How a low-cost airline cashed in on cheap flights to paradise

HARI SREENIVASAN:

Stay with us.

Coming up on the "NewsHour": 9/11 victims making headway in their fight to sue Saudi Arabia, a retrospective of a photographer's controversial work, and a 91-year-old's take on getting old.

But first, a fight brewing over flights and lower cost trips to some exotic locales.

Economics correspondent Paul Solman suffered through this tough assignment, part of his weekly series, "Making Sense", which airs Thursdays.

(BEGIN VIDEOTAPE)

PAUL SOLMAN:

France in the Caribbean, the islands of Guadeloupe. Pretty much as paradisal as their P.R. footage portrays them: French; exotic; with more than a hint of spice. All just four hours from New York and, if you book early, for $69 or less, November through April.

WOMAN:

Flying to Guadeloupe?

PAUL SOLMAN:

Because upstart Norwegian Airlines, some call it the Southwest Airlines of Europe, is now undercutting the few big post-merger carriers and their few foreign partners, which among them control U.S. skies for travel abroad.

Anders Lindstrom of Norwegian.

ANDERS LINDSTROM, Norwegian Air:

So the fare is not unique for a European airline, it just that really highlights how overpriced the American aviation market really is.

PAUL SOLMAN:

Founded in 1993, the low-cost airline is profitable, due to several advantages: high load factors; our plane was 90 percent full; brand-new Boeings, the most fuel-efficient planes on earth. But mainly, says Lindstrom —

ANDERS LINDSTROM:

We don't have all the decades of maintenance costs and labor costs that the airlines traditionally do. So, we're starting with new aircraft, new crew, which really keeps fares low.

PAUL SOLMAN:

And, of course, low fares tend to mean full planes. But in the end, says aviation industry watcher Michael E. Levine —

MICHAEL E. LEVINE, New York University:

The main difference is labor arrangements. They're a new airline, their pilots have low seniority, they have more productive labor arrangements.

PAUL SOLMAN:

Arrangements like not using hubs and instead flying non-stop point to point so pilots and crew can live near the airports they fly from. And that's the Southwest model, right?

One type of aircraft, all the pilots qualified to fly it.

ANDERS LINDSTROM:

Yes, it's a simplified version, and that's something goes across all low cost airlines around the world.

PAUL SOLMAN:

What seemed odd, though, was that the big carriers, who used to fly to Guadeloupe in the '70s, haven't, for years, save for a few American airlines flights from Miami.

How come no American carrier saw this as an opportunity?

JEROME SIOBUD, Pointe-á-Pitre International Airport, Guadeloupe:

We think that they were afraid not to fill their plane. Norwegian took the risk and they are now flying full planes.

PAUL SOLMAN:

Jerome Siobud manages Guadeloupe's airport. He says that because this is legally France, it's part of the European Union, which in the 1980s voted to prohibit countries from offering monetary guarantees to airlines, basically bidding for their business. So, U.S. carriers abruptly stopped coming.

JEROME SIOBUD:

You know that this is part of the business and the industry, as part of the European community, we can not do that, so —

PAUL SOLMAN:

But when Norwegian decided to test the U.S. market by flying to now under-served Guadeloupe, it demanded no guarantees. And business boomed.

JEROME SIOBUD:

Sixty-thousand thousand passengers to the U.S. in 2015. And after three months in 2016, we have 42,000 people flying to the U.S.

PAUL SOLMAN:

A more than 150 percent increase in traffic. The U.S. seemed ripe for discount global carriers.

Unfortunately, the U.S. Department of Transportation was sitting, for two years, on a Norwegian request to expand transatlantic service.

WOMAN:

American pilots don't want Norwegian to spread its wings.

PAUL SOLMAN:

The opposition? Big carriers and their unions.

MAN:

Only with your support will we stop this scheme that threatens the future of U.S. airlines and their employees.

MAN:

We are in a fight for our future.

PAUL SOLMAN:

This video from the Airline Pilots Association, titled "The Wolf is at the Door," was directed against Norwegian.

MAN:

We must stop it now or fight the growth of pilot-shopping around the world, at third world prices.

ANDERS LINDSTROM:

So they were saying that we were hiring cheap Asian labor to operate the flights to and from the U.S., which is very incorrect.

PAUL SOLMAN:

Again, Norwegian's Lindstrom.

ANDERS LINDSTROM:

We have more U.S.-based cabin crew than any other international airline. We have about 300 in the U.S. We will be tripling if not quadrupling in the next year as we grow.

PAUL SOLMAN:

So in your view, this is just a classic example of businesses and labor trying to protect their own turf, or their own jobs, their own profits?

ANDERS LINDSTROM:

Yes, very much so.

PAUL SOLMAN:

But with the big airlines finally making profits after years of losses, their opposition is understandable, says industry expert Levine.

MICHAEL E. LEVINE:

They're not really interested in seeing anyone else in. The airlines are afraid that if customers are given the choice, they'll buy their tickets somewhere else from someone who will offer them a better deal. The last I heard, that was capitalism.

PAUL SOLMAN:

On the very day we flew, as it happens, Norwegian's request was finally ruled upon. We asked Anders Lindstrom about it after we got to Guadeloupe.

So yesterday the Department of Transportation permit you've been waiting for for two years now finally came through. This a big deal?

ANDERS LINDSTROM:

It's a big step. It's a tentative approval and we're hoping for the final approval in just a few months. That will mean that we can expand into the U.S. but also use the same aircraft, expanding from Europe into other markets such as India, South Africa, and South America.

PAUL SOLMAN:

Meanwhile, what's good for Norwegian is good for Guadeloupe. Over-reliant since the '80s on just one country for its second biggest industry, says tourism official Sandra Venite.

SANDRA VENITE, Guadeloupe Islands Tourist Board :

Ninety percent of our tourists are from mainland France. This is the people that are here.

PAUL SOLMAN:

And so the deal with Norwegian is low cost, no frills fares to get the American tourists back?

SANDRA VENITE:

Yes, exactly. For once, it benefited us to be French, to get an airline flying from the U.S. to the French Caribbean. How crazy is that?

(LAUGHTER)

PAUL SOLMAN:

But $69 fares from New York and watch out!

SANDRA VENITE:

We have capacity to absorb the demand. We just need more Americans in Guadeloupe. We need to go back to where we were in the '70s.

PAUL SOLMAN:

And with real airline competition, Guadeloupe expects to get there. As for Norwegian's future, says Michael E. Levine —

MICHAEL E. LEVINE:

You can do the kind of thing we're talking about pretty well as a new, relatively small niche airline. As you grow, your labor force becomes more senior. You're under a lot of the pressures that make these other airlines less efficient. Norwegian's challenge is to figure out how to grow and maintain its competitive edge. That is something that many airlines have failed at over the years.

PAUL SOLMAN:

But it's not something that Guadeloupe has to worry about, it seems, not for a while.

For the PBS "NewsHour" — come on in, the water's fine!

This is economics correspondent Paul Solman, reporting from France, in the Caribbean.