Norwegian Air reported a profit in 2013 for the seventh year running on Thursday, but takings were significantly down on previous years. Major problems setting up its new long-haul routes with trouble-plagued Boeing 787 Dreamliners led to a huge amount of customer complaints, and the budget carrier angered unions and other airlines over pay conditions and its use of cheaper Asian crews.
Norwegian reported its pre-tax profits for 2013 were NOK 437 million (USD 71.5 million), down from NOK 623 million in 2012. The airline lost NOK 283 million in the fourth quarter.
“We have had significant and unexpected costs due to the start-up of the long-haul operation, with delayed deliveries of aircraft and many technical issues,” said CEO Bjørn Kjos in a statement. “Furthermore, the profit has also been affected by a weaker Norwegian krone.”
The intercontinental routes added extra costs totaling NOK 216 million for the year, for expenses like leases, extra fuel, and providing accommodation, food and drinks for passengers stranded or delayed by operational issues. Many of the problems stemmed from the delay in the delivery of the Dreamliners, then ongoing technical problems once the first planes arrived. The chaos peaked over Christmas and the New Year, resulting in a record number of complaints and a public relations nightmare for Norwegian.
Turnover however increased 21 percent to NOK 15.6 billion, production growth increased 32 percent, and Norwegian carried 20.7 million passengers, 3 million more than 2012. Kjos said that’s a sign Norwegian’s business model works. “Cash flow from operations has been very strong,” he said. “We have cut costs and added new capacity, while at the same time maintaining the load factor. Strong competition on certain routes affects the price level, but Norwegian is still better equipped than ever to meet the competition.”
The 2013 results come after Irish authorities issued Dublin-based Norwegian Air International its air operator’s certificate (AOC) and operating license on Wednesday, following approval of Norwegian’s application earlier this month. The company’s long-haul operations will now be run out of Ireland, and governed by authorities there.
Unions, pilots and international airlines have lobbied against the move for months, which they claim is a bid to circumvent international agreements and hire cheaper crews. Norwegian said it chose Ireland to improve its traffic rights within the EU, because Ireland has fully adopted the Cape Town Convention affording better financing conditions, and because many of the companies Norwegian does business with are based in Dublin.
In a statement, Norwegian said Ireland was not chosen because its rules allow the use of American and Asian crews. “The fact is that Norwegian could have based its long-haul company in any other European country and still used American and Asian crew, the way several other European airlines have been operating for years,” the statement read. “The only exception is Norway and partly Denmark, which so far have opted to keep outdated special rules within this area.”
The US transportation department is still processing Norwegian’s application for a permit, which now falls under the EU-US Open Skies Agreement, rather than the previous EEC-US agreement when the airline was based in Norway.
More Dreamliners ordered
Norwegian also announced on Thursday it had signed an agreement for four more Boeing 787 Dreamliners. The company is currently running three 787-8 Dreamliners, and has five more on order. Two larger 787-9 Dreamliners are due for delivery in the first quarter of 2016. The new contract is for four more 787-9 model planes, which would take the company’s long-haul fleet to 14 planes by 2018.