UPDATED: Norwegian Air is having a rough summer, with flight cancellations and unhappy passengers and now an extraordinary dive in its stock value. The airline’s investors are unhappy, too, after parent company Norwegian Air Shuttle released second-quarter results on Thursday that were much weaker than analysts expected.
The new numbers sent Norwegian’s share value crashing, down 14.82 percent by the time trading closed on the Oslo Stock Exchange. Newspaper Dagens Næringsliv (DN) reported that analysts had expected operating profits of NOK 535 million, while Norwegian delivered NOK 59 million. The company’s pre-tax profit amounted to NOK 861 million, down from NOK 930 million in the same period last year, with the airline attributing the decline to higher fuel prices and an airline seat tax imposed in Norway last year.
Analysts pointed to other reasons and worries, with Øystein Bogfjellmo at SEB calling the results “only negative.” He thinks Norwegian’s debt is of more concern than the bottom line. “The problem here is that the adjusted debt level for the company is very high and will increase through the course of the year,” Bogfjellmo newspaper DN. “This, combined with narrower margins and a worse top line will of course increase credit risk, and result in the companyt getting a poorer credit rating.”
Ole Martin Westgaard, an analyst at DNB Markets, wrote in an update on Norwegian Air Thursday that “we view this as a negative report for Norwegian Air Shuttle, with considerably weaker results and weaker guiding.” While its profits are falling, its costs are rising.
Norwegian has been phasing in more new aircraft into its fleet and expects to have 42 long-haul Boeing 787 Dreamliners within the next few years. It’s also taking delivery of new Boeing 737 MAX jets. In the meantime it’s had to lease in aircraft and pay premium wages to crews to meet scheduling obligations, and has still had to cancel flights when it hasn’t had enough pilots to fly them. More passengers at Oslo’s main airport at Gardermoen were disappointed on Thursday when a flight to Harstad, for example, was cancelled at the last minute.
DN reported that Norwegian has spent NOK 1.2 billion since it launched its long-haul flights just on what it called “crisis solutions” when it has lacked pilots and operable aircraft. Norwegian, which is not part of any airline alliance and can’t rely on other carriers to help out in a pinch, has scheduled flights with little if any backup plan. If something goes wrong with a plane or there’s a crew shortage, passengers can get stranded. Not all the problems can be attributed to growing pains, the head of Norway’s consumer council Randi Flesland has contended. She claims Norwegian is gambling with its passengers’ goodwill.
Norwegian’s 70-year-old founder and chief executive Bjørn Kjos scoffed at that on Thursday and contends that most of Norwegian’s problems are temporary. He still can’t promise, though, that the flight cancellations will stop, ominously telling news bureau NTB that the airline may face more disruption in the event of a strike. It faces new negotiations with its pilots this fall.
Kjos said he was surprised by the dive in his airline’s stock value but told DN that “I can, to a certain degree, understand the investors. We perhaps haven’t been good enough in clarifying why costs have increased for awhile.”
He blamed the higher costs on delivery of fewer new jets than planned this summer and extraordinary so-called “wet leasing” of aircraft and crews from other European companies like Blue Panorama Airlines of Italy, Euroatlantic of Portugal and Getjet Airlines of Lithuania. In one case, plans to use a Boeing 787 Dreamliner to fly Norwegian passengers from Scandinavia to the Mediterranean this summer were foiled when the 787 “was run into by a vehicle on the ground,” Kjos told DN. “Such things can’t be planned for.” The accident resulted in Norwegian having to hire in a 23-year-old 747 from an airline called Wamos Air of Spain, which has since been making regular appearances at OSL Gardermoen this summer.
“From next year the problems we’ve had in the past few months will be solved,” Kjos told DN. The airline’s press release on its results (external link) tried to put a positive spin on the situation and Kjos was proud of higher load factors of 88 percent. Since his right-hand man and finance director Frode Foss abruptly quit last week, however, Norwegian’s share price has plunged nearly 25 percent. That’s wiped out around NOK 2 billion in share value.