Norwegian Air shares dive on transatlantic costs

Norwegian Air Shuttle, the carrier trying to grab a larger slice of transatlantic flights, reported a slump in earnings and said the outlook for both growth and costs was worse than expected.

Shares in Europe’s third-largest budget airline (it is behind Ryanair and EasyJet) dropped as much as 11% to their lowest since October, 2014, taking this year’s losses to 34%. The airline has launched transatlantic flights from Cork to Boston, and from Belfast to Boston and New York. Its strategy of taking on more established flag carriers has risks, such as buying or leasing larger, more expensive planes.

Norwegian Air’s operating expenses jumped 45%, driven by a 56% increase in technical maintenance costs. Despite the cost problems, Norwegian said securing financing for new planes, due to be delivered in 2018, would not be a problem. “Anyone who believes we can’t pay for the aircraft will be disappointed,” chief executive, Bjoern Kjos, said.

The airline said its second-quarter adjusted operating profit, before leasing and depreciation, dropped 21% to 1.19bn crowns (€125.8m), well below expectations. “Light years behind expectations,” said Swedbank analyst, Hans Ludvigsen, as the airline raised its forecast for unit costs. Norwegian, whose chief financial officer abruptly resigned last week, after 15 years in the job, said the lower second-quarter results were due to significant additional costs for leasing aircraft. “A larger share of leased aircraft in the fleet, and a larger share of 787 aircraft, led to increased unit costs,” the company said, referring to its acquisition of more Boeing 787 Dreamliners. “However, the situation is particularly bad for Norwegian Air Shuttle, because its unit costs numbers are also getting hit with increasing costs, as pilot costs are rising at a time when it needs 25 pilots for each new Dreamliner,” said Karl-Johan Molnes, an analyst at Norne Securities.

Meanwhile, Delta Air Lines, the No 2 US airline by size, reported an increase in quarterly passenger unit revenue, but higher costs weighed on its bottom line. Delta posted a 2.5% increase in passenger unit revenue, but its net income fell almost 21%, to $1.22bn (€1.1bn), in the three months to the end of June.

  • Reuters


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