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Monday, July 22, 2024

Takeover could cut Norwegian’s routes

Concerns are rising in Norway that an acquisition of Norwegian Air by a foreign carrier could cut its routes within Norway. Better quarterly results than expected, meanwhile, have failed to satisfy the airline’s founder and boss Bjørn Kjos.

Norwegian Air founder and CEO Bjørn Kjos isn’t satisfied with his airline’s results, even though they favourably surprised investors and analysts. He also still seems keen on warding off a takeover. PHOTO: Norwegian Air

“We’re going the right way,” Kjos told news bureau NTB after releasing pre-tax profits of nearly NOK 370 million instead of an expected loss late last week. That compared to a loss of NOK 909 million in the same quarter last year, “but it isn’t good enough,” Kjos said, “if we look at it from a longer-term perspective.”

He still sees a need to cut costs, even after setting up new bases far from Norway and hiring pilots and cabin personnel at much lower salaries than what the airline needs to pay Norwegian staff. Newspaper Dagens Næringsliv (DN) reported last week on how a flight attendant based in Spain earns on average the equivalent of NOK 19,000 a month, compared to NOK 44,000 for a Norwegian employee.

‘More normal’ growth ahead
Norwegian cut costs by 9 percent in the second quarter despite higher fuel prices. Its period of major growth, through expansion of its intercontinental routes, is mostly over now, Kjos said, predicting “more normal growth ahead.” Despite Kjos’ lack of satisfaction over his airline’s progress, investors responded by sending the shares up more than 6 percent when the results were first released on Thursday.

The share price was still far below the lofty levels reached when news broke that first the parent of British Airways (IAG) was keen on launching talks for a possible takeover, and then that Lufthansa expressed interest. Kjos doesn’t want to sell his major stake, though, claiming it’s still “too early” to let go of the airline he’s nurtured since the early 2000s.

Analysts also caution that the strong second-quarter earnings were a result of several extraordinary factors including currency exchange gains, new supplier agreements and compensation for problems with motors on some of its aircraft. Hogne Tyssøy, who manages investments for the Holberg Funds and has followed Norwegian Air closely for more than 15 years, told DN that profits for the full year are likely contingent on another “considerable financial transaction” through the sale of many of the airline’s oldest aircraft. That would ease Norwegian’s debt situation. Another option would be to place the older aircraft in a separate company that could lease them out. Kjos said the airline does plan to sell several of the aircraft later this year.

Norwegians ‘should pray’ there’s no takeover
It’s Norwegian Air’s domestic routes that were catching attention in Norway last week, though. Some fear that if either IAG or Lufthansa were to succeed with a takeover bid, they’re likely to be far more interested in Norwegian’s routes outside Norway than within it. Some domestic routes could be shut down.

“Norwegians should include in their evening prayers that the airline remains Norwegian, and doesn’t land in British or German hands,” Tyssøy told DN. “We have had fantastic advantages from a good route system and many cheap airline tickets. I don’t think that would have the same priority for a foreign owner.” Berglund



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