Monday 18 February 2019

Norwegian shares fall on revised growth plan

Flight plan: Norwegian CEO Bjorn Kos said reducing costs and returning to profit is its priority
Flight plan: Norwegian CEO Bjorn Kos said reducing costs and returning to profit is its priority
Ellie Donnelly

Ellie Donnelly

Shares in Norwegian Air fell by more than 11pc in afternoon trading in Oslo yesterday, after the group cut its capacity growth forecast for this year to 9pc.

The struggling low-cost carrier had previously forecast growth of between 15-20pc for the year.

The revised estimate from Europe's third-largest airline by passenger numbers comes as the group reported a net loss of NOK 1.4bn (€144m) for 2018. Norwegian said losses were impacted by engine issues, fuel hedging losses, and tough competition.

Total revenue at the airline was more than NOK 40bn (€4.1bn) for the 12 months, an increase of 30pc compared to 2017, while passenger numbers climbed 13pc to 37 million.

For the fourth quarter of 2018, the total revenue was NOK 9.7bn (€998m), an increase of 23pc from the same period last year, primarily driven by international growth, as well as increased traffic in the Nordics.

Looking ahead, Norwegian CEO Bjørn Kjos said the key priority is returning to profitability through a series of measures, including an "extensive" cost-reduction programme, an optimised route portfolio and sale of aircraft.

"Going into 2019, we will enter a period of slower growth and fewer investments, while constantly looking for new and smarter ways to improve our efficiency and offer new products and services to attract new customers," Mr Kjos added.

Ross Harvey, analyst at Davy Stockbrokers, said that while Norwegian had a number of specific issues in the past 18 months, including aircraft hedges, mark-to-market effects of fuel, and volatility associated with its stake in Bank Norwegian, "its strategically risky mixture of high operating and financial leverage while it grows rapidly leaves it susceptible to reactive financing requirements".

Mr Harvey added that capacity growth of 9pc in 2019 should temporarily ease some of the airline's growing pains, "but only consistent net profits will restore confidence". The update from Norwegian comes after Aer Lingus owner IAG earlier this year confirmed it won't make an offer for the low-cost carrier.

This week has been a difficult week for the European airline industry.

On Tuesday, German holiday airline Germania announced that it had filed for insolvency, immediately terminating all of its flight operations. The airline had been unable to cover its short-term liquidity needs.

On Monday, Ryanair reported a €20m loss for the three months to December 31, 2018.

Irish Independent

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