British Airways has lost its place as the biggest non-US airline on transatlantic routes to and from the New York area to the carrier its parent company has been trying to buy.
Norwegian Air Shuttle, which has rebuffed two takeover offers from British Airways owner International Consolidated Airlines Group PLC (LON:IAG), has overtaken its British rival in the past year by carrying more passengers to or from airports in the New York area.
IAG threatens to sell shares in Norwegian
In the year to the end of July, Norwegian carried 1.67mln passengers on these transatlantic routes, compared to the 1.63mln passengers carried by British Airways, data from the Port Authority of New York & New Jersey has revealed.
Norwegian Air, which offers low-cost flights, has been expanding in the transatlantic market by building up its fleet over the past five years. This led IAG to initiate takeover talks earlier this year after buying a 4.6% stake in the Scandinavian airline.
After being turned down twice, IAG has said it remains interested in buying Norwegian but will sell its shares if no deal can be agreed.
Speaking on the pursuit to buy Norwegian in August, IAG boss Willie Walsh said: “If that conversation doesn’t go anywhere, and it’s clearly not going anywhere at the moment, we are not going to hold on to those shares.”
IAG, which also owns Aer Lingus, Iberia and Vueling airlines, wants to buy Norwegian because it has been taking market share in transatlantic travel by transforming the industry with no-frills flights from the UK to the US for less than £200.
READ: IAG rejected bid target Norwegian Air Shuttle sees second-quarter net profit beat expectations as it reins in costs
“Fares have been too high for too long as transatlantic routes have been long dominated by carriers with outdated legacies running on fumes,” a Norwegian spokesman said.
“Norwegian will continue to spread its wings to the Big Apple with a third-daily service between London and New York JFK from 28 October.”
However, Norwegian’s rapid expansion has resulted in steep losses and debts of £2bn. It faces increasing pressure from investors to control costs and shore up its balance sheet.
Upside to merger but risks of IAG overpaying, says analyst
George Salmon, equity analyst at Hargreaves Lansdown, said: “There’s clear upside to combining the two groups, but as ever, whether it’s a good idea or not will depend on price. IAG has been rebuffed twice before, so it’s unlikely to get Norwegian on the cheap. That heightens the risk of overpaying.”
In response to more traditional airlines offering low-cost tickets on transatlantic flights, IAG set up budget long-haul airline Level last year.
British Airways has recently had a number of complaints about poor customer service and has been hit by several IT glitches that caused flight delays and ticket cancellations earlier this year.
At the first half results in August, Walsh stressed that customer satisfaction was improving as the company posted a doubling in pre-tax profits to €1.7bn for the first half of this year, driven by strong demand in Europe, North America and Latin America.
In a bid to improve customer satisfaction and boost ticket sales on flights to and from New York, IAG recently announced a US$65mln investment on new lounges, improved food, seating and shops at JFK.
A spokesperson for British Airways said the airline remains committed to New York, flying up to 70 times a week from all three of its London airports.