Business & Investment

Throttling Back: Norwegian Changes Strategy

Norwegian Air Shuttle Dreamliners at Gatwick Airport: Long-Haul expansion has been at a cost

Norwegian Boeing 787 Dreamliners at Gatwick Airport

This is a radical about-turn, given that the airline was still expanding last year, despite the increasing pressure on the balance sheet.  Last year Norwegian began operating a London-Buenos Aries route and connecting flights within Argentina.  At the time of writing, the lowest two-week return from London-Buenos Aries, leaving from March 1, is £482.50, compared with £1170 on British Airways, the main difference in price being the outward-bound flight.

However, Norwegian lacks the lucrative business and first-class passengers that make up the profits on other transatlantic carriers, although reviews of its 787 premium economy service, with 46-inch leg-room, compare favorably with other airlines’.

It is hard to see how Norwegian can make money at these prices, even allowing for the fuel-efficiency of the Boeing 787s it uses to Buenos Aries and on many of its transatlantic flights.

Meanwhile, in Europe, competitive pressures are intense for low-cost airlines:  Ryanair recently issued a profit warning while Hungarian airline Wizz Air’s profits have dropped by nearly 90%.

For existing investors, the hope is that another airline, perhaps Lufthansa, will launch a takeover bid. In the absence of a takeover, the rights issue and scaling back are the only sensible option. Whether it will be enough is not yet clear.

Ryanair’s Michael O’Leary has made no secret of his view that Norwegian will go bust in the near future, as my colleague Michael Goldstein reports, and he’s not alone in thinking that. The worrying question is why Norwegian took so long to address its cash-flow problems.

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