Long-haul LCC Norwegian Air Shuttle warned that high oil prices and a strong dollar would affect the entire aviation industry as it reported a third-quarter net profit of NOK1.3 billion ($156 million), up 18% compared to NOK1.1 billion in the year-ago quarter.
Revenue for the quarter rose 33% to NOK13.4 billion as the budget airline carried around 11 million passengers, a rise of 11%. But load factor was slightly lower at 90.5%, down from 91.7%. Capacity measured in available seat kilometers (ASKs) grew 33%.
Norwegian CEO Bjorn Kjos said, “Going forward the growth will slow down, and we will begin to reap the large investments we have made over the years, which will benefit customers, employees and shareholders.”
But Kjos sounded a warning for the entire industry, which has seen a string of airline failures in recent weeks including Nordic LCC Primera Air and Cypriot carrier Cobalt Air highlighting the difficult conditions.
“There is no doubt that tough competition, high oil prices and a strong dollar will affect the entire aviation industry, making it even more important to further streamline our operations and continue to reduce costs,” Kjos said.
Norwegian’s strategy in recent years has been one of rapid international growth: Since a giant order for 222 aircraft placed in 2012 it has been launching new routes and setting up new bases and subsidiaries and it now has 23 operational bases worldwide.
It began domestic services in Argentina earlier this month and said the US now represents its largest market after Norway in terms of total revenue.
But the speed of its expansion has raised questions among investors about debt levels, the sustainability of its growth, and its overall strategy.
On Sept. 24, Norwegian also said it was pulling out of transatlantic routes from Edinburgh and Belfast.
The airline has also been fending off takeover offers in recent months.
Unit costs including depreciation but excluding fuel decreased by 10% in the quarter but including fuel they rose 1% in the quarter.
The carrier kept its prediction for unit costs excluding fuel and depreciation of between NOK0.290 and NOK0.295 for the full year but said higher fuel prices meant that including fuel they would rise to between NOK0.435 and NOK0.440, up from NOK0.425 to NOK0.430.
“Norwegian may decide to adjust capacity in order to optimize the route portfolio depending on the development in the overall economy and in the marketplace,” it said.
Bernstein analyst Daniel Roeska wrote in a research note that the quarter was good overall for Norwegian “with high traffic growth, a decent yield performance and progress on unit cost.”
He added: “However, while winter losses may be slightly lower than our pre-results estimate of NOK4.2 billion, it will still likely be a close call whether a further equity raise will be required in 2019”…
