Norwegian Airlines – with transatlantic Gatwick plans – under fire from unions for employing Thai staff at lower pay
Gatwick airport recently struck a deal with European low fares Norwegian Airlines, which hopes to start low-cost transatlantic flights to 3 US airports using 787 Dreamliners. It has given Gatwick airport a boost, with its excitement about its planned 3 flights per week to New York after July 2014, and 2 flights per week each to Los Angeles and Fort Lauderdale. These may cost as little as £150 one way. However, there is now a lot of opposition by unions in both the USA and in Europe about the way Norwegian employs Thai air crew, for salaries that are very much lower than those paid to US or European employees, so it can undercut its rivals. Employment costs in Norway are high. Airline unions and pilot groups have asked European and US authorities to deny Norwegian Air Shuttle’s request for a new long-haul license, accusing the budget carrier of trying to avoid taxes and skirt employment laws. It now plans to register the operation in Ireland and keep using Thai crew along with some American staff. There are fears that air crew will lose their fundamental rights, including the freedom to assemble, and the freedom to collectively bargain. Attempts to fly cheap long-haul routes date back to the 1970s, when Laker Airways flew from London to New York. It went bankrupt in 1982.
Unions Lobby To Halt Norwegian Long-haul License
February 5, 2014 (Airwise news)
Airline unions and pilot groups asked European and US authorities on Wednesday to deny Norwegian Air Shuttle’s request for a new long-haul license, accusing the budget carrier of trying to avoid taxes and skirt employment laws.
Norwegian this year became the only European budget airline to launch long-haul operations, flying to North America and Asia from the Nordics with Boeing 787 Dreamliners.
It now plans to register the operation in Ireland and keep using Thai crew along with some American staff.
Labour groups including the transportation sector of AFL-CIO and the Air Line Pilots Association International argued that the plans are intended to take advantage of regulatory loopholes and leave safety oversight in doubt.
“This setup will deny the workers their fundamental rights, the freedom to assemble, the freedom to collectively bargain,” Lee Moak, the president of the Air Line Pilots Association International told a news conference in Oslo after meeting Norwegian officials.
He added that the plan would give the carrier an unfair economic advantage over other European and US airlines.
Describing the claims as false, Norwegian’s spokeswoman Anne-Sissel Skaanvik said: “We follow all the laws and regulations in all the markets we operate in and we offer competitive wages to all of our employees.”
Attempts to fly cheap long-haul routes date back to the 1970s, when Laker Airways flew from London to New York. It went bankrupt in 1982 when rivals cut fares and squeezed it out of the market.
Norwegian started flying on relatively uncompetitive routes such as between Oslo and Fort Lauderdale, but now plans to launch a London-New York service.
It said it can afford to undercut its rivals, sometimes by 20 to 40 percent, due to the 787’s 20 percent lower operating costs.
The Irish Aviation Authority rejected any suggestion it was not capable of oversight. “The IAA already provides safety regulation of Ryanair to the highest international standards,” it said.
New 7 year deal between Gatwick and Norwegian, that includes airline’s backing for 2nd runway
Gatwick airport has struck a deal with European low fares airline Norwegian, which includes getting their active support for the airport’s plans to get a 2nd runway. This comes weeks after the CAA agreed that Gatwick can make bespoke commercial arrangements with its airlines. Norwegian is to start low-cost transatlantic services to 3 US airports, using Boeing 787 Dreamliners next summer in addition to an increased European network. It is expected that there will be 3 flights per week to New York after July 2014, and 2 flights per week each to Los Angeles and Fort Lauderdale. These may cost as little as £150 one way. The number of destinations served by Norwegian from Gatwick will rise to 33 in 2014 with 6 aircraft based there. This will make Norwegian one of the top 4 airlines at Gatwick during 2014. Low fares to the USA is expected to draw in more passengers. The airline’s CEO said: “Norwegian is very supportive of Gatwick’s runway expansion plan which would mean that the airport could offer even better operating facilities in the future.”
