From the sounds of it, Norwegian's next earnings update won't be pretty but it will be hoping that it has done enough cost-cutting to put it on a sounder footing in 2019.
Despite rumors of its impending demise circulating for much of 2018, Norwegian Air managed to carry a record number of passengers over the course of the year.
The airline flew 37.3 million passengers, a 13 percent increase on the prior year. Its load factor, however, fell 1.7 percentage points to 85.8 percent.
Popularity has never been much of a problem for the airline, rather its aggressive expansion has saddled it with plenty of debt, causing concern for passengers and investors alike.
Just before Christmas, the airline announced plans to sell aircraft and cut costs in order to see it through the quieter European winter months. Falling fuel prices have also helped matters.
Even so, Norwegian seems to be taking fewer chances this year and improved its hedging position giving it more certainty over costs in the coming months.
Norwegian has increased the amount of fuel it has hedged in the first quarter of its 2019 financial year by 64 percent compared with the previous year. And for the rest of 2019 it is up 59 percent.
“During the last period, Norwegian has hedged fuel for 2019. The company has an unrealized loss on this hedging today, which has been included in the 2018-results. Norwegian is therefore well positioned, when compared to other airlines, in regards to fuel hedging,” the company said on Monday.
Norwegian won’t reveal how it performed in the fourth quarter until it published earnings in February. CEO Bjorn Kjos said a number of factors had conspired to make it a difficult end to 2018.
“Continued tough competition, high oil prices and operational challenges in 2018 combined with the issues with Rolls Royce engines, which have particularly affected our long-haul operations, have had an impact on our financial results in the latter half of 2018,” Kjos said.
“We have launched a series of cost-reduction measures to boost our financials in 2019 which will have an immediate and continued positive influence throughout the year.”
Norwegian was one of the main airlines caught up in the chaos at Gatwick Airport just before Christmas, when a suspected done sighting brought operations to a standstill.
Norwegian’s precarious financial position didn’t stop other airlines showing an interest. IAG took a 4.6 percent stake last April and still holds the shares. CEO Willie Walsh has said the group will likely retain an interest until around August 2019 at the latest, which it would then sell if it could not agree a deal.
According to the London-based Telegraph, analysts at Citi believe IAG “will likely complete on M&A that will draw investor discomfort” in 2019.
Norwegian is obviously one potential target but Citi analysts also suggested IAG could look at EasyJet. Buying the low-cost carrier would help IAG expand at London Gatwick airport.
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Photo credit: A Norwegian 787. The carrier is cutting costs to get it through the leaner European winter months. Skift