Norwegian Air has posted smaller-than-expected passenger growth in December and additional fuel hedging losses, but earned more money from each traveller, according to its latest monthly traffic report.
Norwegian, which has been courted by British Airways owner IAG, has rapidly expanded its transatlantic business in recent years but recently announced plans to cut costs in a bid to turn around its loss-making operations.
It expanded capacity in December by 34% year on year but revenue-generating passenger kilometres increased by only 24%, lagging a forecast of 32.9% in a Reuters poll of analysts.
While the recent fall in crude oil prices could eventually bring down fuel costs, the company will first book substantial losses from hedging positions it entered into at higher prices.
For the October-December quarter, Norwegian Air estimated an unrealised loss from fuel hedging of 1.99 billion Norwegian crowns ($232 million), up from a preliminary October-November loss reported last month of 1.46 billion.
The airline's load factor, a measure of how many seats are sold on each flight, fell sharply to 78.6% for the month, lagging a forecast of 82.6% and down from 84.6% a year earlier.
Entering "A Period Of Slower Growth"
"The company has made considerable investments this year and 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," CEO Bjoern Kjos said in a statement.
He added, "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."
Its yield, a measure of revenue per passenger carried and kilometres flown, edged up to 0.38 Norwegian crowns from 0.37 crowns a year earlier. Analysts had expected no change.
The traffic data will trigger a downgrade of fourth-quarter earnings estimates, said analysts at Pareto Securities who reiterated a Buy recommendation on Norwegian Air's shares.
"(Norwegian) will be well positioned for 2019 with about 35% of estimated fuel (consumption) hedged at a price corresponding to a Brent oil price at $52 and should therefore have a substantial fuel cost benefit versus peers," Pareto said.
Crucially, the company's balance sheet should be able to fulfil all debt covenants, the brokerage added.