Business Irish

Monday 17 December 2018

IAG circling Norwegian Air to swoop on low-cost routes

Boeing 737-800 aircrafts belonging to budget carrier Norwegian Air at Stockholm Arlanda Airport
Boeing 737-800 aircrafts belonging to budget carrier Norwegian Air at Stockholm Arlanda Airport
John Mulligan

John Mulligan

Aer Lingus owner IAG has laid bare arguably its most ambitious expansion strategy yet, signalling its interest in buying under-pressure, low-cost transatlantic pioneer Norwegian Air Shuttle in what would be an audacious move.

IAG, the airline group headed by former Aer Lingus boss Willie Walsh (pictured), and which also owns British Airways and Spanish carriers Iberia and Vueling, has snapped up a 4.61pc stake in Norwegian and confirmed it's interest in acquiring the entire airline.

IAG said it considers Norwegian to be an "attractive investment".

"The minority investment is intended to establish a position from which to initiate discussions with Norwegian, including the possibility of a full offer for Norwegian," it added.

IAG said that no takeover discussions have yet taken place with Norwegian, whose chief executive and founder is Bjorn Kjos. Apart from its long-haul, low-cost operations, IAG is probably interested in Norwegian's short-haul business in Europe - a network that could bolster its defences against Ryanair and Easyjet.

IAG, in which Gulf carrier Qatar owns a 20pc stake, added that it has taken "no decision" to make an offer yet and there is no certainty that any such decision will be made.

The Aer Lingus owner has pounced on Norwegian as it comes under pressure to prove its low-cost transatlantic and long-haul model.

Last year, IAG launched its own low-cost transatlantic carrier, called Level, which has sought to counter the emerging threat from Norwegian.

Yesterday shares in Norwegian soared almost 40pc after IAG's statement, giving the airline a market capitalisation of 9.6bn krone (€1bn). IAG paid €1.36bn for Aer Lingus in 2015.

Norwegian said that the airline had only been made aware of IAG's stake through media reports.

"Norwegian had no prior knowledge of this acquisition," it said. "Norwegian has not been in any discussions or dialogue with IAG about the matter. Norwegian believes that IAG's interest in the company confirms the sustainability and potential of our business model and global growth."

But while Norwegian has rapidly expanded its global network, the rising costs associated with the land-grab plunged it into losses last year. It notched up a €30.6m (298.6m krone) loss in 2017. It made a €116m profit in 2016.

Its revenue last year soared 19pc to €3.17bn, but unit costs, excluding fuel, rose 6pc.

Analysts say that 2018 is effectively a make-or-break year for Norwegian to prove its model has long-term sustainability.

The carrier, whose Dublin-based unit launched flights from Ireland to the US last year, was forced to turn to shareholders last month to shore up its balance sheet. It raised €137m as it warned that the first quarter of 2018 would see it post a larger than expected loss.

Irish Independent

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