Norwegian keeps a close eye on costs going into the winter

Coming out of the 2023 summer period with very positive results doesn’t mean that Norwegian Air is going into the winter and next year with a feeling of over-confidence and jubilance. On the contrary, the carrier is taking a careful approach to capacity and costs to make sure it can eke out any benefits it can find. That includes looking at cost savings on its future Boeing MAX 8 aircraft. Norwegian reported a net profit for Q3 of NOK 2.039 billion, up from NOK 909.7 million last year. Operating revenues grew by 23 percent to NOK 8.776 billion from NOK 7.116 billion as it carried 4.5 million passengers. The operating profit or EBIT was NOK 2.170 billion, up from NOK 1.032 billion, resulting in an operating margin of 24.7 percent. This makes Q3 Norwegian’s second-best third quarter ever. Yields reached a high in July and dropped in the next two months, but have been better in October than in September, said CEO Geir Karlsen on Thursday. Revenues are keeping track of 2019 levels for some time and could exceed them “if we have some luck in the next couple of months.” Fares for the coming months are 15-20 percent up year on year, but this has hardly any impact on forward bookings. Beach destinations were the most popular and still are, as are city destinations. The weaker Norwegian krone drove unit costs up by six percent but is helping demand, generating 200.000 to 300.000 more passengers coming to Norway. For January-September, the net profit was up by 41 percent to NOK 1.584 billion from NOK 1.124 billion. Operating revenues also increased 41 percent to NOK 19.622 billion from NOK 13.900 billion. EBIT was up 24 percent to NOK 1.904 billion from NOK 1.542 billion, resulting in an EBIT margin of 9.7 percent. The airline further strengthened the balance sheet and bolstered liquidity by NOK 42 million to NOK 9.4 billion. Net interest-bearing debt was up to NOK 4.3 billion from NOK 2.7 billion year on year as it took four MAX 8s on the balance sheet through lease obligations. It redeemed NOK 468 million in NAS13 bonds that the company took on during the restructuring. Strong focus on efficiency Costs per available seat kilometer (CASK) excluding fuel were NOK 0.41, up from NOK 0.39, the effects from inflation and especially the weaker Norwegian Krone, offset by efficiency gains in higher block hours of six percent year on year. “This is the CASK result when we run the company at full capacity, the level we are in when we are in peak season,” said CEO Geir Karlsen. This was also done by running operations as efficiently as possible, with regularity close to 100 percent, punctuality reaching 80.1 percent in the summer peak, and 97 percent of arrivals within one hour. Again, this is also key to keeping costs down, as each delayed flight has a negative effect on costs and customer compensation. The airline will continue this strict eye on costs going into the low winter season, for which the airline has shifted capacity from summer to domestic destinations in the Nordic countries. ASKs will be down 30 to 40 percent from November through February compared to October, which saves the airline 20 percent in variable costs that make up 70 percent of total expenses. “By reducing capacity and costs, we improve the low-season costs by NOK 1.0 to 1.5 billion. That is material and very important,” said Karlsen. He admitted that Norwegian had been flying too long in loss-making markets last year, so it now shifts capacity from low-yield to high-yield markets whenever possible. In 2024, Norwegian will add three new crew bases to its network structure in Riga, Barcelona, and during the summer Palma de Mallorca, bringing the total number to twelve. The airline will also strengthen its Copenhagen base, with fifteen to sixteen aircraft based there. In Spain, the number of based aircraft will go to thirteen of fourteen. Taking costs out of the MAX 8s When it comes to the new MAX that Norwegian has on order, Karlsen said that his airline is looking carefully at the cabin specifications and if they are really needed for the markets it is flying. This means forgoing certain cabin features that the customers won’t see but which safe weight if they are not installed. “We will have significant savings, both on the operational side as well as on the Capex side by millions of dollars.” Norwegian operated 85 aircraft this summer season and expects to get to 90/91 next summer. This depends on Boeing, which is already four to six months behind on delivery targets for 2024. To compensate for this, leases for three 737-800s have been extended and a few more extensions for two to three years will be likely as more MAX delays are expected in 2025. MAX has Boeing MAX 8s on order for delivery between 2025 to 2028, with thirty options for 2028 through 2030. Karlsen reiterated remarks from earlier this year that Norwegian will likely order the MAX 10 as well. “It is an interesting choice. A MAX 10 for us would have 225 seats compared to the 189 we are flying today. We will make a decision within the next six months, so we have some time.” Norwegian guides an operating EBIT of NOK 1.8 to 2.0 billion for the full year. Bookings remain high, although some are expecting a decrease, “but we don’t see it.” Karlsen was very pleased to announce that Norwegian has secured a two-year charter contract with TUI, which will lease 70 percent of its required capacity. Norwergian has also concluded more contracts with corporates, seeing an increase of 35 percent to 2.345 for the year to date.

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