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Wednesday, May 22, 2024

Norwegian Air rethinks strategy

Lower oil prices and higher hopes for cash compensation from aircraft maker Boeing may mean less financial turbulence this year at Oslo-based Norwegian Air. Its new chief executive, however, still needs to slash debt and re-think strategy for a new era that isn’t likely to include more new jets or global expansion.

Jacob Schram, the new CEO at Norwegian Air, is keeping all options open as he rethinks strategy and culture at an airline that’s been in near-constant turbulence. PHOTO: Norwegian Air

“I think we’ve ordered all the planes we should have for a long time to come,” Jacob Schram told newspaper Dagens Næringsliv (DN) shortly after taking over as Norwegian’s new CEO last month.

Schram opted to spend much of his first few weeks on the job traveling around Europe and visiting Norwegian Air hubs and employees in Dublin, Barcelona and at Gatwick Airport outside London. Then he headed up to Bodø and Tromsø in Northern Norway, sitting in the cockpit with pilots to hear their views along the way, before getting hit by what he called a “tsunami” of everyday challenges in Oslo.

“I wanted to meet people, and it’s important to do that right away,” said Schram, who joined Norwegian Air after most recently running the former Statoil Fuel & Retail that was taken over by Couche-Tard and became Circle K. He wrote a book entitled “The Essence of Business” before officially taking the helm at Norwegian on January 1st.

Now he sees a need to revamp the airline’s strategy and culture and, he told DN, understand what Norwegian Air has become in the past several years after it expanded enormously outside Norway and Europe. He’s left with what he calls fryktelig mye gjeld (“frighteningly large amounts of debt”) that resulted from the intercontinenental expansion into long-haul routes. It’s been a bumpy trip, with many bankers and analysts suggesting it’s time to clip Norwegian’s wings.

Long-haul routes up in the air
Schram won’t rule anything out, and he won’t even commit to the survival of the long-haul routes. Norwegian is already pulling out of long-distance routes from Stockholm and Copenhagen after it didn’t manage to meet goals of filling nine out of 10 seats on its Boeing 787 Dreamliners. Many of them, meanwhile, remain grounded with motor problems.

Norwegian’s large fleet of Boeing 737MAX jets also remains grounded along with others all over the world, following a string of fatal accidents involving the aircraft type. Schram will be meeting with meeting with Boeing officials soon to negotiate economic compensation after all the trouble with their aircraft.

Asked whether he expected a solution at the meeting, Schram responded that “would be fantastic” but thinks “we need a few more months” to work something out. “I don’t know how long it will take,” he said.

Norwegian’s Boeing 787 Dreamliners enabled intercontinental  expansion but also have caused lots of trouble because of technical problems. PHOTO: Norwegian Air

When he unveiled Norwegian’s fourth-quarter and full-year results (external link to Norwegian’s earnings report) for the first time last week, he didn’t spend much time talking about the red numbers that included a pre-tax loss of nearly NOK 1.7 billion. Revenues, on the other hand, rose 8 percent and there was an operating profit of NOK 856 million (USD 95 million), but Schram was most keen on addressing the strategy forward.

DN reported that the airline is doing what it can to keep cutting costs and bring in money: selling old aircraft, dropping its least-profitable routes and, of course, seeking compensation from Boeing. Lower oil prices have already lowered costs so far this year, saving the airline a considerable amount on what it must spend for jet fuel. The lower prices help so much that one analyst, Daniel Röska of brokerage firm Bernstein in London, told DN that he doesn’t think Norwegian will need to seek even more capital from its shareholders this year. More cash from Boeing would also make Schram “very happy,” he said. “That’s part of the negotiations,” he added, along with rebates on new aircraft or maintenance.

Mending customer relations
Schram and Norwegian also, meanwhile, need to handle often angry and frustrated passengers. Irritation over flight delays and cancellations, many of which were tied to the troubled Boeing Dreamliners, is now giving way to quarrels over how much carry-on luggage passengers are allowed to bring on board. Those paying the lowest fares can bring the least, resulting in quarrels at the gate.

“It’s been a problem that passengers bring too much on board,” Schram told DN. “It takes longer to get everyone in their seats and flights get delayed. It costs a lot of money. We had to do something,” he added in reference to new baggage rules that aren’t popular.

“We are a low-fare carrier,” Schram said, acknowledging the airline’s roots from when it first challenged rival SAS with lower fares on routes within Norway and Scandinavia, then Europe. That part of Norwegian’s identity is likely to remain, but Schram won’t rule out route overhauls or possible combinations with other carriers. Asked whether Norwegian will ultimately merge or be acquired by another airline, Scharm told DN he didn’t know.

“It’s always part of a business strategy to evaluate partnerships, whether it’s in an alliance, if a partner buys in or if we become part of a bigger system. Or we may buy up others. I’m keeping all possibilities open.” Berglund



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