Norwegian Air Warns Costs Will Rise With Higher Fuel Bill
(Bloomberg) -- Norwegian Air Shuttle ASA hiked its estimate for unit costs, a key measure of expenses, exposing the airline’s vulnerability to higher fuel prices and its low level of hedging compared with other airlines.
- Costs for aviation fuel rose 85 percent in the third quarter, driving a 2.3 percent increase in Norwegian’s top-end estimate for unit costs for all of 2018. The company has increased its hedging but is still low compared to the norm. Chief Executive Officer Bjorn Kjos said he’s not concerned for the winter unless oil tops $100 a barrel.
- Norwegian said it’s in “advanced” talks for a fleet joint venture with a partner that has significant capacity to invest capital. The JV, which would include Norwegian planes, would help provide much-needed cash. The company said in April it may shed as many as 140 aircraft, and had pledged a solution by the end of the third quarter.
- Norwegian has expanded with transatlantic routes that go to secondary markets in the U.S. But it’s discontinuing city pairs including Edinburgh-to-Providence, Rhode Island, as well as to smaller airports in New York and Connecticut, and similar routes from Belfast and Bergen, Norway. The costly trial-and-error makes it more difficult to judge if its long-haul low cost model will ever work.
- Norwegian said it’s sticking to its breakneck-speed expansion, reiterating a forecast to add 40 percent to capacity this year. It also plans to add between 15 percent and 20 percent of seats in 2019 as its expansion slows.
- Norwegian shares fell as much as 6.4 percent in early trading on Thursday. The stock was down 2 percent to 178 Norwegian kroner at 9:17 a.m. in Oslo.
- Bernstein analysts led by Daniel Roeska singled out wet-leasing costs (rentals of plane with crew) along with the fuel as the biggest surprises in the results. Headline on their note: “Flying higher but still headed for a thunderstorm.”
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