Norwegian Air: a low-cost long-haul push that ended in a smaller airline

The situation

In April 2018 International Airlines Group (IAG), the owner of British Airways, Iberia and Aer Lingus, disclosed that it had bought 4.61% of Norwegian Air Shuttle and was considering a bid for the rest. Within weeks Norwegian’s board said it had received two separate approaches from IAG, reviewed both and “unanimously rejected” them because they “undervalued” the company “and its prospects”.

Norwegian was then growing fast and was badly stretched. Under its founder and chief executive, Bjørn Kjos, it had taken the low-cost model that worked on short European routes and applied it to long-haul flying across the Atlantic and to Asia, using new Boeing 787 Dreamliners. In 2018 its revenue rose 30% to NOK 40.3 billion, it carried 37.3 million passengers and its capacity, measured in available seat kilometres, grew by 37%. Twenty-five new aircraft joined the fleet that year. It also lost money. The net loss for 2018 was NOK 1,454 million, and the equity ratio, the share of assets funded by shareholders, had fallen to 3.0% by the end of the year. Net interest-bearing debt stood at NOK 31.9 billion.

The two sides of the table faced different questions. For Norwegian’s board, the question was whether to sell to a larger rival or keep going alone and try to turn growth into profit. For IAG, the question was whether to pay a premium for a competitor that was taking passengers on its most valuable routes, or wait. This case follows both decisions and what came of them, through a pandemic, a court-supervised restructuring and the end of Norwegian’s long-haul flying.

Background

From regional carrier to low-cost airline

Norwegian started in 1993 as a small regional airline flying Fokker 50 turboprops on Norway’s west coast, much of it under contract to the Norwegian carrier Braathens. When that work ended in 2002, it relaunched itself as a domestic low-cost airline with Boeing 737s. Bjørn Kjos led the company through this change and for the next 17 years. (The early history in this paragraph rests on secondary accounts rather than company filings.)

Through the 2000s Norwegian grew into one of Europe’s larger low-cost airlines, with bases in several countries, including London Gatwick from 2012. Its business model was the familiar one: a single aircraft type for short-haul routes, high aircraft use, direct online sales and fares unbundled from extras such as checked bags. It paid for growth with a mix of debt, bonds, aircraft leases and share issues, and placed large orders for new aircraft.

Going long-haul

On 8 November 2012 Norwegian opened ticket sales for its first long-haul routes, from Oslo and Stockholm to New York and Bangkok, starting at the end of May and in June 2013. The routes were to be flown with Boeing 787 Dreamliners, of which it had eight on order for delivery between April 2013 and 2015. “This is a major milestone in our company’s history,” Kjos said. The launch also offered an optional premium cabin with larger seats, more legroom, a three-course meal and checked baggage. “Freedom of choice is an important part of Norwegian’s business philosophy,” Kjos added.

The idea was that a modern, fuel-efficient wide-body aircraft, flown with low-cost practices, could cut long-haul fares well below those of the established network airlines. The network grew quickly. Norwegian set up subsidiaries in Ireland and the UK to gain traffic rights, and from 2017 it also flew single-aisle 737s across the Atlantic. By the end of 2018 it flew more than 60 intercontinental routes within a total network of more than 500 routes to over 150 destinations, with 10,215 staff at 29 bases in 14 countries.

How it made money, and where it did not

Norwegian’s revenue came from ticket sales and ancillary charges such as bags and seat selection. Its costs were dominated by fuel, aircraft ownership or leasing, crew and airport charges. The key measure in the industry is unit cost per available seat kilometre. Norwegian’s unit cost excluding fuel was NOK 0.32 in 2016, NOK 0.33 in 2017 and NOK 0.31 in 2019, according to its reports. Long flights help this measure, because take-off, landing and airport costs are spread over more kilometres, so part of the fall in unit cost came simply from flying longer distances. In 2018 the average sector length rose by 15%.

The problem was that revenue per seat did not keep pace with capacity. Norwegian’s operating result swung from a profit (EBIT) of NOK 1,820 million in 2016 to losses of NOK 2,001 million in 2017 and NOK 3,851 million in 2018. Kjos said in early 2018: “We are not at all satisfied with the 2017 results.”

