Norwegian Air Plans Further Capacity Cuts In Bid For 2020 Profit
Norwegian Air has said that it will make deeper capacity cuts in 2020 than previously announced as it aims to return to profit after three consecutive years of losses.
Shares in the budget carrier plunged 8% after it also reported a fourth-quarter net loss of 1.87 billion crowns ($202 million), lagging a forecast of a 1.35 billion crown loss in a Refinitiv poll of analysts, although reduced from a year-ago loss of 3 billion crowns.
A pioneer in low-fare transatlantic air travel, Norwegian Air's rapid expansion has left the company heavily in debt, forcing it to cut unprofitable routes while repeatedly raising cash from owners in order to survive.
Although its revenue rose by 8% in 2019, cutbacks made towards the end of the year, including the sale of its domestic business in Argentina, led to a 7% year-on-year fall in the final three months, it said.
Underlying earnings, also known as EBITDAR or operating result before ownership costs, swung to a profit of 436 million crowns in the fourth quarter from a year-ago loss of 118 million.
"This shows the change from growth to profitability is beginning to give an effect, and we expect it to continue into 2020," Chief financial officer Geir Karlsen told analysts and media.
The company's available seat kilometres (ASK), a key measure of capacity, is now set to decline by between 13% and 15% in 2020, which is more than the goal of a 10% cutback the airline had set last October.
The MAX Factor
The company's guidance is based on a return to service of its fleet of grounded Boeing 737 MAX aircraft in September, it added.
"All the above taken into consideration, the company targets a net profit in 2020," Norwegian Air said, while adding it remains in discussions with Boeing over compensation for the MAX outage.
Boeing has continued to push back expectations for when the MAX will fly again however, and the US Federal Aviation Administration still does not have a timetable for lifting the flight ban.
Norwegian's 18 MAX aircraft have been grounded since last March following two fatal crashes involving MAX planes at other carriers, forcing their substitution by less efficient models on expensive leases.
Norwegian Air also has 92 planes of the same model on order, of which 16 are scheduled for delivery this year, but Karlsen said that that schedule was "unrealistic".
Debt, Liabilities And Cash Holdings
Norwegian said that its overall debt and liabilities fell in 2019 to 81.2 billion crowns from 87.1 billion at the start of the year, while its cash holdings stood at 3.1 billion, up from 1.9 billion.
Problems With Rolls-Royce Engines
Meanwhile, technical problems with the Rolls-Royce engines on its Boeing 787 Dreamliners cost Norwegian an estimated 750 million crowns in 2019, and the costs of repair are expected to continue in 2020, the company said.
Karlsen said that the companies had found a solution on compensation that was "not fantastic", but that Norwegian "could live with".
Underlying Earnings Improvement Target
The company has a target, also announced last year, of improving underlying earnings by four billion crowns by 2021, and expects measures taken in 2020 to yield 1.5 billion crowns of this, it said.
Norwegian's shares have now lost 34% in the past 12 months.