This is the link to the presentation given by Norwegian Airlines CEO, at the January “RunwaysUK” conference:
Unions urge boycott of Norwegian Air
October 30, 2013 (News in English from Norway)
Its pilots have been threatening to go on strike, its new long-haul routes are deeply troubled and now Norway’s once high-flying Norwegian Air faces a passenger boycott. The boycott is being urged by one of Norway’s top labour leaders, who claims the airline is trying to undermine the Norwegian welfare state.
Norwegian’s pilots have won a pensions dispute with their employer. PHOTO: Norwegian Air/Hans Olav Nyborg
Norwegian Air has gone from being a successful low-fare carrier within Europe to being plagued by labour and service problems mostly tied to its new long-haul service to Asia and North America. PHOTO: Norwegian Air/Hans Olav Nyborg
The boycott call comes after state broadcaster NRK reported on its nightly national newscastDagsrevy on Tuesday that Norwegian’s new Thai flight attendants have base pay of less than NOK 3,000 (USD 500) a month. That’s a fraction of what the airline’s Norwegian flight attendants earn.
“I don’t see any reason at all to fly on Norwegian when it behaves in this manner,” Stein Gulbrandsen, head of Norway’s largest labour organizationFagforbundet, with more than 300,000 members, said on NRK’s national radio stations Wednesday morning. He equates the extremely low pay to social dumping.
Two Thai cabin crew members posing with Norwegian chief executive Bjørn Kjos on the airline’s first flight to New York. NRK has revealed that the Thailand-based crews are paid a fraction of what Norwegian cabin crews receive. PHOTO: Norwegian Air
Two Thai cabin crew members posed with Norwegian chief executive Bjørn Kjos after the airline’s first flight to New York. NRK has revealed that the Thailand-based crews are paid a fraction of what Norwegian cabin crews receive. PHOTO: Norwegian Air
The Thai flight attendants based in Bangkok who work on board Norwegian’s new long-haul flights between Bangkok, Oslo and New York receive some additional payments, for example when they work on a 12-hour shift between Oslo and Bangkok, but that payment (called atillegg) amounts to NOK 200 (USD $34).
“We have to look at that as a gross provocation,” Gulbrandsen said.
He sits on the trade union organization’s powerful arbeidsutvalg (working committee) and doesn’t only want Fagforbundet’s roughly 340,000 members to stop flying on Norwegian. He’s urging all Norwegian passengers to boycott the airline.
“Respectable organizations and respectable people don’t patronize operations that are trying to undermine the Norwegian welfare state,” said Gulbrandsen.
‘Well above’ average pay in Thailand
A smiling Thai flight attendant, dressed in her Moods of Norway-designed uniform, confirmed on air Tuesday night that she was earning base pay in Thai bhat that was the equivalent of NOK 3,000. NRK’s interview with her was monitored by Norwegian spokesman Lasse Sandaker-Nielsen and he did not refute the figures, but claimed that NOK 3,000 is “well above” the average monthly wage in Thailand.
He conceded that the flight attendants don’t work in Thailand, and have expenses when they are on layovers in Oslo and New York, for example, for which they’re paid an extra NOK 800. NRK reported that Norwegian’s foreign flight attendants often walk long distances from their hotel to a grocery store to save on eating expenses.
Sandaker-Nielsen claimed, however, that the Thai flight attendants do live in Thailand and have accepted Norwegian’s pay offer. “The amount our cabin crews sit with every single month when they get their salaries paid by us is much higher than what the average pay is in Thailand.
Unions call for political response
Gulbrandsen isn’t impressed and Norway’s trade union confederation LO has also criticized Norwegian and cancelled its travel agreements with the airline.