The industry

Two very different businesses

European short-haul flying and long-haul flying have different economics. On short routes, low-cost airlines took share from national carriers from the 1990s onwards by flying one aircraft type intensively, using cheaper airports and selling direct. Many of their advantages do not carry over to long-haul. Wide-body aircraft are expensive and cannot fly as many cycles a day. Passengers on eight-hour flights expect meals and baggage, which narrows the gap between a low-cost and a full-service product. And on long-haul routes, network airlines can sell premium cabins to corporate travellers, a market a low-cost entrant rarely reaches.

The incumbents

The North Atlantic was dominated by large network airlines and their alliances, among them IAG’s British Airways, Iberia and Aer Lingus. These airlines could feed transatlantic flights with passengers from their own short-haul networks and from alliance partners, and could carry a fare war on a few routes with profits earned elsewhere. IAG also responded with its own low-cost long-haul brand, LEVEL, which began flying from Barcelona to the Americas in June 2017, according to secondary accounts. Norwegian therefore faced price matching on its routes from carriers that were larger and better capitalised.

Forces at work

Michael Porter’s five forces help to show why long-haul low-cost flying was hard. Rivalry was intense: several airlines flew most transatlantic routes, and excess seats were sold off cheaply. Buyer power was high: leisure travellers compare fares online and switch for small savings, which made it hard for Norwegian to raise fares once it had built its reputation on cheap tickets. Supplier power was high too. Aircraft came from two manufacturers, Boeing and Airbus. When Rolls-Royce engines on Norwegian’s 787s needed unplanned inspections and repairs, Norwegian had to lease in replacement aircraft and crews at short notice, at an estimated total cost of about NOK 2 billion. Lessors, who owned much of the fleet, held strong claims on the business, as 2020 would show. The threat of new entry was moderate: the barriers that mattered were access to cheap capital and slots at busy airports, both of which favoured incumbents. Substitutes, mainly not flying at all, became the dominant force in 2020.

Regulation

Air traffic rights are governed by treaties. Norwegian used an Irish subsidiary, Norwegian Air International, to fly under the EU-US Open Skies agreement, since Norway is not an EU member. That allowed it to fly from many European airports to the US. Most of the airline’s aircraft were registered in Ireland, which later made the Irish courts central to its restructuring.

The decision

Norwegian’s options in 2018

Norwegian’s board had three broad paths. It could negotiate a sale to IAG or another large group. That would give shareholders a price for their shares at a time when the company was losing money and needed new capital, and would put the airline inside a group with a stronger balance sheet. The board’s view, as stated publicly, was that the approaches it received were too low. Its annual report for 2018 also refers to “merger and acquisition dialogues with external parties” that affected the timing of a planned rights issue, though it does not name the parties.

The second path was to stay independent but slow down. In February 2019 the company presented a strategy for returning to profit. Kjos said: “Going into 2019, we will enter a period of slower growth and fewer investments.” The plan included a cost programme, #FOCUS2019, aiming to save at least NOK 2 billion, the sale or divestment of up to 140 aircraft including some on order, postponed deliveries, and a review of routes and bases. It was paired with a fully underwritten rights issue of NOK 3 billion.

The third path was to keep growing in the hope that scale would bring profit. The 2018 strategy still set as one of four goals a “global low-cost alliance” built on long-haul, so the company was not abandoning the long-haul model, only slowing its expansion.

IAG’s options

IAG could make a full bid, with the aim of removing a competitor, gaining its young fleet and slots at London Gatwick, and either integrating or shrinking its long-haul operations. It could keep competing and wait for Norwegian’s finances to weaken, in which case assets might come cheaper later or the threat might disappear on its own. Or it could hold a small stake, which gave it information, a seat in any later sale process and influence over rival bidders, at modest cost. Skift’s analysis at the time suggested that IAG’s chief executive, Willie Walsh, was likely to wait rather than overpay.

IAG chose to hold and watch. On 24 January 2019 it announced that it did not intend to make an offer for Norwegian. Its holding had been diluted from 4.61% to 3.93% by Norwegian’s share issues in the first half of 2018, and IAG said it intended to sell the whole stake at a later date.

What they did

Raising capital and cutting back, 2018 to 2019

Norwegian raised money several times. In 2018 it completed a private placement of NOK 1.3 billion and a follow-on offering of NOK 200 million. The NOK 3 billion rights issue was completed in March 2019, raising a net NOK 2.9 billion. It repaid a NOK 1.25 billion bond in 2018 and began selling aircraft and postponing deliveries.

