Norwegian Air Deepens Cutbacks in Long-Haul Flights

(Bloomberg) --

Norwegian Air Shuttle ASA is making further cuts to its long-haul network in a bid to return the troubled low-cost carrier to profitability this year.

The Oslo-based airline is fast reversing a strategy of growth at all costs that increased debt to untenable levels, and will now focus its long-haul routes on London, Rome, Paris, Barcelona and the U.S., according to a statement Thursday.

Norwegian had already reversed the course set by co-founder Bjorn Kjos, who stepped down last July, by selling assets, trimming routes, delaying aircraft deliveries, changing loan terms and raising fresh cash. The moves have shown results with increased efficiency in recent months. And it brought in a new chief executive officer, Jacob Schram, a retail specialist who took his new position on Jan. 1.

Norwegian now plans to reduce capacity, measured in available seat kilometers, by 13% to 15% this year compared with an earlier target of 10%, it said while reporting fourth-quarter results. The carrier is also renegotiating contracts with vendors to reduce costs, Chief Financial Officer Geir Karlsen said on a call with investors.

The loss before interest and taxes was slightly narrower than analysts expected at 1.28 billion kroner ($138 million). That compares with a 3.59 billion-kroner loss in the year-ago period.

While the airline said it’s aiming for net profit this year, the shares dropped as much as 8.5%, an indication that it won’t be easy.

What Bloomberg Intelligence Says

‘After reporting a 1.6 billion kroner loss in 2019, Norwegian Air’s goal of returning to profitability in 2020 will hinge on driving steep cost reductions, in our view. The full-year profitability goal may remain elusive and we would note the company’s costs per available seat kilometer increased 10% in 4Q, and were flat for the year.’

-- Rob Barnett, BI aviation analyst

The company has shuttered more than 50 short-haul routes, mainly outside its core Nordic area, and more than 20 long-haul routes, according to a presentation.

The carrier is optimizing the network and securing leasing capacity to offset the impact of the continued grounding of Boeing Co.’s 737 Max. It is still in discussions with Boeing about compensation and expects it to cover the losses over the busy summer period, Karlsen said. The Oslo-based airline doesn’t expect the Max in its fleet to fly before September at the earliest, he said.

The carrier also expects issues with Rolls-Royce Holdings Plc engines on its long-haul Boeing 787 Dreamliner to continue in 2020. The carrier has about a third of its 37 787 jets grounded at any given time, Karlsen said.

©2020 Bloomberg L.P.

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