“The Norwegian government authorities can’t sit still and accept that the respectable labour agreements we have here in Norway are undermined in this way,” Gulbrandsen said, adding that he hopes for some political response. The airline registered its new Boeing 787 Dreamliner aircraft in Ireland, though, so that it would not be forced to hire higher-paid Norwegian crews on board its low-fare long-haul routes.
Norway’s flight attendants’ unions have also urged boycotts of cut-rate carrier Ryanair, leaving Scandinavian Airlines (SAS) as an apparently acceptable locally based airline on which union members can travel internationally in good conscience. SAS, though, has also been plagued by labour trouble over the years, with analysts and not least Ryanair chief executive Michael O’Leary blaming the unions for SAS’ severe financial losses.
US fleet boycotts Norwegian Air
December 27, 2013 (News in English from Norway)
Four of the largest American airlines are lobbying United States transport authorities to ban Norwegian Air flights from landing in the country. The US airlines claim Norwegian’s Irish-registered fleet and use of Asian personnel with cheaper working conditions violates an aviation agreement between the US and the European Union, giving Norwegian an unfair competitive advantage.
Norwegian Air’s first new Boeing 787 Dreamliner finally landed at Oslo’s main airport at Gardermoen on June 30. The airline has now begun testing them before putting them into service on Norwegian’s new long-distance routes to Bangkok, New York and Fort Lauderdale.
Norwegian Air invested in Boeing 787 Dreamliners to operate long haul flights between Asia, Norway and the USA. The planes were plagued by technical problems, delaying the intercontinental service. Now American pilots and airlines are challenging Norwegian’s US routes, claiming the use of lower paid Asian employees violates an EU/US aviation agreement. PHOTO: Norwegian Air
American Airlines, Delta, United and US Airways have joined the fight against Norwegian Air, following complaints made by a powerful American airline pilots’ organization to the Department of Transport last week, newspaper Dagens Næringsliv (DN) reported.
The American fleet is angry Norwegian is using its Thai-based crew to fly long-haul routes between Bangkok, Oslo and New York. Some personnel earn less than NOK 3,000 (USD 500) a month, a fraction of local Norwegian wages. The US pilots and airlines say it’s a blatant attempt to get around EU/US laws and agreements, using a loophole to beat the competition.
Norwegian has denied any wrongdoing, saying it has stuck to the rules and will continue to do so. “These airlines have dominated the skies over the Atlantic, and keep ticket prices high,” Anne-Sissel Skånvik, Norwegian’s communications chief told DN. “They certainly don’t want competition.”
“Establishing in the EU was done to get traffic rights that we don’t have now,” Skånvik said. “It’s difficult to think that the Americans will pursue a policy where a license given to a European Economic Agreement country isn’t a problem, such as it is today, but a license to a European company is out of the question.”
Norwegian’s main rival, Scandinavian Airlines (SAS) has also raised concerns over Norwegian’s moves to slash personnel costs. SAS told DN last week the US airlines’ bid to get Norwegian’s American permits revoked will raise issues of principle at an international level.
Financial analysts are also watching the case to see how Norwegian fares in the US. “Norwegian has determined that much of its long haul will be linked to the American market, so it’s important there’s not too much nonsense in the establishment of the new routes,” Preben Rasch-Olsen from research and advisory firm Carnegie told DN. “Norwegian is groundbreaking in many ways, both in how they think and act. The American companies see Norwegian as a threat.”
Norwegian accused of social dumping
BY SINE NEUCHS THOMSEN
SEPTEMBER 9, 2013 (Scand -Asia.com)
Thai cabin crew on Norwegian’s new route to Bangkok is paid around 100.000 Thai baht per month. Norwegian labor union leader calls it social dumping.
Norway’s fast expanding airline Norwegian, which just opened new routes to Bangkok and New York is accused for committing social dumping, online paper NA24 reported.
The cabin crew on the dreamliner route Oslo-Bangkok-Oslo is paid a salary of approximately 100.000 baht per month, which is about three times more than an average high salary in Thailand.
