Why Boeing's 787 Is to Norwegian What Boeing's 747 Was to People Express

Updated with Boeing share price

NEW YORK -- As controversial low-fare carrier Norwegian Air Shuttle prepares to operate New York-London service, an inevitable comparison is with People Express, which first showed the world how attractive low-cost New York-London service could be --- and how it could be offered by jamming seats into the latest model Boeing (BA) aircraft.

On May 26, 1983, People Express began flying between Newark and London's Gatwick Airport with a leased Boeing 747-200 previously operated by Braniff, according to Wikipedia. One-way fares started at $149.

Using a Boeing 787 Dreamliner, Norwegian plans to start thrice-weekly service between New York Kennedy and London Gatwick in July, assuming it can gain regulatory approval, which is being contested.

Fares would start at 149 euros, or just over $240, less than half of the lowest competing fare. The carrier would also begin twice-weekly service to Gatwick from Fort Lauderdale and Los Angeles.

The most important factor in People Express' ability to offer low fares, and the most important connection between People Express and Norwegian Air Shuttle, is the carriers' aircraft, said Bob McAdoo, airline analyst for Imperial Capital and formerly chief financial officer at People Express.

People Express put about 450 seats on its Boeing 747, while Norwegian has 291 seats on its Boeing 787. By contrast, United (UAL) has just 219 seats on its 787.

The crowded seating "kept costs low," McAdoo said. "We started out with one 747 a day and went to two a day. We were able to put about 450 seats in it, which is why our costs were so low per passenger. It's the technology and the decision to pack the seats in so that you maximize the number of passengers on a plane, which enables you to have really low costs."

Some carriers put even more seats in a 747. Former Tower Air executive Bob Mann, now an aviation consultant, said Tower had 505 seats in a Boeing 747-100, partially because it removed the forward galley. People Express, by contrast, had a small premium class section, as does Norwegian Air Shuttle. 

People Express fares attracted large numbers of travelers, particularly students with backpacks. "We had people all over the place wanting to get on our plane," McAdoo recalled. "People would be on standby and they would wait in line for hours. We had more business back and forth to London than you can possibly imagine.

"It was a unique time," he said. "But this (Norwegian Air Shuttle) might be similar."

Norwegian spokesman Lasse Sandaker-Nielsen said the carrier expects its low fares to attract budget-minded travelers as well as business flyers.

"We're giving the American people the ability to fly inexpensively and comfortably to Europe," Sandaker-Nielsen said. "As a low-cost carrier we obviously appeal to backpackers and students, but also other cost-conscious travelers who want to fly the most advanced airplane in the skies to exciting destinations.

"The Dreamliner flies you faster and more comfortably to your destinations," he said. "Why would you pay twice the price to fly with an airline that uses more time and older aircraft?"

Norwegian also benefits from high utilization of its Dreamliners, which it operates for 16 hours a day. "That is comparable to the best international fleet utilization you'll find at U.S. carriers," Mann said.

In its effort to offer low fares, People Express was helped by a provision of the bilateral treaty between the U.S. and Great Britain, which stipulated that the fares charged had to be justified by the cost of providing them. "That meant we could charge low fares," while competitors on New York-London routes -- British Airways, Pan Am and TWA -- could not because their cost structures were too high, McAdoo said.

Also, British Airways was preparing to privatize and sell shares to the public, and it did not want a fare war with its principal competitors, McAdoo said. "That would have caused a dogfight."

In many ways, People Express was a key innovator in U.S. commercial aviation. It was the first major airline to charge for bags and food. (Norwegian will charge $50 for a package that includes meals, baggage check and a reserved seat). 

Also, Mann said, "People Express revitalized Newark Airport. Had it not been for People Express, Newark might have fallen off the map." The carrier had about 200 departures a day when it was acquired by Continental in 1986. Even then, the Newark operation was the biggest hub in the New York area.

Today United (UAL), which merged with Continental in 2010, offers more than 400 daily Newark departures to more than 150 destinations.

One problem People Express did not have was widespread opposition from the U.S. labor movement. "We were so unheard of, and everybody was frightened beyond what was justified, just because we were so different," McAdoo said. "But getting certified wasn't as big a deal as the noise regarding 'how do we deal with these guys?'"

The labor movements, led by the Air Line Pilots Association, objects to Norwegian's organizational scheme, which involves a Norwegian airline registering aircraft in Ireland and hiring crews in various locations including Thailand as well as the United States.

The carrier currently operates flights to the U.S. under Norwegian registration, but has relocated its long-haul company's registration to Ireland, which is part of the European Union, while Norway is not. The newly-registered carrier needs a permit from the U.S. Transportation Department to fly to the U.S.

ALPA and the Association of Flight Attendants have filed a challenges with the DOT.  In December, the big three U.S. airlines -- American (AAL) , Delta and United -- also filed with the DOT in support of the challenge. They said Norwegian wants to "set up a shell company in Ireland to operate its aircraft using imported labor."

On Thursday, ALPA endorsed a proposal for the International Civil Aviation Organization to create a study group "to review safety implications of an airline business model that conducts all flight operations outside the borders of the state responsible for safety oversight." Norwegian's international flights do not serve Ireland, yet Ireland issued an air operator certificate, ALPA noted, adding that the situation diminishes the potential for "rigorous, effective safety oversight." 

In premarket trading on Monday, Boeing shares were up 30 cents to $122.37. Shares are down nearly 11% year-to date.

Written by Ted Reed in Charlotte, N.C.

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