One of the iconic leaders of Europe’s low-cost brigade is stepping down: after 17 years as CEO with Norwegian, Bjorn Kjos announced during the Q2-results presentation on July 11 that he will retire from his position and take on a new role within the airline.
“My retirement is long overdue, I am already 72 (even 73 next week – RS). Although I won’t call it a full retirement”, Kjos stressed. As an advisor to the board of the chair Kjos will stay on to focus on expanding Norwegian’s network in Asia, trying to arrange alliances with other airlines just as he has done in Europe with easyjet. Looking at his reaction it is a role Kjos seems to enjoy much more than running the airline at a day-to-day level.
Former fighter pilot Kjos was one of the founders of Norwegian Air Shuttle in 1993 and chairman from 1993-1996 when the airline was just a regional shuttle flying Fokkers in cooperation with Braathens. When that airline was bought by SAS in 2002, Norwegian drastically changed course. It tried to copy the success of easyjet and Ryanair by entering the low-cost scene with Boeing 737s.
Kjos oversaw the rapid expansion of his airline, supported by the bold decision to order 42 737-800s in 2007 and operating briefly out of Poland but building its network out of other Scandinavian countries. To support this growth Kjos put his signature under one of the biggest aircraft deals in 2012 when Norwegian bought 122 Boeings (including 100 MAX 8s) and 100 Airbus A320neo’s.
Going low-cost long-haul
In 2013 Norwegian entered new territory by opening its first low-cost long-haul services from Norway to New York and other US-destinations, adding London Gatwick under Norwegian Air UK as a major hub a year later. Kjos confessed today that going long-haul was ‘a major gamble’, not least because he was using Boeing 787s that still had (and have…) their teething problems. They were briefly used on routes to Asia, where Kjos wants to give his airline a second chance.
The formation of Norwegian Air International in Ireland offered options for more expansion out of the UK, while other bases were opened up in Barcelona, Rome, Paris, and Amsterdam. Kjos arranged the deal with easyjet to make the Luton-based airline a kind of feeder airline to Norwegian’s long-haul network, while at the same time allowing direct competition within Europe.
More recently, Norwegian is developing its network in South America.
From growth to profitability
While Kjos is seen as a brave and visionary entrepreneur, decorated with the US Ambassador’s Award for strengthening relationships between Norway and the US, quite a few (notably Ryanair’s Michael O’Leary) predict the Norwegian fortress will eventually crumble under heavy debts needed to finance its growth. Not so, Kjos has said before. The airline identified its weaknesses and is in the middle of a restructuring plan that has seen it shift from growth to profitability by reducing the number of bases, re-financing of debts and aircraft purchases, sale of aircraft to a third-party and targeting NOK 2 billion of saving under its #Focus2019 program. The future will show if this is enough to stable the waters at Norwegian and make long-haul low-cost as sustainable and profitable as the airline likes, with more competitors entering this specific market.
Kjos said he had wanted to retire two years ago, but postponed this as ‘some interest in the company’ (from IAG – RS) needed his attention. He and the board successfully fought-off the attempts from Willie Walsh and co. to buy themselves into Norwegian, showing a retreat by selling their 3.93 percent share last January.
Kjos will be succeeded by CFO Geir Karlsen as interim CEO, although Kjos strongly recommended Karlsen as the man with the right credentials for the job. Chairman Niels Smedegaard will take on a more active role in the management.
“Bjørn has played an unprecedented role in Norwegian’s success. His vision of offering affordable fares for all, combined with his enthusiasm and innovating spirit, has revolutionized the way people travel for pleasure and for business, not least between the continents. Bjørn is definitely one of the most influential European entrepreneurs of our time,” Smedegaard said.
Strongest Q2 ever
Norwegian reported its strongest Q2 results on July 11. While passenger numbers were almost flat at 9.98 million, operating revenues increased 19 percent to NOK 12.1 billion and EBITDAR by 36 percent to 2.2 billion. United revenues improved 13 percent to NOK 0.37. Yet, the net result dropped from 300.3 million to 82.8 million for the quarter. Its transatlantic routes were the most profitable.
HY1-results showed a 4 percent growth on passengers to 18 million, operating revenues +17 percent to NOK 20.3 billion, EBITDAR a whopping +211 percent to 2.3 billion. The net result in the first six months was negative, with a NOK 1.4 billion loss compared to a 254 mln profit last year. The Focus2019 cost reduction program is on target with NOK 1 billion of savings in HY1.
Grounding of the MAX 8s will cost Norwegian NOK 700 million this year, based on a return to service of the type in October. That’s up from the previous estimate of NOK 300-500 million. If deliveries are resumed another 6 MAX will join the fleet compared to the 16 previously planned.
In its full-year guidance, Norwegian is expecting an EBITDAR of NOK 6-7 billion compared to 3.1 billion for 2018. Its Available Seat Kilometer-growth is expected to be 0-5 percent, compared to 5-10 percent previously.