UPDATE – Norwegian Air has drastically reduced its losses in 2021 and is showing improvements on most fronts. The effects of the deep restructuring and recapitalization are showing off, but is the airline out of the danger zone now? It seems so, as it counts on a further recovery in the coming second quarter and summer period. Let’s look at the full-year results and compare them with previous quarters. Norwegian is improving on most fronts.
On February 18, the carrier reported a net profit for 2021 of NOK 1.870 billion, a huge difference compared to the NOK 23.039 billion loss it suffered in 2020. Q4 produced a NOK 111.8 million net profit, up from a NOK 16.627 billion loss for the same period in the previous year.
To get a better picture, we look at the operating result (EBIT). Here, the full-year EBIT is NOK -2.786 billion compared to NOK -23.786 billion in 2020. In Q4, EBIT was NOK -262.7 million (2020: 15.880 billion). Demand was higher in the fourth quarter, but December saw a “dramatic drop” in bookings due to Omicron. If we check Q3, we see that the net profit at NOK 168.7 million was higher than in Q4 and EBIT at NOK -295.5 million slightly worse than in Q4. But there is a marked improvement over the earlier quarters of 2021. In Q2, EBIT was still NOK -766 million and in Q1 even at NOK -1.461 billion, so NOK -262.7 million in Q4 confirms a positive trend.
That Norwegian has produced a NOK 1.870 billion full-year net profit, is for a large part because of the restructuring effects that were already visible in the Q2 and HY1 results. The carrier reported a NOK 2.779 billion net profit for Q2 and NOK 1.590 billion in HY1, thanks to NOK 3.8 billion in restructuring effects. In Q3, it was already slowly getting back on track.
Norwegian liquidated some fifty sub-companies as part of its restructuring
Norwegian exited the restructuring process and examinership in May and improved its equity position to NOK 13.723 billion, of which NOK 5.314 billion is recognized in the income statement. This was mainly done through a private placement and rights issue. On December 31, cash and cash equivalents stood at NOK 7.7 billion, up NOK 5 billion compared to a year before. The restructuring brought interesting-bearing debts down to NOK 1.683 billion from NOK 40.222 billion, but debts grew by NOK 1.041 billion from Q3 to Q4 as the airline leased eight more aircraft that still need to come into the fleet.
The sale of some slots at London Gatwick to Wizz Air benefited cash flow by NOK 201 million. Norwegian had too many of them after exiting the long-haul low-cost market. It spent the past six months further cleaning up the balance sheet and has liquidated some fifty sub-companies that were part of its business structure.
Looking at Norwegian’s operating revenues, they show a mixed pattern. Q4 was better than Q3 (NOK 2.549 billion compared to NOK 1.927 billion) but year-on-year, operating revenues were down to NOK 5.068 billion from NOK 9.096 billion in 2020. This can be explained by ten percent lower passenger numbers at 6.2 million at 72.8 percent load factor and fifty percent lower Revenue Passenger Kilometers (RPK) at 6.9 million. Yields are improving and were up to thirty percent in Q4 to NOK 0.57 cents, but CEO Geir Karlsen is not happy with them. Costs per available seat kilometer (CASK) excluding fuel improved from NOK 0.51 to 0.49 cents, but Karlsen said they are still too high as the airline is flying at a reduced capacity.
In the current Q1, Norwegian is operating at 60-65 percent capacity, down from almost eighty percent just before Omicron. But as the health effects of this virus are not as bad as those of the Delta variant and more countries relax travel restrictions, the carrier is seeing “very good signs when it comes to bookings” for the coming summer, said Karlsen. Bookings are steadily becoming more forward, which benefits revenues and yields. It will likely increase ticket prices to compensate for the higher fuel costs, which on a capacity-adjusted base were up 32 percent in Q4. Norwegian says it hasn’t hedged its fuel costs.
The ideal fleet size will be 95-100 in 2024
Norwegian operated 51 aircraft in 2021, including three that were on stand-by. Karlsen said the airline hugely benefitted from the power-by-the-hour contracts with lessors, in which it only pays when it actually uses the aircraft. This saved Norwegian $40-45 million in lease costs. PBH covers the whole fleet until the end of Q1 and should bring NOK 100-120 million in further savings. The fleet will grow to seventy aircraft this summer when it plans to operate 270 routes. Of the extra aircraft, seventeen are Boeing 737-800s and two MAX 8s, which for winter 2022/2023 are also under PBH contracts for maximum flexibility.
The airline is trying to secure more aircraft in the coming months to grow its fleet to 80-85 aircraft by summer 2023, all new-generation aircraft from either Boeing or Airbus. The forecast for 2024 is to have a fleet of 95-100 aircraft again, which would be the optimum to get CASKs down. Karlsen said that the litigation case with Boeing is still ongoing, but it is going at a low pace.
In Q1, the airline will still burn some cash but Geir Karlsen is positive that Norwegian will soon “very seriously will be making money”. He claimed Norwegian to be the number 1 airline in Norway and number two in the other Nordic countries, Sweden, Denmark, and Finland. It continues to work on its liquidity position and cost reductions, for which it secured long-term agreements with its workforce. The airline will hire some 800 staff ahead of the summer ramp-up.
UPDATE February 28: lessor AerCap announced that it will lease ten MAX 8s and eight 737-800s to Norwegian for delivery in 2022 and 2023.
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.