Norwegian Air, once the image of a failed carrier, is taking the lead in the long expected consolidation of the European airline business. The discounter will buy Norwegian regional airline Wideroe in a deal that could potentially vault Norwegian Air ahead of its legacy competitor SAS in the Nordic market.
Oslo-based Norwegian Air will buy Wideroe for 1.13 billion Norwegian kroner ($105 million), it said Thursday. The deal is worth roughly 2 billion Norwegian kroner including Wideroe’s debt. Norwegian Air plans to keep the Wideroe brand, which has nearly 90 years of history in the Norway market, and operate the two airlines as independent businesses once the deal closes, which is expected in the fourth quarter. Norwegian Air forecasts 200-300 million Norwegian kroner in annual financial synergies from the merger from 2024.
“With this transaction, we will now create a streamlined and more comprehensive offer, including our leading Norwegian Reward programme, for all customers throughout Norway and abroad,” Norwegian Air CEO Geir Karlsen said.
The Norwegian Air-Wideroe deal is the second major post-pandemic airline merger in Europe. The first was the Lufthansa Group’s deal to acquire 41% of ITA Airways in May; Lufthansa has the option to take full control of the Italian carrier at a later date. And neither appears likely to be the last: International Airlines Group (IAG) is trying, again, for regulatory signoff of its long-sought purchase of Air Europa, and the three major airline groups — Air France-KLM, IAG, and Lufthansa — are all eagerly watching Portugal’s privatization of TAP Air Portugal.
If successful, the deals could see a more rational airline market in Europe. That could boost profitability and, if the U.S. is any example, enable steady growth of the continent’s major airline groups.
Norwegian Air’s deal for Wideroe, however, is unique. Low-cost carriers rarely diversify their business into often higher-cost regional airlines. Neither European budget leaders EasyJet nor Ryanair have regional subsidiaries. The few examples where discounters have added regional operations, WestJet and Virgin Australia to name two, have not gone well with the former shrinking its Encore fleet and the latter exiting the regional business as part of its pandemic restructuring.
But Norwegian Air has a clear goal: “To be the most loved and trusted airline in the Nordics,” as Karlsen put it in May. One aspect of that is serving more destinations in the region, even smaller ones that may not have the demand for its Boeing 737 aircraft with at least 186 seats. Wideroe operates 48 aircraft, including De Havilland Dash 8s and Embraer E190-E2s, all of which have 110 seats or fewer.
Another big piece of becoming the favored airline in the Nordics is diversifying its business. This includes capturing a larger share of the corporate market. To this end, Norwegian Air launched a codeshare with Wideroe last year, and unveiled an updated and expanded loyalty program, Norwegian Rewards, earlier this year — two changes that airline executives have said are attractive to corporate customers.
“We are … definitely taking market share” among corporate travelers, Karlsen said in May. And by “taking” share, he indirectly referred to the market held by the region’s long-dominant but struggling legacy airline, SAS.
Wideroe will help with this ambition. The regional carrier, given it is the only airline on many of its routes, will make the expanded Norwegian Air more attractive to both corporate and leisure customers. It also brings a more diversified and stable revenue stream to the discounter, including subsidized “public service obligation” routes in Norway that make up 20% of its capacity. Stability is important for Norwegian Air whose business is highly seasonal and peaks in the summer.
Norwegian Air revenues dropped 44% from their annual peak in the third quarter last year to the first quarter of 2023, which is the weakest of its annual calendar. The airline also turned a profit in the third and fourth quarters of 2022, before flipping to a small loss in the first quarter.
The Wideroe deal also reinforces the fact that Norwegian Air has a clear bulls-eye on SAS. The partially state-owned airline is the market and corporate share leader in the Nordics despite years of financial issues that culminated in a U.S. bankruptcy filing last year. In July, SAS will operate 41% of seats in the Nordics — Denmark, Norway, and Sweden — Norwegian Air nearly 30%, and Wideroe 17%, according to Cirium Diio schedules.
Notably, Norwegian Air and Wideroe together will be larger by seats in the Nordics than SAS despite limited reach in the region’s largest market, Sweden.
But the Nordic market is not large, just roughly 22 million people across the three countries. History shows that similarly small markets, like Australia and Canada, typically cannot support more than one or two major airlines. However, the Nordics are also heavily served by European carriers, including discounters EasyJet and Ryanair, and network airlines like Lufthansa. This adds an added layer of competition that Australian and Canadian airlines do not face in their home markets.
That begs the question: Could an SAS takeover be in the offing for Norwegian Air? Karlsen has not really spoken on the subject, and SAS CEO Anko Van der Werff has so far dismissed the possibility of a merger.
“We’re not planning on it,” SAS CEO Anko Van der Werff said in February when asked if the airline planned to participate in European airline consolidation. “We are focused on ourselves. We have to get out of this first, of course. But I am a believer that Europe still needs to consolidate overall.”
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