2019 brought new problems. In March 2019 Norwegian grounded its 18 Boeing 737 MAX aircraft after two fatal crashes involving the type elsewhere. The grounding added about NOK 1 billion in costs that year and disrupted its transatlantic 737 flying. The Rolls-Royce engine problems on the 787s continued. Kjos stepped down as chief executive in 2019; the board named Jacob Schram as his successor in November 2019. For the full year 2019 Norwegian made an operating profit of NOK 856 million, but after finance costs it reported a net loss of NOK 1,609 million. Its equity ratio was 4.8%.

The pandemic, 2020

In March 2020 travel restrictions removed most of Norwegian’s revenue. It cancelled 85% of its flights and temporarily laid off about 7,300 staff, about 90% of its workforce. In April its pilot and cabin crew companies in Sweden and Denmark filed for bankruptcy, citing a lack of support from those governments.

The Norwegian government offered a state loan guarantee on condition that the airline restored its equity ratio to at least 8%. Reports differ on the size of the package; Reuters gave it as NOK 2.7 billion in May 2020, while Norwegian’s annual report refers to a NOK 3 billion state loan guarantee. To qualify, Norwegian asked its creditors to take shares in place of debt. On 20 May 2020 bondholders, lessors and shareholders agreed to convert NOK 12.7 billion of debt into equity and to a share sale. The number of shares rose from 163.6 million to 3 billion, issued at NOK 1 each, and the share price roughly halved that day. Aircraft lessors became the largest owners, led by AerCap with 15.9% and BOC Aviation, which is ultimately owned by the Chinese state, with 12.67%. The equity ratio rose to 17%. At that point Norwegian was flying seven aircraft, against almost 150 before the crisis, with a plan to build back to 110 to 120 by 2022. “The months ahead will remain challenging and with a high degree of uncertainty for the industry,” Schram said.

The plan did not survive the second wave of the pandemic. In November 2020 the Norwegian government said it would provide no further financial support. Norwegian cut back to a domestic network and laid off 1,600 more staff, and it sought court protection under examinership in Ireland and a reconstruction process in Norway. For 2020 it reported revenue of NOK 9.1 billion, down 79%, and a net loss of NOK 23 billion, including NOK 12.8 billion of impairments. Equity was negative at minus NOK 6.6 billion.

Ending long-haul, 2021

In January 2021 Norwegian decided to stop long-haul flying for good and to concentrate on short-haul routes in the Nordic region and Europe. Its annual report said simply that “the uncertainties surrounding long-haul passenger demand were clear.” The 787s went back to their lessors. Orders with Boeing and Airbus were cancelled, worth about US$10.2 billion according to the Associated Press.

The government then agreed to support a new capital raising. It offered NOK 1.5 billion in loans on condition that Norwegian raised at least NOK 4.5 billion from other investors, the minimum the courts required for it to exit the restructuring. The Irish court approved the plan in March 2021 and the Norwegian court in April. On 26 May 2021 Norwegian completed the restructuring after raising NOK 6 billion through new shares, a rights issue that was oversubscribed by 395%, and perpetual bonds. The chief financial officer, Geir Karlsen, said the company had negotiated with “30-40 large banks and several thousand creditors.” Schram said the airline “has been saved.” A month later, in June 2021, the board replaced Schram with Karlsen as chief executive.

What happened

A smaller airline

Norwegian came out of the process as a different company. The Associated Press reported that total debt had fallen by NOK 63 billion to NOK 65 billion, to about NOK 20 billion; Norwegian’s own annual report put total liabilities and debt after the restructuring at about NOK 16 billion, of which about NOK 5 billion was aircraft-related. The two figures are measured differently and at different times. The fleet at the end of 2021 was 51 Boeing 737-800s, against 164 aircraft, including 32 Dreamliners, at the end of 2018. Staff numbered 3,310.

Exhibit 1: Norwegian Air Shuttle group results, 2016 to 2025 (NOK millions unless stated)

Sources: Norwegian fourth-quarter reports for 2017, 2019, 2023 and 2025, and annual reports for 2018, 2020 and 2021. The 2017 net result was restated in the 2018 annual report. The 2021 net profit reflects gains on debt written off in the restructuring, not trading profit. From 2024 the group includes the regional airline Widerøe.

Exhibit 2: Balance sheet strain before and after the restructuring

Sources: as Exhibit 1. The jump in 2019 reflects a change in accounting rules (IFRS 16) that brought aircraft leases onto the balance sheet; excluding leases, net debt was NOK 24 billion.