But the fact that the cabin crew is not paid a Norwegian salary and do not have the same work conditions as if labored in Norway, led the Norwegian government and the leader of the labor union Parat to accuse the airline for social dumping.
Leader of the union Hans-Erik Skjæggerud said that he is not asking for Norwegian salary and work conditions for all employees in Norwegian, but only for those who through their work are connected to Norway.
“What we mean is, that employees flying on Norwegian routes who’s production is in Norway, should have Norwegian conditions. In other words, employees who are flying Oslo-New York-Oslo and Oslo-Bangkok-Oslo are supposed to have Norwegian conditions. Those who work for Norwegian and fly Spain-England-Spain are of course supposed to have Spanish conditions. That is also what we claim in the current Ryan-air case we are running,” Skjæggerud said.
The reaction to the Thai cabin crew’s work conditions comes after online paper NA24’s article that focused on exactly that.
Skjæggerud feels that the NA24 story makes it sound like he and the Norwegian government are interested in exporting the Norwegian work conditions. But that is wrong, he explained.
“We just do not wish Kjos (Norwegian’s CEO Bjørn Kjos) or O’Leary (Ryanair CEO) to import foreign work conditions to Norwegian production,” Skjæggerud said.
Head of communications at Norwegian, Mr. Lasse Sandaker-Nielsen has commented on the claims by Parat.
“The Thai staff have a contract with a recruitment agency in Bangkok. We have no reason to doubt the information they gave Nettavisen NA24 regarding the wages. The staff know themselves how much they earn and the interviewee Jui is probably more honest that the unionbosses of Parat who are known to spread misinformation,” says Norwegian’s Communications Manager Lasse Sandaker-Nielsen to NA24.
“Parat tries to claim that when an aircraft is is inside Norway then it can be defined as “Norwegian production” which they seem to own. That is the essence of their argument. But aircraft operated by our competitors like Thai, Qatar and United flying between Norway and Asia and USA is not defined as Norwegian merely because they land in Oslo,” Sandaker-Nielsen says.
Norwegian Air Shuttle’s long-haul business model. “Flag of convenience” or fair competition?
CAPA > Aviation Analysis >
8th January, 2014
On 31-Dec-2013, Norwegian Air Shuttle implemented changes to its corporate structure, involving the establishment of two fully owned subsidiaries – one in Norway and one in Ireland. Each has its own air operator’s certificate (AOC), although the Irish company, which is the vehicle for Norwegian’s long-haul operation, does not yet have a permanent AOC.
Norwegian’s fledgling long-haul network includes services from Scandinavia to Bangkok and two US destinations: New York and Fort Lauderdale. From summer 2014, it will add Los Angeles, Oakland andOrlando to its US destinations and London Gatwick will become its first trans-Atlantic base outside Scandinavia.
Norwegian’s new structure aims to minimise the costs of its long-haul operations, in particular labour costs. With widebody aircraft registered (and an AOC application) in Ireland, crew based in Thailand and elsewhere, a Norwegian brand and destinations increasingly focused on the US, Norwegian’s long-haul business model is market leading to say the least. US airlines and unions predictably oppose its foreign air carrier permit application, deriding its “flag of convenience” (a misnomer in this case) approach to gaining an “unfair” advantage.
Two principal operating subsidiaries and ‘country-specific resource companies’
Under Norwegian new corporate structure, there are two principal operating subsidiaries. The Norwegian operating subsidiary operates from NAS’ existing Scandinavian bases and employs all pilots permanently employed in Scandinavia on the same wages and conditions as previously. Norwegian’s statement says that other staff remain employees of the parent company, Norwegian Air Shuttle ASA.
However, it has also been reported that its Swedish cabin crew are to be transferred to contractor Proffice (Afonbladet/Boarding.no/TheForeigner.no, 19-Dec-2013).
