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Norwegian Stuns Analysts: Posts Second Quarter Profits to the Surprise of Many

Norwegian Stuns Analysts: Posts Second Quarter Profits to the Surprise of Many

To the surprise of many in the aviation industry, low-cost long-haul airline, Norwegian has reported a second-quarter (between April, May and June 2018) profit of NOK 300 million which is around $37million USD.  Many analysts, however, had expected the rapidly expanding airline to post a significant loss for the quarter.

In the first quarter of the year, Norwegian lost around $5.5 million – a season which it described as “seasonally weak”, citing international expansion and higher fuel costs for the weak performance.  Earlier this year, the Oslo-based carrier reported a full year loss of approximately $36million for 2017.

Norwegian says the stronger performance was attributed to a 9% cost reduction in the period although the airline didn’t say where those savings had come from.  The airline, which has built much of its long-haul expansion with brand new Boeing 787 Dreamliner’s has faced months of woe due to engine problems with the state of the art airliner.

The problems, which have affected a number of 787 operators who opted for a particular type of Rolls Royce Trent engine, forced Norwegian to undertake expensive and time-consuming checks on the engines much earlier than expected.  In some cases, Norwegian has had to wet-lease aircraft to fulfil its schedule.

Even with those problems, however, Norwegian managed to carry 10 million passengers in the quarter – an increase of 16%.  An average load factor in the quarter of 86.8% is also impressive.

“Despite being at the peak of our growth phase, we have been able to present a profit and decreased unit costs during the second quarter,” commented Norwegian’s chief executive Bjørn Kjos.

No doubt elated with the results, Kjos continued:

“Going forward, the growth will slow down and we will reap what we have sown for the benefit of our customers, staff and shareholders.  I’m also extremely happy and grateful that we during the past six months have received ten different awards.”

Earlier this year, Norwegian was approached by IAG, one of Europe’s largest airline groups, in an attempted buyout.  IAG, who own British Airways, first acquired a token 4.6% stake in Norwegian before making two separate bids for the carrier.  At the time, Norwegian rebuffed IAG’s offer, saying it seriously undervalued the airline.

Since then the Lufthansa Group has also expressed an interest in Norwegian and Kjos has warmed to the prospect of accepting an offer from the right bidder – a move that could well drive up ticket prices in some of Norwegian’s key markets, most notably at London Gatwick where the airline has expanded aggressively.

Of course, Norwegian isn’t completely out of the woods just yet.  Airline groups like IAG and Lufthansa have deep pockets and their own low-cost long-haul brands with which to compete with Norwegian.  Nonetheless, it’s a great result at a time when Norwegian could be forgiven for posting a loss.

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