Profitable again

The smaller airline has made money every year since 2022. Revenue reached NOK 25.5 billion in 2023, with an operating profit of NOK 2.2 billion. In January 2024 Norwegian completed the purchase of the Norwegian regional airline Widerøe for NOK 1,125 million. In 2024 the group made an operating profit of NOK 1,873 million, the second highest in its history at that point, and in 2025 NOK 3,732 million on revenue of NOK 37.6 billion, an operating margin of 9.9%. The board proposed a dividend of NOK 0.80 a share for 2025, about NOK 844 million in total.

The comparison with 2018 is instructive. In 2025 Norwegian carried 23.1 million passengers on its own aircraft, fewer than the 37.3 million of 2018, with 95 aircraft rather than 164. Its revenue was slightly lower in kroner terms, without allowing for inflation, yet it earned an operating profit of NOK 3.7 billion where it had lost NOK 3.9 billion. Its unit cost excluding fuel was NOK 0.50, far above the NOK 0.31 of 2019, a gap that is likely to reflect the shorter flights it now operates as well as inflation and a weaker krone. It earns money by charging more per kilometre on routes where it is strong, not by spreading low costs over long distances.

For IAG

IAG avoided paying a premium for an airline whose long-haul network collapsed within two years. Its rival’s transatlantic capacity disappeared without IAG having to buy it. Whether IAG would have done better to buy Norwegian in 2018 and close its long-haul operation on its own terms cannot be known, but the public record gives no sign that IAG regretted waiting.

Other views

Norwegian’s case

Norwegian’s own reports pointed to the costs of rapid growth, fuel hedging and problems outside its control. In 2018 it lost NOK 1.2 billion on fuel forward contracts as fuel prices fell in the fourth quarter. The engine faults on its 787s and the grounding of the 737 MAX in 2019 were costs it could not have planned for. On this view, a few more years of slower growth would have brought the profits the board expected when it rejected IAG.

Analysts and competitors

Analysts were more sceptical. Skift’s commentary in May 2018 suggested that IAG’s offer was likely to have been low because of Norwegian’s financial position, and that Walsh would rather wait than overpay. The fact that IAG set up its own low-cost long-haul operation suggests that the large incumbents saw the model as a threat to be matched, not a market to be ceded.

Governments and labour

Governments took different lines. Norway supported the airline in 2020 with a guarantee tied to equity conditions, and again in 2021 on condition that private investors put in money first, but refused further help in November 2020. Iselin Nyboe, the Norwegian industry minister, said in May 2020: “We hope a strengthened Norwegian can continue to deliver good transportation services also after the Covid-19 outbreak.” Sweden and Denmark did not provide significant support, and the pilot and cabin crew companies there went bankrupt in April 2020. Thousands of Norwegian’s staff in several countries lost their jobs in 2020 and 2021.

Owners and creditors

Shareholders who held stock before 2020 saw their stakes almost wiped out by the issue of 3 billion new shares at NOK 1 in May 2020 and further issues in 2021. Lessors and bondholders took large losses but gained shares. Whether this was fair depends on what the alternative would have been. Without the debt-for-equity swap Norwegian would not have qualified for the state guarantee, and a liquidation would probably have left all of these groups with less. That is the usual defence of a court-supervised restructuring, and the courts in Ireland and Norway accepted it.

Uncertainties

The public record does not settle the central question: could low-cost long-haul have worked with slower growth and more equity? Norwegian’s long-haul operation was never reported as a separate segment with its own profit and loss, so outsiders cannot say how much of the losses came from long-haul and how much from short-haul overexpansion.

Reading it through a framework

Real options

Real options thinking treats a small investment as the right, but not the obligation, to make a larger one later. The value of the right rises with uncertainty and with the time available before a decision must be made. Waiting is worth most when the thing being bought may fall in value and when nothing is lost by delay.

IAG’s 4.61% stake worked like a call option on Norwegian. It cost relatively little, gave IAG a position in any sale, and allowed it to see how Norwegian’s finances developed. In January 2019 the information was clear enough. Norwegian’s equity ratio was 3.0%, net debt was NOK 31.9 billion, and the company needed a NOK 3 billion rights issue. The value of the underlying asset was more likely to fall than rise, so IAG let the option lapse without exercising it. When the pandemic came, the stake was worth little, but its cost was small compared with what a full takeover would have cost.