In Oct-2013, when announcing the planned changes to the corporate structure, NAS said “fully owned country-specific resource companies will be established”. Pilots hired outside Scandinavia were to be offered permanent employment in the respective resource companies, starting with those in Finland in 1Q2014, followed by those in Spain and the UK. Currently, these pilots are contract staff rather than permanent employees.
The Irish company awaits a permanent AOC and a US foreign air carrier permit
The purpose of the Irish operating subsidiary is to secure traffic rights to fly out of Europe and so is Norwegian’s long-haul vehicle. This subsidiary, named Norwegian Air International Limited (NAI), has a temporary AOC, with the authorisation of Norway’s aviation authorities, pending the approval of its application to the Irish Aviation Authority for a permanent AOC.
NAI has also applied to the US Department of Transport for a foreign air carrier permit to access traffic rights in accordance with the US-EU Open Skies agreement. While neither application has yet been approved, sources in Norwegian told CAPA that both are proceeding according to its plans. In the meantime, Norwegian is continuing to operate its international operations with existing AOCs and its existing long-haul subsidiary Norwegian Long Haul. Norway is part of the European Economic Area, but not part of the European Union. An Irish AOC for NAI will give it the same traffic rights as other EU-based carriers.
Predictable opposition from US airlines and labour unions
The US foreign air carrier permit application has met with strong opposition from some major US airlines and from US pilot representative bodies, including the Air Line Pilots Association (ALPA) and the Southwest Airlines Pilots Association (SWAPA).
Delta, United, American and US Air submitted a joint reply to NAI’s application on 20-Dec-2013, in which they referred to Article 17 bis of the US-EU agreement. According to the carriers’ joint reply, this recognises that “the opportunities created by the Agreement are not intended to undermine labour standards or the labour-related rights and principles contained in the Parties’ respective laws.”
They argue that not only do NAI’s plans violate the US-EU agreement, but they also fail to meet the DoT’s public interest standard. They say that a key objective of the standard is “strengthening the competitive position of [US] air carriers to at least ensure equality with foreign air carriers”, but that US carriers’ competitive positions would be “unfairly and unlawfully compromised by approval of the NAI scheme”.
In a press release on 17-Dec-2013, ALPA took a similar line to that of the US airlines and said “Norwegian Air International was clearly designed to attempt to dodge laws and regulations, starting a race to the bottom on labour and working conditions”.
ALPA added that the NAI scheme raised the spectre of the “flag of convenience” business practice that “undermined the U.S. maritime industry”. It also called on the Irish government not to grant NAI an AOC. For its part, on 23-Dec-2013, SWAPA criticised Norwegian for attempting to utilise a “venue shopping strategy”, whereby a carrier chooses “which” set of regulations from “what” country it chooses to follow.
Cheaper labour: a key objection for opponents and a key motivation for Norwegian
A key element of the objection expressed both by the US airlines and pilot bodies is that NAI will reportedly employ crews under lower wage employment contracts that are neither European nor US (the ALPA press release suggests that individual employment contracts are governed by Singapore law).
This is also a key element of Norwegian’s motivation for this new structure. Norway is a very high wage economy and also has substantially higher social charges than in most European countries (or the US). Norwegian law prohibits the employment of staff from outside the European Economic Area. Not only will NAI avoid Norwegian labour costs, but it will also avoid Irish labour costs under the proposed scheme as Irish regulations are more flexible.
Norwegian is already using such tactics to minimise labour costs on long-haul operations, employing crew based in Bangkok. This led to complaints by Scandinavian labour unions, almost prompting a pilots’ strike in Oct-2013. According to reports in the Scandinavian media, pilot union Parat claimed that Thai cabin crew are paid only NOK3,000 (USD540) per month, below the minimum wage in Norway and other parts of Europe. The reports also say that the airline puts the figure at NOK15,000 (USD2,700) per month after taking account of various allowances. Norwegian says that its Bangkok cabin crew wages are the same as other Asian-based crew.
