New Norwegian CEO Doesn’t Yet Have Answers to Low-Cost Long-Haul Profitability Problem

Norwegian Air is keeping plans for its transformation close to its chest as the company embarks on a pivotal year.

New CEO Jacob Schram, who has only been in the job since January 1, outlined his vision for the company in an update that was big on ideas but light on detail.

He even went as far as to say he doesn’t yet have a strategy for how to make the much-vaunted low-cost, long-haul strategy profitable.

“I don’t have the answer on what turns long-haul profitable. I just see that what Norwegian has done is interesting. Trying to get low-cost succeeding on long-haul nobody [has] kind of proven that business model yet. But I see a lot of opportunities that we can do on short term, but then we also need to think long term what kind of strategy will bring this to profitability, as you say, and fuel the company,” Schram, who has a background in the retail industry, told analysts at an earnings presentation on Thursday.

“That is too early to say anything about, but I want to come back to that when we have more clear answers on it. But I definitely don’t want to just throw it out. I really think we have potential that we should try to go after, and then I have to come back later to say if it’s viable or not.”

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In the absence of any big strategic update, Schram concentrated on outlining the tweaks and cost-cutting measures that Norwegian hopes will return it to profitability.

Norwegian’s turnaround plan, entitled NEXT, is concentrated on six areas of the business including “fleet” and “people” and has a cost-cutting target of roughly $162 million (1.5 billion Norwegian crowns) in 2020 alone.

The company has already announced a number of base and route closures as it looks to rationalize its network and focus on more profitable services.

All these adjustments are designed to help push the airline into the red in 2020 after it made a $182 million (1.7 billion Norwegian crowns) pretax loss in 2019 — although this in itself was a 32 percent improvement on 2018.

While the target might sound good in theory, it hinges on a couple of things. One is the return of the grounded Boeing 737 Max by September, and another is fuel costs remaining at their current, relatively modest level. Both of which are uncertain.

Norwegian, like other airlines, is suffering from the absence of the aircraft, which is currently grounded following two fatal crashes. The airline also had to deal with engine issues in its fleet of 787 Dreamliners.

Lack of Details

Beyond statements such as “Establishing Norwegian as a great global enterprise within future mobility” there were few specifics in the airline’s fourth-quarter/full-year update. Daniel Roeska, senior research analyst at broker Bernstein, called it: “half-baked, uninspiring, and merely more of the same — just less of it.”

The airline had previously hinted more details of its turnaround strategy were to come, but it looks like we’ll have to wait until later on in the year for a more in-depth plan.

In the company presentation, Schram explained why he was so keen to take the job and how he had been spending his first couple of months as CEO.

“What really brought me into this company was I think it is a fantastic story. Seeing it from the outside being a consumer, for me it’s a Norwegian fairy tale,” Schram said.

He also praised the brand, which he said gave it more freedom than other airlines that are “boxed in.”

Full-Year Results

Despite another torrid year, Norwegian notched a slight improvement in its annual results.

At an operating level it swung to a profit of $92 million (856 million Norwegian crowns) in the 12 months to the end of December 2019, from a loss of $416 million (3.9 billion Norwegian crowns) in the prior year. Revenue rose 8 percent to $4.7 billion (43.5 billion Norwegian crowns).

“(The year) 2019 marked a new flight path for Norwegian as the company changed its strategy to move from growth to profitability,” Geir Karlsen, chief financial officer, said in a statement accompanying the results announcement.

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