Credit FT

Some meat on the bone or not as the case may be.


Norwegian makes bigger than expected net loss
Budget carrier struggles to control costs as it rapidly expands into long-haul arena

The airline's desire to lead the market in low-cost transatlantic flights has led to turbo-charged growth over the past five years.

Norwegian Air Shuttle made a bigger than expected net loss in the last three months of 2017, as the budget carrier struggled to control costs as it rapidly expanded into low-cost long-haul flying.

The airline has become a disruptive force in the European airline industry over the past few years, leading the charge in bringing down the cost of long-haul flying and forcing rivals to respond with their own budget services.

But Norwegian’s fourth-quarter results, which saw the Scandinavian carrier swing to a net loss of NKr919m ($117m) from a profit of NKr197m a year ago, has added to growing concerns about its rapid expansion and the pressure this is putting on costs.

Where did you read the break even load factor was so high, maybe there is time to change things around, or hopefully someone like IAG buys them and integrates it somehow. But the clock is ticking it feels like.

An analysis of the results in another place (which admittedly I haven’t fact checked). In my opinion Norwegian have been ripe for takeover for a long time and nobody has gone for it. That speaks volumes to me.

why would anyone buy them?

Exactly. I’d also question, who would invest in them?

The level of debt is simply too high for anyone to buy them. The organisational structure of multiple AOCs also makes it more difficult.

It will be interesting to see what happens next year when BA converts some of the Monarch slots to long-haul and whether IAG/BA really go after them.

Surely it's not the load factor which is important, it's the total revenue (ticket plus ancillary) from the flight. There's no point in filling the plane if everyone is paying loss leading fares.

I notice from EDI at the moment most flights are showing ca £150, which expect is below cost, but in the peak season this summer they're over £300, which I hope isn't.

Certainly they should slow their route growth, and seek to lease out some planes,say to the growth markets in Asia.

The problem with Asia is that Russia have refused overflight - so to the likes of China/Hong Kong/Japan which they would like to fly to, they can't. As I said earlier - they are working hard at increasing yield - in part with more premium seating and increasing ancillary revenue.

Which means that rather than bleed money attempting to undercut established carriers with their questionable employment practices & dodgy business model, they will actually have to compete on the competition’s turf. At that point route frequency, on board product, customer service, disruption management, reward programs, alliances (...the list is endless) come into real focus and they are no longer selling seats to millennial’s looking for the cheapest ticket they can get.

Any and all of that requires significant and continued investment which they simply don’t have the money for.

That's very insightful actually.

Uber, the car-hailing service, lost another $1.1 billion in Q4 2017 for a year-total loss of $4.5 billion. It has never made a profit and is well over $10 billion in debt. Yet people keep investing. And they don't even own their own fleet - not much in the way of assets.

Meanwhile a large airline with about $5 billion in aircraft assets alone makes an 2017 annual loss of $38 million, after a 2016 profit, and people start predicting apocalypse. Get some perspective. $38 million would barely pay the Board's remuneration in some airlines.

Perspective doesn’t put dollars in the bank Bunto.

Norwegian has a huge problem - the short American summer is resulting in a black hole of revenue in the long off peak months.

Aer Lingus, with all their feed and brand awareness didn’t hit revenue targets in Hartford, yet Norwegian expected Edinburgh to be a success?

New market for Norwegian and a learning curve, but yes an odd choice, unsurprisingly SWF and to a lessor extent PVD are doing really well from Dublin.

I remember reading not so long ago that Norwegian have a number of A320Neo family aircraft parked up as the airlines destined to lease them, do not want them yet due issues with the P&W GTF engines. This was costing Norwegian hundreds of thousands of dollars per month. This alone must be affecting the bottom line even though I am sure compensation is being paid?

I don't understand their logic with their different long haul business models. On the one hand you've got London, Paris, Barcelona etc flying to major airports (excl OAK and FLL, but both still sizeable and have good transport links, especially OAK) with a two class aircraft. But from Ireland, NI and Scotland they're flying to tiny airports far far away from the cities the majority of pax wish to fly to with a single class aircraft.

Hasn't the short haul LCC revolution not taught airlines that pax don't want to fly to secondary airports? easyJet years ago and Ryanair more recently driving growth away from distant secondary airports.

Also their ancillary offering is poor, I've never known an airline to give away a XL seat in a cheap bundle fare for only £50 extra.

They need to embrace technology more, particularly mobile technology to increase ancillary. Fitting more premium seats in? Why don't they introduce their bidding system on their app when people are at the airport and likely to consider an upgrade if they got a push notification. They could easily raise ancillary without damaging their brand.

_aax On the first part, Norwegian have said on their latest podcast that they are operating the 'MAX' transatlantic as a different offering. In their words, ultra low cost, and very price sensitive. It seems to be working in Ireland. Have a listen to it as its really interesting.

They have also acknowledged they are poor in the ancillary revenue - they are already starting to price seats accordingly (exit row more etc).

Wizzair lost 78 million Euros in their first six years of operation. They're still here.

Actually you couldn’t be more wrong on that, SWF is no further from down Town NY in terms of travel time than JFK, you’ll be through homeland security within 15 mins and flights from DUB & SNN have pre clearance so its just like getting off a domestic flight, collect bags and you are gone, there is a shuttle bus outside the terminal (often a couple of them) to take you down town in 60-90 minutes it waits for the flights if late for any reason.

PVD is 60 minutes and $65 by uber to BOS Logan but there is a huge population all the way down the coast from BOS to NYC, a lot of Irish families and of course the is the not so small matter of APD which is €3 from Ireland or BFS but closer to £90 from EDI

SWF is going double daily starting in April from Dublin, if the SNP go back on their promise to half APD i think Norwegian will walk away from the US or go very seasonal.

Going into KBOS or KJFK would add significant handling costs and crew delays, plus its a market already served, so this is in the main new volume attracted by low fares, the spend on seat allocation and pre booked meals is very high as you would expect on a 7 hour flight.

The reason they are still here is that they make 250-260 million EUR a year while expanding 18-20%.

Someone needs to tell those poor saps trying this out of Gatters. What's their name again? Flying brand new B787-9s....oh God that's so annoying, Swedish Air Shuttle or something?
OK in all seriousness, you can't market the benefits of doing something the Norwegian way whilst mentioning how much better it is than the (other) Norwegian way of doing things (!) It's a fragmented strategy, going Hell for leather for market share is one thing, but as you can see it brings problems of positioning. Once you pay for your meal and seat it's seldom bargain basement pricing anyway.

Skipness one echo
 

I take your point, but we are talking about route capacity and aircraft size, the whole point of long range short haul aircraft is allowing the opening of routes that wouldn’t work with a wide body.

Many visiting the US from LGW will be tourists visiting the big Apple or Chicago or Seattle

Of course there is tourism to Rhode Island but a lot are visiting family and friends, two different markets with some overlap

Will it work? the jury is still out but the signs from Dublin at least are positive