Norwegian Reports Record Third Quarter Profits

Filed Under: Norwegian

Norwegian has been struggling financially for quite a while. For years their focus was solely on market share rather than profitability, and that’s a business model that no longer works, especially with the number of European airlines that we’ve seen collapse.

So the airline has been restructuring, and they’ve just reported some pretty promising results.

Norwegian’s Impressive Third Quarter Profits

Norwegian’s third quarter results are the best in the company’s history, as they saw improved profitability, higher unit revenue, lower unit cost, and reduced growth. Notably:

  • Profit before tax improved to NOK 2.2 billion (~242 million USD), which is a 38% increase over the same period last year
  • Unit revenue and revenue per passenger kilometer both increased by 3%
  • Total revenue increased to NOK 14.4 billion (~1.6 billion USD), which is an 8% increase over the same period last year
  • Total passengers carried was 10.5 million, a reduction of 3% compared to the same period last year
  • Average load factor was 91.2%, which is up 0.7%

More revenue per passenger mile, better load factors, more revenue overall, and record profits? That’s pretty good.

Norwegian Secures New Plane Funding

There’s more good news for Norwegian. Norwegian has quite a few new planes on order, though there are questions about how they’ll finance them.

It has been announced that China’s CCB Leasing will come in as a joint owner of the 27 Airbus A320neos that Norwegian has on order, expected to be delivered between 2020 and 2023. CCB will own 70% of the new venture.

This solves a huge upcoming issue that Norwegian would have otherwise had, as they didn’t otherwise have a way of funding these planes.

Is Norwegian Now In The Clear?

These results are impressive, and no doubt show a lot of discipline from the company. They’ve improved by just about all metrics, and that’s commendable.

That being said, I think it’s important to point out that a European leisure airline, especially one focused on transatlantic flights, more or less lives for the third quarter. July, August, and September are by far their best months, and then the rest of the year is a struggle (especially the fourth and first quarter).

So while these are all positive indicators, I don’t think this necessarily means that Norwegian is in the clear.

For some context, Norwegian lost about NOK 1.5 billion (~172 million USD) in the first quarter of this year.

Norwegian is doing all the right things right now to return to profitability, though we’ll still have to see just how much merit there is to the business model. The airline has been trying to better diversify their flying seasonally, with flights to South America, for example.

Bottom Line

Norwegian is a much loved low cost carrier, and I hope they stick around. Their third quarter results are impressive across the board, as everything is moving in the right direction.

However, for a largely transatlantic leisure airline, third quarter performance is hardly indicative of performance throughout the rest of the year.

Their new joint venture with a Chinese company to finance their A320neos is good news. At the same time, this also raises questions. As the airline tries to return to profitability (or reduce losses), they also have a huge number of bonds that will be due, and they’re also reducing their upside by working so hard to secure financing through all kinds of companies.

That helps in the short term, but also limits their upside in the long term. At some point I wonder if they’re just trying to once again position the airline as an attractive acquisition target, or if they actually see a long term path to profitability where they’re able to pay all their bills.

Do you think Norwegian can cost cut and shrink their way into year-round profitability?

Comments
  1. I hope they keep it up. British airways sucks and American is even worse. Complete dumpster fires.

  2. The main issue ad called out is that they are highly reliant on seasonal flights. The aircraft not being used outside of that season just hangs around at a cost anyway but is not bringing in any revenue. They are one of the only LCC’s left out there that operates to multiple countries outside of it’s home continent so it would be great if they didn’t go under. Not to mention I would like to fly them next year and try out the product on a long haul flight!

  3. Errrm, largely transatlantic leisure airline? I don’t think that is accurate given their operations across Europe.

  4. Good for them. They’ve been great for the industry and most of their problems have been the fault of Boeing, with both shoddy 787s and the 737 max issue.

  5. They would have lost money if the 737MAXs were not grounded. The grounding is a blessing in disguise that helped to cut excess capacity and curb their rapid expansion.

  6. While they’ve returned a profit from a the recent changes, they should be in a holding pattern with any Cap-Ex or major purchase/lease agreements. This would allow them to verify the sustainability of their current business model. With 27 new planes on order it seems they’re returning to their former “Nouveau Riche” ways.

    I can hardly wait for B6 to get those LGW slots from Norwegian!

  7. Does anyone know why suddenly they are buying A320neos? It’s a big departure from their 787/737 strategy up to now. I’ve also read they are interested in the A321XLR though it is more obvious where that would fit than the A320 unless they are beginning to hedge their bets on the 7M8 – and who would blame them.

  8. @Phil Duncan

    On top of everything else they were trying to start a leasing arm, hence the A320NEO orders. Plus it probably allowed them to put pressure on Boeing when it came to negotiations.

    Then the A320LR came along after the NEO orders was placed and Norwegian crunched the numbers and probably went “Hey this would be a great plane for long haul”. Hence 30 of the Neo orders was converted to A320LR and instead of being leased out will join their own fleet.

  9. Embracing Chinese money in this manner to stay afloat will likely end in tears. Just sayin’…………..

  10. Whilst a better quarter, they have huge debt and financing challenges.
    They will need to shrink further and there could well be regulatory hurdles ahead if other forms of quasi Chinese ownership gathers pace
    Jury very much out on this option

  11. Hello mr. American!

    Sorry to get you out of your bubble, but Norwegian is actually highly active on the Norwegian business market, catering quite some direct routes that SAS refuses to offer and is otherwise in direct competition with SAS, most notably on a lot of domestic Scandinavian and intra-Scandinavian flights. A lot of companies in Norway even have a travel agreement (via their travel agent) with Norwegian as first choice of airline, a so-called ‘rammeavtale’.

    So, no, sorry, despite being a LCC, they actually serve a lot of business. And that’s the reason why they need to keep in business: SAS is lazy, not interested in Norway and will instantly more than double their already high ticket prices if Norwegian goes under.

  12. They’ve done well to hold on for so long but it does seem like the end is near for Norwegian. It’s a bit like Brexit. Nearly at the end before it’s then pushed down the road. (Although I would rather Brexit never happened)

    I really don’t like Norwegian and I can’t wait to see them go belly up.

  13. I’ve Norwegian three times and I look forward to my next trip.

    I Definitely root for their continued success.
    Their livery is unique, noble and honors remarkably talented persons, whose lives matter and were impactful.
    What airline so well depicts the great lives around us?

    MIA and FLL are my home airports, ironically both served by NAX. We will see how the split City strategy works.
    They’re doing the same experiment in San Francisco.
    As for the Airbus Birds my read on it is they got a hot airplane, and what is a seller’s market with all the 737 nonsense.

    And to a previous writer’s comments
    Is there an airline that has been so roundly impacted by Boeing? The 787 and the 737? Their Long Haul operation was only made possible by the Dreamliner.

    They purchased early and they suffered dearly for it.

    Long time Boeing fan here, but I’m all in on the A320 family

    The Wider cabin is immediately noticeable

  14. – Norwegian operates Boeing and they have more Boeing’s on the orderbook that they have to finance through their own leasing company
    – The 100 Airbus 320 neo planes they ordered for a good price they sell now in corporations with Chinese bank.
    – The Scandinavian short haul business is their main operations and there where they make a profit
    – If things go sour they can sell their long haul business and keep the profitable Scandinavian short haul business, that is very popular for business travelers and leisure travelers
    – And a big problem has been and is still is all the 787 problems from the start and now the grounded Max

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