Lufthansa CEO Carsten Spohr has told the German newspaper Suddeutsche Zeitung that the airline was "in contact with Norwegian". In the interview he added that a new wave of European airline consolidation was approaching.
You might be tempted to think that the possible sale of Norwegian is just a leisure travel issue. It isn't. Just as easyJet once looked marginal to corporate travel buyers these alternative carriers are no longer irrelevant.
"National" carriers such as Lufthansa and British Airways, whose parent company IAG has taken a 4.6% stake in Norwegian, are always the most popular choice in their home markets. That's why fares are always higher for home-based consumers than those for travel starting in foreign destinations. For the same reasons airlines are always able to offer a financially more attractive deal to corporates based in foreign markets where they have operations.
After the economic downturn many companies downgraded travel classes in their policies. The result has been some very big companies abandoning the home, "national carrier" and moving to alternatives where a business class ticket often costs the same as the national carrier's negotiated economy fare and gives their travellers far more comfort.
Norwegian is a good example. Its premium cabin gets rave reviews — and it costs far less than a business class ticket on either a Lufthansa or IAG carrier.
But Norwegian looks as if it is a financial liability. In contrast to (now) profitable Lufthansa and IAG, Norwegian loses money — lots of it. In the last quarter of 2017, when many carriers were making money courtesy of lower fuel prices, Norwegian lost 919m Norwegian Krone (€97m), a direct consequence of its aggressive expansion strategy.
But purchasing Norwegian might still be very beneficial to a large airline group for three reasons:
1. Take-out competition (both direct and indirect)
The fewer players in a market the less likelihood of price wars, 'special offers' or a competitor whose better service might lure consumers.
2. Lower operating costs (new labour contracts)
It's no accident that IAG created a new airline with its own airline operating certificate — Level — for its low-cost, long-haul operation from Barcelona. Old contracts have pay levels, pension liabilities and terms and conditions that are far more beneficial for employees than what is the norm in today's markets.
Any consolidation also means 'back office efficiencies' for which read fewer support and operating staff and hence lower operating costs.
3. New markets
The world's businesses increasingly seek growth in emerging markets so acquiring a carrier that already has an operation and route network in a new market can short-cut setting-up time and cost.
The end result is that travel managers may face higher fares but they may also have a greater variety of carriers and direct routes to more of their destinations from which to choose.
In the interview Spohr said: "Takeovers are always a question of strategic value, the price and anti-trust. There are no easy answers."
For travel managers who are facing changing traveller tastes and harsher corporate expectations the same could be true.