Transport Airlines

Low-cost carrier Norwegian’s expansion efforts drag down shares

Jun 08, 2013 5:45 am

Skift Take

By competing against both SAS and fellow low-cost carriers, Norwegian Air puts itself in the awkward position of fighting two very different battles.

— Jason Clampet

Report: Social Media Customer Service in the Travel Industry

Norwegian Air Shuttle AS, western Europe’s fourth-largest low-cost airline, dropped to the lowest level in more than a month in Oslo as the carrier’s aggressive expansion plans puts pressure on earnings.

Shares in the Fornebu, Norway-based company declined as much as 5 percent to 273.10 kroner, the lowest intraday level since April 30, and traded down 4.7 percent as of 10:40 a.m. That stock fell the most among the Oslo stock exchange’s OBX index of 25 most-traded stocks today.

“We have underestimated the yield impact” of the company’s expansion, ABG Sundal Collier wrote in a note to clients dated yesterday. “It’s clear that the company puts load factor ahead of yield,” the broker said, referring to the average fares paid by customers. This is “likely to put downward pressure on ticket prices over the coming months.”

Norwegian, which last year ordered 222 Boeing Co. and Airbus SAS airliners valued at 127 billion kroner ($22.3 billion), is flying new routes and opening bases outside the Nordic region as it steps up competition with state-backed SAS Group AB. The Norwegian company, which was founded in 1993, switched to a discount model in 2001, emulating Ryanair Holdings Plc and EasyJet Plc.

ABG cut its second-quarter estimate for the company’s earnings before interest, tax, depreciation and amortization by 8 percent to 379 million kroner. That compares with the 425.1 million kroner average of eight analyst estimates compiled by Bloomberg.

“We believe the positive earnings momentum will fade and that estimates will start to come down,” ABG said. The broker downgraded its recommendation on Norwegian to hold from buy and cut its target price to 275 kroner from 310 kroner.

Norwegian is western Europe’s fourth-largest low-cost airline, after Easyjet, Ryanair and Air Berlin Plc, according to data compiled by Bloomberg.

With assistance from Andrea Rothman in Toulouse. Editors: Tim Farrand, Thomas Mulier. To contact the reporter on this story: Alastair Reed in Oslo at areed12@bloomberg.net. To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net.

Tags: , ,

Next Up

More on Skift

Delta Just Raised the Stakes in the In-Flight Entertainment Arms Race
Business Travel and Sharing Collide as Airbnb and Uber Ink Deals with Concur
Voyat Raises $1.8 Million in Funding to Turn Guest Loyalty Into Revenue
Spending On Leisure Travel Is Best Use Of Points Earned During Business Travel