The expansion of low cost carriers into the long-haul market: a strategic analysis of Norwegian Air Shuttle ASA

Abstract

The low-cost carrier (“LCC”) business model has been in existence for several decades and their market share has been growing steadily. However, the most successful LCCs such as Southwest, Ryanair and EasyJet have focused upon implementing the low-cost strategy on short-haul routes. The main strategic objective of this thesis is to identify the underlying reasons for this phenomenon and whether there is a potential for the exploitation of the low-cost business model on long-haul flights. With this objective in mind, we conducted a case study of Norwegian Air Shuttle ASA (“NAS”), a LCC originating from Norway, and the only LCC currently operating long-haul routes from Europe to North America and Asia. The thesis is structured around three main parts; Literature Review, External Analysis and Internal Analysis. The Literature Review provides the theoretical background. The External Analysis chapter is split in two. Firstly, we use the PESTLE model to identify the major macroeconomic factors directly influencing the airline industry. Then we move to the microenvironment analysis that utilises the Porter’s Five Forces framework to provide a summary of the key issues shaping industry profitability. The third part, Internal Analysis provides an overview of the company’s history, financial performance and operational strategies in its long-haul expansion. The Chapter ends with a SWOT analysis to distinguish the key strengths, weaknesses, opportunities and threats facing NAS. Ultimately, the VRIO analysis finds that NAS currently lacks the resources to create and maintain sustainable competitive advantages in the long-haul market. In fact, the company has even failed to gain a significant price advantage over its competitors, especially when its LowFare+ product is compared with the fares of legacy airlines offering indirect services. As such, we conclude the thesis with a Recommendations section, where we propose several strategic solutions that may improve NAS’ financial and operational performance on its longhaul routes.