Norwegian profit raises the bar for takeover suitors
A SOLID performance by Scandinavian airline Norwegian during its second quarter has raised the bar for potential suitors, including Aer Lingus owner IAG.
Shares in Norwegian soared almost 8pc in early trading as it posted a net profit of 300m krone (€31.6m), compared to a 691m krone (€73m) loss in the second quarter last year. It was helped by a 19pc fall in non-fuel costs.
CEO Bjorn Kjos said Norwegian is at the peak of its growth phase and will now "reap what we have sown". The airline has been under pressure from investors to prove that its low-cost, long-haul model can deliver profits, not just passengers. Frenetic expansion by Norwegian continued despite questions over the model's potential longevity.
"Our long-standing concern about the Norwegian business model was that despite double-digit growth through 2016, 2017 and early 2018, it was not achieving any meaningful scale efficiencies," noted Davy Stockbrokers.
However, Davy said that while it will look for follow-on improvements in coming quarters, the cost-led performance during the second quarter is an "encouraging sign". "We expect that the stock price, however, will continue largely to reflect the likelihood of an acquisition," it added.
Norwegian said that it increased its capacity by 48pc year-on-year in the second quarter, and its load factor slipped 0.9 percentage points to 86.8pc. It carried 10 million passengers in the second quarter, which was 16pc higher year-on-year.
Although its revenue per available seat kilometre was down 11pc in the quarter - the biggest fall since the first quarter of 2017 - its ancillary revenue per passenger was 19pc higher.
Norwegian, which operates services to the United States from Dublin, Cork and Shannon, is adding a service from the capital to Hamilton Toronto Airport next year.
IAG, which also owns British Airways, Iberia and Vueling, swooped on Norwegian earlier this year, taking a 4.61pc stake in the carrier.
IAG boss Willie Walsh said he's interested in making a full offer for Norwegian. No agreement has yet been reached.