Last updated: 01:36 PM ET, Thu June 30 2016

Norwegian's New Ireland Routes Could Mean Cheaper Transatlantic Fares

Airlines & Airports | Josh Lew | April 21, 2016

Norwegian's New Ireland Routes Could Mean Cheaper Transatlantic Fares

After a lengthy wait, Norwegian Air’s Irish subsidiary has finally received approval to fly from Ireland to the United States. Flights will take off from Cork and land in Boston, with several news reports pegging the price at $150 one-way. Additional service from Shannon Airport could also eventually be added.

The delay in the approval process was caused, mainly, by protests from various airlines and labor groups in the United States. U.S. carriers are understandably worried about the growing number of low cost airlines competing on transatlantic routes, but their opposition to Norwegian’s Ireland plans were particularly strong.  

READ MORE: DOT Gives Tentative Approval for Norwegian Air to Fly to US

Bending the rules?

The reason for this was that many of these groups think that Norwegian is moving to Ireland to avoid stricter labor laws in Norway. The more favorable regulations in Ireland will allow the Oslo-based airline to cut costs even further.

Though the groups that were in opposition to Norwegian’s move were able to slow down the approval process, it now appears that things are finally going to move forward. Here’s why:

The DOT sets a precedent: it will side with fliers, not airlines

The DOT is supposed to act in the interest of consumers, not airlines and their shareholders (employees and their unions would be considered shareholders in this case). So actually, it wouldn’t be incorrect to say that the approval of the Ireland flights was a foregone conclusion. In approving the flights, the DOT is sending the signal that it will side with airlines (eventually) as long as their proposed flights do not bring up any anti-trust issues. 

Regulators usually want to protect against a lack of competition. Norwegian’s flight to Boston will create the opposite dynamic. Whether the strategy of moving to another country to lower operating and labor costs is fair or not, one thing is for certain: transatlantic flights going to get cheaper in the future because Norwegian will bring a new level of price competition to the marketplace. 

The Norwegian deal is good news for fliers

Even if relatively few fliers can benefit directly from the Cork to Boston route, Norwegian could use its European network to provide feeder flights for this service. This strategy has worked well for both Icelandair and WOW Air, who have their hub at out-of-the-way Keflavík International Airport outside Reykjavik. These two carriers fly from the U.S. to Iceland and then offer cheap connecting flights to the continent. Norwegian could do exactly the same from Cork or from Shannon. 

READ MORE: Is 2016 Norwegian Air Shuttle's Breakout Year?

Having lower operating costs is important for Norwegian’s long term strategy. In the short term, competitors, including U.S. legacy carriers and major European airlines, could be willing to match Norwegian’s fares because fuel prices remain low. If this happens, Norwegian may be able to create the same kind of “JetBlue effect” that saw low cost carriers in the U.S. force full-service airlines to lower their prices in order to keep their share of the market. 

Lower prices for the long term

Even more exciting from a flier’s perspective is the potential upside for Norwegian’s long-term transatlantic ambitions. Now that the DOT has sided with consumers, it opens the door for Norwegian (and perhaps other low cost long haul carriers) to expand further into the United States. The kind of $300-$500 round trip fares to Europe that you now see on Norwegian could become the norm for flights from major airports across the country. 

This will not happen overnight, and it is dependent on Norwegian’s ability to keep its operating costs low by expanding in Ireland and finding other similarly business-friendly hubs for itself and its subsidiaries.

That said, fliers should be on the lookout for new route announcements from Norwegian. Some analysts have been saying that by 2025 Norwegian could have 150 or more transatlantic city pairs. Even adding 10-15 new routes in the next year or two could have a profound impact on the transatlantic marketplace because it would force other airlines to lower costs in order to compete.   


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