Monday, 7 January 2019

Over 37 million people flew with Norwegian in 2018........but will 2019 be such a buoyant year for the budget carrier.

The world's best low-cost long-haul airline Norwegian reported high year-end traffic figures this week, over 37 million passengers flew with them during in 2018. That's the highest number in its history, but that is perhaps not surprising when you consider the carrier took delivery of 25 brand new aircraft and launched 35 new routes, thus greatly expanding its route network.

The airline certainly looks to have performed well over the year, which has its fair to say, been somewhat of a difficult time for many airlines around the world. The airline has faced some strong competition, legacy carriers like British Airways, lowering fares and introducing a seat only product. A general overcapacity situation on the low-cost transatlantic market lead to much lower yields at key times in the year than had been expected. Plus of course, the high oil costs, which have caused many an airline CEO to grimace and instigate belt-tightening exercises. 

Norwegian launched direct flights between London and Buenos Aires during the year, which marked its first foray into South America, as well as launching new domestic routes within Argentina and soon to neighbouring countries. Not bad for an airline considered to be a 'dog' by one bullish airline CEO. 

"The 2018 traffic figures demonstrate that our international footprint continues to grow stronger." Norwegian CEO Bjørn Kjos said, however, warned that 2019 might be a little different, saying the company will "will now enter a period of slower growth. We have adjusted and optimised our route portfolio and the capacity going forward. We have also made seasonal adjustments for the winter,” 

The airline has, along with many others, had issues regarding the engines of its Dreamliner aircraft not performing as promised, which have caused more than just a few headaches. It also saw its primary UK base, London Gatwick, close for a few days just before Christmas due to drone activity, negatively impacting its operations. “Continued tough competition, high oil prices and operational challenges in 2018 combined with the issues with Rolls Royce engines, which have particularly affected our long-haul operations, have had an impact on our financial results in the latter half of 2018. We have launched a series of cost-reduction measures to boost our financials in 2019 which will have an immediate and continued positive influence throughout the year.” Kjos added.

The cost-cutting measures Kjos mentions have been carefully worked out and come under the internal branding of Focus2019, which should, according to the estimates save the firm around  NOK 2 billion in 2019.  It has also refinanced one of the Dreamliners due to arrive in the coming month as well as arranging financing on all new aircraft arrivals up to the middle of the year. The carrier will also be selling off a few more aircraft, both from its operational fleet as well as some of those aircraft yet to arrive, which should significantly improve its bottom line going forward.

Fuel hedging continues to be a key area for the carrier, it made a loss in the latter part of 2019, but is much better positioned for 2019, when compared to other airlines, in regards to fuel hedging, although, nothing is completely certain in the world of aviation fuel hedges!

With the belt-tightening and the sale of some aircraft Norwegian looks to be in a good place for 2019, yet it also looks certain the airline won't be able to grow as much as it did during 2018. We're only a week into the new year and already signs are that it will prove to be every bit as bumpy for airlines as 2018 was.  We can expect to see some further consolidation with the smaller airlines, there will, without a doubt be a number of high profile airline failures (expect one before March) but the future for Norwegian looks fairly strong and relatively stable. 

(Images Norwegian)