Norwegian Air Shuttle Gets Irish Air Operator's License: Move Facilitates Budget Airline's Aggressive Global Expansion Plans

The Wall Street Journal

By Christina Zander and Doug Cameron

Updated Feb. 12, 2014 4:02 p.m. ET

U.S. regulators are set to rule in the coming weeks on a plan by a unit of Norway's largest airline to launch new trans-Atlantic flights that is viewed by the industry as a test case for competition in the world's most lucrative international travel market.

Norwegian Air Shuttle AS is the first of the new breed of low-cost airlines to launch trans-Atlantic flights. On Wednesday, it secured approval from Irish regulators to base its international unit there, even though it has no plans to fly from Ireland.

Critics say the plans by Norwegian Air flout local labor laws and set a precedent for airlines to use shipping-style "flags of convenience" to cut costs as the company is registering aircraft in Ireland and hiring of staff at local bases in Europe, Asia and the U.S.

Supporters view the opposition–led by the main U.S. pilots' union–as an effort to stifle competition in a trans-Atlantic airline market that is dominated by a shrinking band of carriers that cooperate to set fares and schedules.

European Union regulators have already said Norwegian Air should be cleared to fly under the open-skies aviation treaty with the U.S., and refute suggestions that it contravenes the labor safeguards contained in the treaty.

Norwegian will file papers on Thursday with the U.S. Transportation Department, which also has to approve the plan and has declined to comment ahead of the completed application. A decision is expected some time after comments close on Feb. 20.

A former U.S. aviation official said turning down Norwegian Air's application would set a "potentially catastrophic precedent for competition on the North Atlantic," citing long-standing plans by Ireland's nonunionized Ryanair Holdings PLC to start flights at some future time to North America.

Norwegian Air currently flies to New York and Bangkok from Oslo and Stockholm, but announced plans last year to add flights to Orlando, Oakland and Fort Lauderdale using new Boeing Co. 787 Dreamliners registered in Ireland.

The move sparked protest from U.S. airlines and labor groups on both sides of the Atlantic. Critics pounced on plans to base the business in Ireland rather than Norway, with labor contracts tied to employment laws in Thailand and Singapore.

Airlines, unions and some lawmakers have called on the U.S. to block the expansion, but have left administration officials wary of flouting the existing EU aviation treaty and undermining wider trans-Atlantic trade talks, according to people familiar with the situation.

Norwegian Air argues its expansion will boost competition, while its decision to seek a license in Ireland isn't driven by a desire to secure cheap labor. Ireland also offers better traffic rights than Norway and more attractive aircraft financing rates.

The U.S.-based Air Line Pilots Association, International rounded on Wednesday Ireland's approval, which it said raised questions over how it could oversee the safety and operations of an airline that never flew into the country.

Irish regulators have bristled at any suggestion their oversight is lax and unable to deal with aircraft that don't fly to its airports. Ryanair registers its fleet in Ireland, even though most don't fly there, and leasing companies have also used the country, which boasts a large aviation infrastructure, as the legal home for hundreds of jets.

Opposition to the Norwegian Air plan also reflects the dominance of a handful of carriers on trans-Atlantic routes, with more than 80% of passengers carried by members of the three global marketing alliances–Oneworld, SkyTeam and Star. The trio have antitrust community to set fares and market jointly to corporate customers.

Only a handful of new competitors have emerged on trans-Atlantic routes while alliance members have deepened their presence. Delta has bought a 49% stake in Virgin Atlantic Airways Ltd, the largest of the independents. Other forays, by Italy's Air One and U.K.-based FlyGlobespan, proved short-lived.

Expanded competition from Persian Gulf-based carriers has also attracted fire from U.S. airlines, notably Delta. Dubai's Emirates Airline now flies between Milan and JFK, while Abu Dhabi's Etihad Airways helps feed expanded trans-Atlantic service by Ireland's Aer Lingus and Germany's Air Berlin PLC, in which it holds minority stakes.

Source:   http://online.wsj.com