Norwegian’s own strategy was the opposite of an option. It made large, hard-to-reverse commitments to aircraft and routes, funded with debt and leases, and left itself almost no room to wait. When capacity grew 25% in 2017 and 37% in 2018 while equity fell to 3% of assets, the company had in effect bet that growth would bring profits before the money ran out. The bet left no margin for shocks, and three arrived in quick succession: engine faults, the MAX grounding and the pandemic.

Five forces revisited

The five forces analysis above explains why the long-haul business was weak even before 2020. Norwegian’s strengths, a low cost base and a fuel-efficient fleet, addressed only one force, rivalry on price. They did nothing about high buyer power, concentrated suppliers or incumbents able to match fares. The post-2021 airline faces a different set of forces. In Nordic short-haul it has a strong position against a smaller field, and it has added a regional airline with routes that face little competition. Its operating margin of 9.9% in 2025 suggests a position with more control over price than it ever had on the North Atlantic.

Since then

Norwegian has moved further from its long-haul past while extending into the wider travel business. On 16 June 2026 it agreed to buy Nordic Leisure Travel Group, the owner of tour operators including Ving, Spies and Tjäreborg, the hotel brands Sunwing and Sunprime, and Sunclass Airlines, which flies 12 medium- and long-haul Airbus aircraft. The price was about SEK 7.94 billion, of which SEK 3.5 billion was in cash and the rest in 300 million new Norwegian shares. Norwegian said the deal would raise group revenue by close to 50% and add to earnings from 2027. Shareholders approved it on 8 July 2026, and it awaited EU competition clearance, with closing targeted for the second half of 2026. Karlsen called it “a milestone in Nordic travel history.”

The deal is a reminder that long-haul leisure flying has not disappeared from Norwegian’s plans entirely; Sunclass operates charter flights for package holidays, a different model from scheduled low-cost long-haul.

Trading in 2026 has been mixed. Norwegian reported an operating loss of NOK 220 million for the first quarter, a smaller seasonal loss than the NOK 611 million of a year earlier, and an operating loss of NOK 603 million in the second quarter, or a profit of NOK 213 million excluding other losses. It had liquidity of NOK 13.7 billion at the end of June and a group fleet of 145 aircraft, 95 at Norwegian and 50 at Widerøe. Its loyalty programme, Norwegian Reward, had more than 8.5 million members.

IAG did not return with a bid.

What to take from it

• A cost model that works on short routes does not transfer easily to long-haul, where incumbents can match fares and earn their profit from business travellers a low-cost airline rarely reaches.
• Growth funded by debt, leases and repeated share issues, with an equity ratio of 3%, leaves no buffer when a shock arrives, and Norwegian faced three in two years.
• A small stake gave IAG the right to wait, and waiting proved worth more than buying once Norwegian’s finances showed which way the value was heading.
• A court-supervised restructuring can save an airline, but the business that survives may look very different, and the shareholders who backed the growth bear most of the loss.
• The smaller Norwegian of 2025 earned more with 95 aircraft than the larger one did with 164, which shows that scale and profit are not the same thing.

Questions to think about

1. Should Norwegian’s board have accepted an improved IAG offer in 2018? What information would it have needed at the time to make that call, as opposed to what we know now?
2. Norwegian’s capacity grew 25% in 2017 and 37% in 2018 while its equity ratio fell from 11% to 3%. At what point, if any, should the board have slowed growth, and what signals in Exhibits 1 and 2 might have prompted it?
3. Unit cost excluding fuel was NOK 0.31 in 2019 and NOK 0.50 in 2025, yet the airline was more profitable in 2025. Explain how this can be, using the effect of flight length and the difference between unit cost and unit revenue.
4. In May 2020 the share count rose from 163.6 million to 3 billion. If you held 1% of Norwegian before the conversion and did not take part in the new issue, roughly what share would you hold afterwards? How should shareholders judge a restructuring on those terms?
5. Was IAG’s stake a sensible real option, or did it risk signalling interest and encouraging Norwegian to raise more capital? Use the timeline to support your view.
6. Could low-cost long-haul work with a different fleet, financing or network? What would you need to see in an airline’s accounts to believe it?

Concepts at work

Real options, Porter’s five forces, debt-for-equity restructuring, unit economics. Explore them in Insights.

Further reading

Oxford University Press covers this story as a teaching case in Cases in Strategy on Oxford Business Trove. The sources below are the public record this page was written from.

Written from the public sources listed below. Figures are as those sources report them.