Norwegian’s head of communications has defended his airline’s attempts to bring new competition to routes between Europe and the US, rejecting the complaints of US carriers. “These airlines have dominated the skies over the Atlantic, and keep ticket prices high,” said Anne-Sissel Skånvik, “they certainly don’t want competition.” (NewsinEnglish.no, 27-Dec-2013).
Norwegian is also recruiting US-based crew, who will be on US contracts.
Norwegian’s wholly owned Irish aircraft finance company
In Aug-2013, Norwegian announced the establishment of a fully owned asset management company incorporated in Ireland, with USD as its functional currency. The asset management company operates as lessor of Norwegian-operated widebody aircraft, beginning with the Boeing737-800 delivered in Sep-2013. According to the CAPA Fleet Database, two of Norwegian’s three Dreamliner aircraft are owned by DP Aircraft Ireland Limited and leased to Norwegian.
At the time of the Aug-2013 announcement, Norwegian said: “Ireland is the largest aviation finance cluster in Europe which makes the country a natural location given Norwegian’s global expansion and large aircraft orders.” In addition to limiting the group’s currency exposure, the new company allows it to take advantage of favourable tax rates in Ireland.
Every possible tactic to minimise costs on long-haul, but there are challenges
Norwegian appears to be using every possible tactic to minimise costs for its long-haul operations. While having an Irish operating subsidiary may also give it increased flexibility in terms of traffic rights, its principal advantage would seem to be the flexibility it gives to employ staff in other countries, wherever they may be based.
This allows it to avoid Norway’s high labour cost environment. Its decision to establish an asset management company in Ireland allows it greater efficiency in its aircraft-related costs. Nevertheless, even according to Norwegian’s own expectations, long-haul profitability will take some time to achieve. Moreover, a leisure focused point-to-point long-haul network with remotely based employees and aircraft brings marketing and operational challenges.
See related report: Norwegian improves its 1Q2013 results, but widebody profits may be one for the long-haul
Other European LCCs have taken advantage of EU liberalisation of traffic rights and, to some extent, labour laws, to establish pan-European operations. Norwegian is the first to attempt to circumvent the web of regulations that have previously prevented any carrier from establishing truly pan-global operations. Norwegian is still very small on long-haul, but it is clear that US competitors do not feel comfortable at the threat its future growth could bring.
Norwegian needs to secure the pending approvals, but US airline whinging is misplaced
Just as the likes of easyJet and Ryanair have occasionally bumped heads with regulators in Europe, often prompted by competitors and unions, it is to be expected that Norwegian will not always enjoy a totally smooth path on its own expansion trajectory. As long as its applications for a US foreign air carrier permit and Irish AOC remain outstanding, there is a risk that they will not be approved. US carriers have become more vocally protectionist recently, notably voicing objections to the planned expansion of the Gulf carriers into US markets.
What is clear is that Norwegian needs to secure the pending approvals for operations that will allow it lower labour costs than the very high levels that apply in Norway if its long-haul ambitions are to remain economically feasible. Even then, as CAPA has commented previously, the opportunity to find meaningful sources of cost advantage on long-haul is not as great as it was when LCCs started to eat into the short-haul market.
See related report: Norwegian Air Shuttle: Asia’s longhaul LCC model comes to the N Atlantic (but watch falling profits)
On the other side of the debate, and especially in the light of this latter point, the whinging of Norwegian’s trans-Atlantic competitors seems misplaced.
They would perhaps be better served by seeking to lower their own costs and to promote their products and networks than by attempting to harness regulators to prevent competition that will surely come from somewhere, some time. As long as there are regions of the world where labour costs are lower than in other regions, it is inevitable that a global industry such as aviation will find ways to arbitrage those differences.
But a US industry that is now reaping the financial benefits of Chapter 11 restructuring and consolidation is reluctant to rock the boat with the powerful pilots’ unions – a strategy that may come back to bite them as those same unions become more anxious to share in the new-found profitability of their employers.