Tom Crean 737MAX at Belfast International Airport scaled
UPDATE – Norwegian can already look back on the 2023 summer as one of the best in its history. The airline reported positive results for Q2, but these are lower when compared to those of last year. In HY1, Norwegian actually slipped back into a net loss. The airline remains bullish about further growth and plans to grow the fleet to 91 aircraft next summer.
In its press release, Norwegian like to point to the NOK 650.9 million operating profit in Q2, 5.6 million passengers, and a production that was 44 percent up year on year. The load factor was 84.4 percent, up from 81.2 percent in the same quarter last year. The net profit was NOK 537.9 million.
But that’s only part of the story. In Q2 2022, which was characterized by pent-up demand as many wished to go flying again after the worst of the pandemic was over, the operating profit was NOK 1.359 billion. The net profit was NOK 1.248 billion. Free cash flow was NOK 721 million.
The main reason that the operating profit is lower this Q2 is that “the second quarter of 2022 was positively impacted by NOK 2.099 million relating to the reinstatement of pre-delivery payments (PDP) following the completion of an aircraft purchase order with Boeing. Operating profit (EBIT) excluding other losses/(gains) was NOK 676 million, compared to NOK 1.354 million in the same period last year.”
Revenues
Q2 revenues this year were higher: to NOK 6.871 billion from NOK 4.869 billion last year. Passenger revenues accounted for NOK 5.615 billion (2022: NOK 3.970 billion) and ancillary revenues for NOK 994.5 million (NOK 782.3 million). Other revenues were NOK 261.8 million (NOK 116.2 million).
While fuel was cheaper in Q2, staffing costs and all other main operating expenses were higher than last year, resulting in total costs of NOK 5.303 billion (NOK 4.775 billion). EBITDAR was much better at NOK 1.569 billion compared to just NOK 93 million. Unit costs were NOK 0.71 compared to NOK 0.74, although they were impacted by the weaker NOK against the dollar and euro and by inflation.
Comparing the HY1 results, the operating loss this year is NOK -266 million compared to a NOK 510 million profit in 2022. Norwegian posted a NOK -455 million net loss versus a NOK 214.7 million last year. Total revenues grew to NOK 10.846 billion from NOK 6.785 billion, of which NOK 8.806 billion came from passenger tickets and NOK 1.598 billion from ancillary revenues.
“This quarter has demonstrated our ability to ramp up capacity and deliver operational performance as one of the absolute top airlines in Europe. This has been possible thanks to our dedicated colleagues who ensure our passengers arrive at their destinations as smoothly as possible,” said CEO Geir Karlsen in the earnings report. “The summer season of 2023 will be one the best in our history and I am happy that forward bookings remain strong with business travel returning and others planning their autumn holidays.”
Positive trends
Indeed, Norwegian says the demand trends across key markets remain positive. “Current booking momentum remains strong with many customers booking their autumn holidays and business travelers placing high value on Norwegian’s strong operational performance. Bookings and visibility for the fourth quarter and thereafter are limited, as is to be expected at this time of the year. While there is no sign of weakness in forward bookings, the company is mindful of demand uncertainties following potential weaknesses in consumer confidence.”
This year, capacity should be up by nineteen percent year on year. But like last winter, Norwegian plans to cut back capacity by thirty to forty percent to match the lower seasonal demand, which helped it to produce a reasonable Q1. Next summer, the carrier is going full-throttle again and will increase the fleet to 91 aircraft to match increasing demand, up ten from late June.
“In light of the inflationary impact on both supplier costs and salaries, and the weakening of NOK against USD and EUR, the company does not expect to reach its target of a reduction in unit cost excluding fuel compared to the previous year. The company maintains a high cost focus and has achieved significant advances relating to improved operational efficiency during 2023. Unit revenue is forecasted to increase significantly compared to the previous year, supported by the summer 2023 season being one of the strongest in Norwegian’s history.”
After initial doubts about whether the aircraft will have the range, Boeing has tried to convince Norwegian that the MAX 10 is up to the job. (Richard Schuurman)
Evaluating the MAX 10
Fifteen new Boeing MAX 8s will join the carrier until next summer while seven Boeing 737-800s will be returned to the lessors this year and in 2024. The first of fifty MAX 8s on order will be delivered in 2025 through 2028 to bring the fleet to 100 aircraft in 2025. Karlsen is confident that Boeing will be able to deliver the aircraft according to the schedule. The airline has another thirty options for delivery in 2028-2030 at very attractive terms.
Karlsen almost repeated his remarks from exactly a year ago, when he said that Norwegian has the option to select the MAX 10. Back then, he said that the type would be evaluated. Today, he shared more clarity about the position: “We have an option on the MAX 10 and we are doing that as we speak. We were kind of negative towards the MAX 10 some six months ago, partly because of the range the aircraft can fly in our network. But new information we have received has changed this to some extent. So we are evaluating now seriously to bring the MAX 10 into our fleet.” The type would have around 225 seats. But like Ryanair’s Michael O’Leary said earlier this year, Geir Karlsen too, wants to negotiate a good price for the MAX 10.
Norwegian ended June with NOK 9.3 billion in cash and cash equivalents and NOK 3.7 billion in net-interest-bearing debt. The airline is looking at plans to once again pay dividends to shareholders. Before the end of the year, Norwegian hopes to receive regulatory approval for its acquisition of Wideroe, which was announced in July. The airline also announced a four-year contract with the Norwegian Armed Forces.
The group is also expanding its activities in the hotel business and announced a partnership in June with Strawberry, formerly Nordic Choice Hotels, to establish a joint company for loyalty programs. Norwegian said today that Avida Finans AB will become the preferred financial partner, developing next-generation financial services for more than seven million members. “Upon completion, which is subject to a set of conditions including regulatory approval, Norwegian and Strawberry will hold equal ownership in the loyalty company, while Avida will acquire a stake of close to two percent. Norwegian expects to record an associated non-recurring gain of approximately NOK 800 million upon final closing, expected to take place in the fourth quarter of 2023.”
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