Wideroe’s profitability depends on Norway’s taxes

Norway’s Wideroe needs a bigger reduction of the country’s air passenger duty and other taxes if it wants to stay profitable in the near future. “Wideroe AS’ short term financial position is still solid. Long term there has to be made substantial changes to air travel duties and taxes to ensure long time profitability if Wideroe is to grow its domestic presence on shorter regional routes”, a spokesperson tells Airinsight. We contacted Wideroe after getting reports that the airline is ‘in trouble’. Spokesperson Silje Brandvoll denies this, replying to our written questions. Wideroe is the biggest regional airline in Scandinavia. It daily operates 450 flights to 46 destinations in and outside Norway. Some 60 percent are commercial routes, but 40 percent is operated under the public service obligations (PSO) that makes the airline a flying bus company to remote areas in the vast Nordic country. It also operates services on behalf of Finnair. In April 2018 Wideroe became the first airline to operate three Embraer E190E2, joining a fleet of 40 Bombardier Dash 8 turboprops that include 20 -100s, 3 -200s, 7 -300s and 10 -Q400s In April 2018, Wideroe was the first airline to take delivery of the Embraer E190E2. (Embraer) The airline will disclose its 2018 results in April and isn’t willing to share preliminary data, but the latest annual report confirms that profitability has been consistently affected by the air passenger duty introduced in June 2016. That year profit after tax was 256.6mln kroner, dropping to 155m in 2017 on stable revenues at 4.4bln kroner and costs at around 4.2bln kroner in both years. In 2017 passenger numbers were up 1.5 percent to 2.9m, but the annual report shows an interesting change: Wideroe earned 432.4m kroner on Norwegian routes, down from 3.3bln the previous year. This was partly compensated by higher revenues on foreign routes: 2.0bln kroner in 2017, compared to 421.8m in 2016. Air passenger duty currently is 84 kroner per passenger, but from April 1 this will be reduced to 75 kroner on domestic and European routes while a rate of 200 kroner will apply to destinations outside Europe. Another change should differentiate between aircraft weight. Although both will benefit Wideroe, a higher carbon oxide tax and higher VAT will negate any benefits and still have an impact on yields on its short regional routes. It doesn’t rule cutting its flight schedule to some destinations that will remain loss-making as has been done early 2018 to Lofoten and Vesteralen. Wideroe operates a fleet of 40 Bombardier Dash 8's to remote destinations within Norway. (Sverre Hjoernevik/Wideroe) Troubled Autumn Wideroe was in trouble for other reasons last Autumn, when it experienced all kinds of operational issues. “September was an awful weather month. On the 27th we had in total twelve aircraft out of production, including five that were due for planned maintenance. Reasons were aircraft being struck by lightning, several bird strikes that caused damage and made them in need of repair, and damage caused by severe turbulence”, Silje Brandvoll says. In 2017 there had been operational issues too: “In June 2017 we saw that our planning estimates for flight deck and cabin crew availability was incorrect. We found ourselves in a situation where we could not deliver all our planned flight program over the Summer of 2017 due to lack of crew. In order to minimize disruption to the passengers’ flight schedules, we choose to pre-cancel approximately 100 flights.” Punctuality dropped from 97.1 percent in 2016 to 96.3 in 2017 back to 97.5 until April 2018, still below the 98.5 percent stipulated in the agreement with the government on operating short take-off and landing (STOL) routes within Norway. As a result, the government to reclaim 4.7m kroner or some 10 percent of the total subsidy annually granted to Wideroe for these specific services. “We were about one percent behind our target and we are of course not satisfied with this result. We operate in probably some of the most challenging climatic and topographic environments there is, and despite this, we have a history of several times being one of Europe’s most punctual airlines”. To return to target, the airline late 2017 bought two more Dash 8-100’s to bolster spare capacity. “We have also trained and hired 70 pilots and 50 cabin crew to get a more robust operation. December 2018 had the best regularity in nine years, and we are not happy until we are back on target for the year as a whole.” Wideroe is involved in a dispute over breaching European competition rules in a case brought forward last May by the EFTA Surveillance Authority on its public services obligation routes. The airline is accused of withholding specific satellite-based approach system receivers to potential competitors, effectively pushing any rivals on domestic routes out of the market. “Wideroe strongly oppose these accusations and have replied with a comprehensive defence. We still strongly believe we will be cleared of these accusations and that the conclusion will be that there is no evidence that Wideroe has broken any EEA competition rules. We expect a ruling by the end of 2019”, the airline says. E2 excellent workhorse In April 2018 Wideroe took delivery of the first Embraer E190E2, with two more having joined the fleet since. The airline is most happy with the performance of the type, which is based in Oslo and Bergen and also operates on routes for Finnair. “The E2 proves to be an excellent workhorse even in rugged arctic conditions”. Wideroe hasn’t experienced any specific issues with its Pratt & Whitney Geared Turbofans but confirms that in recent months engines have been prematurely replaced in between intervals. “With regards to the GTF’s, Wideroe agreed on an engine swap program, this to make sure none of the known issues would affect our operations. All swaps have been conducted in a well-planned and problem-free way, without any traffic interruptions.” Pratt & Whitney has swapped their PW1900Gs on the three Wideroe Embraer E2s for ones to the latest specifications, but the engine has performed troublefree in the icy climate. (Embraer) P&W’s Jenny Dervin confirms this: “We swapped their engines once all retrofits were available, primarily for the combustor and number 3 seal. All new production GTFs (all variants) have the retrofits incorporated. As with any engine program, especially a brand new engine architecture like the GTF that has a very long runway in front of it (30 years at least), Pratt & Whitney will continue to introduce modifications to the engine, and will work with our customers on a schedule for upgrade and exchange.” The swap program will be completed this February. Undecided about options Wideroe has another 12 E190E2s on option. Asked about the status of this option, Silje Brandvoll replies: “In 2018 our focus has been the entry into service as a launch customer of the Embraer E190E2. We will give attention to the options in due course, preferably by the end of 2019.” If this means confirmation, deferral or cancellations is unclear. Embraer isn’t willing to discuss specifics about the option situation, only saying the expect Wideroe to decide when the timing is right.

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