sixth largest low-cost airline, with 500 routes to 150 destinations

÷ It carried 33m people last year, including 5.8m British passengers

÷ It launched the UK’s first low-cost, long-haul flights to the US in 2014, and now offers round trips from London to New York for £270 return

The battle is particularly aggressive on transatlantic routes, with Norwegian offering return flights from London to New York for as little as £270.

Norwegian shares soared 48 per cent in Oslo yesterday as IAG unveiled its move.

John Strickland, of airline consultancy JLS Consulting, said airlines feared being caught out as they had been by the rapid growth of short-haul, which saw upstarts such as Ryanair and EasyJet boom. 

He said: ‘Low-cost long-haul has really been growing rapidly. I think IAG is testing the water. It is putting itself in position so it can influence the future rather than having to react.’

Kjos, 71, turned Norwegian from a small bankrupt operator in the early 1990s into Europe’s third-largest low-cost airline.

Many doubted cheap fares could work over long-haul flights. But Norwegian is now carrying 33m passengers each year to 150 destinations.

The airline’s success in getting more customers has come at a cost, however. It was forced to raise extra cash in March by selling shares, and warned of a larger than expected loss this quarter.

But it has made competitors sit up and take note. Earlier this year BA said it would slash prices.

Norwegian was set up by ex-Air Force pilot Bjorn Kjos, 71, who is now chief executive

Norwegian was set up by ex-Air Force pilot Bjorn Kjos, 71, who is now chief executive

Norwegian was set up by ex-Air Force pilot Bjorn Kjos, 71, who is now chief executive

IAG has also launched low-cost airline Level, and operates budget flights through its Irish carrier Aer Lingus and Spanish airline Vueling. It also owns Iberia.

But analysts said buying Norwegian was an upfront cost to IAG that could otherwise be spent making life better for customers. Some suggested a partnership might be the best way forward.

 

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