Norwegian Ends 2018 With New Financing And Cost Reduction Plans

Norwegian Ends 2018 With New Financing And Cost Reduction Plans

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There has been a lot of speculation all year about how close Norwegian has come to ceasing operations, based on their low level of free cash and difficulty in finding any more, as they continue to grow rapidly and for a while faced increased oil prices.

This came to a head just before Christmas, when Norwegian newspaper Dagens Næringsliv quoted an analyst from Danske Bank saying Norwegian was ‘just days away from collapse’ because of their liquidity (i.e. cash available to pay their bills).

I went back and forth in my head numerous times about whether to write about this, and even discussed it with the boss.

I love Norwegian and do not want them to stop operations, and have learned my lesson with regards to FlyBe about how negative publicity about the financial position of an airline can also contribute to their difficulties, if it leads to passengers avoid booking with them.

Well I’m happy to report that Norwegian is finishing 2018 publicly assuring the market their financial position is strong, and their 2019 plans financially sound.

I know some of this news broke just before Christmas, but I did take a few days off for the holiday period and hope you did too. ; )

New financing for new aircraft

Norwegian has publicly announced they have sufficient financing for all aircraft deliveries for the first half of 2019 — I believe they are referring to their long haul 787 Dreamliners, as the ‘Norwegian Group’ has a number of different entities in different countries.

They achieved this by refinancing one Dreamliner they had already received, which gave them a ‘positive liquidity position’ of 275 million Norwegian Kroner, which is around 30 million USD.

This is still not a huge free cash position given the size of Norwegian long haul, and the rate at which it is growing.

Cost cutting measures

Norwegian has launched what they call an ‘extensive cost cutting initiative,’ as well as assuring the market that:

To meet the competitive environment in a period with seasonally lower demand in Europe, the company has made several changes to its route portfolio as well as adjusted its capacity.

Combined, these measures should improve the financial performance from the start of 2019.

Norwegian says these measures will save $230 million, though they have not given many specifics about exactly how these cost savings will be achieved — will they be reducing the passenger experience?

Norwegian long haul’s primary markets are between Europe and the USA, and there is less demand during the northern winter.

Some airlines will redeploy aircraft to other popular destinations during this slower period — British Airways and Virgin Atlantic do so to the Caribbean and Middle East, but Norwegian does not serve these markets with their 787s.

They may need a spare aircraft depending on how long their 737 MAX is stuck in Iran though

Bottom line

2018 has been a really rough year for European airlines with several airlines, such as Primera Air and Cobalt, collapsing.

Norwegian is my favourite low cost carrier in Europe, so I am happy to hear they ‘should’ be in a much better financial position in 2019 than they were this year.

I’ll continue to fly them next year and will be interested to see if their cost cutting initiatives have any negative impact on the passenger experience, given they are a low cost carrier, so there aren’t as many costs to cut as a full service carrier may have, for example.

What do you think will happen with Norwegian in 2019?

Conversations (10)
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  1. LB Guest

    I was offered a job from norwegian. my question is do you think it is safe to join them now?
    I should quit my job and still not sure about that.

  2. Noah Bowie Guest

    They are low cost so what costs are there to cut. I can only think that planes and people are on the chopping block. I doubt Norwegian will be able to cut costs to the degree they've said. When they try to lay off staff the unions will lose the plot and IAG will swoop in for a takeover.

  3. ATH Guest

    I was looking to book flights from NY to Krakow via Oslo for a week-long business trip in early March. I am apprehensive re. booking and have a few questions. 1) Has Norwegian completed the changes they are making to their routes? Will there be last-minute cancellations? 2) Have the repairs to the Dreamliner engines been completed? I've read that they were contracting out some of the flights to other (perhaps charter?) companies with old...

    I was looking to book flights from NY to Krakow via Oslo for a week-long business trip in early March. I am apprehensive re. booking and have a few questions. 1) Has Norwegian completed the changes they are making to their routes? Will there be last-minute cancellations? 2) Have the repairs to the Dreamliner engines been completed? I've read that they were contracting out some of the flights to other (perhaps charter?) companies with old aircrafts in poor condition. Please let me know if you have answers to the above. Thank you.

  4. Fred M Guest

    Reminds me of ‘Tell ‘em Continental’ dicing with Chapter 11 back in the early 80s. A friend was mates with a captain and the advice was ‘book the day before you fly and cross your fingers’.

    My one experience with Norwegian, to Oslo and back, was excellent - one leg in a brand new 737 Sky Interior - but it’s tough out there.

  5. BL Guest

    @Gabriel

    Yes. This happened to me recently and I can't explain it; I assume it must be Norwegian complying with some Argentinean legal requirement or what not. I don't think it's an IT thing, and you're not alone. In my case, I just coughed up the extra $10 or $15 per leg. It's not so bad.

  6. AEP Guest

    @Gabriel
    That's the way it is. I assume it is DY's way of simulating the difference between resident and non-resident prices that other Argentine airlines use.

  7. glenn t Diamond

    Hard to see where extra cost-cutting could occur, being pretty bare-bones already. Hope it survives however, as the product is acceptable provided one does not have great expectations.

  8. Jordan Guest

    $30 million NOTHING!! wow, feel bad for them. BA is sharpening the knife for sure :-(

  9. Gabriel Guest

    Somewhat off topic, but I was looking to fly Norwegian in their new operation within Argentina later in January. When I tried to buy the ticket using the Norwegian Argentina website (in Spanish), it told me that it wouldn't accept foreign credit card (foreign to Argentina) and told me to change the currency from Argentina Pesos to other currency (US Dollar). When I did that, the price went up by about US$10 to $15 depending...

    Somewhat off topic, but I was looking to fly Norwegian in their new operation within Argentina later in January. When I tried to buy the ticket using the Norwegian Argentina website (in Spanish), it told me that it wouldn't accept foreign credit card (foreign to Argentina) and told me to change the currency from Argentina Pesos to other currency (US Dollar). When I did that, the price went up by about US$10 to $15 depending on fare type (based on the current exchange rate). Has anyone experience this before?

  10. Ruy Guest

    A liquidity position of 30 million dollars is nothing in the airline world. Unless they have some magic tricks up their sleeves I don’t see how they can survive.

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LB Guest

I was offered a job from norwegian. my question is do you think it is safe to join them now? I should quit my job and still not sure about that.

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Noah Bowie Guest

They are low cost so what costs are there to cut. I can only think that planes and people are on the chopping block. I doubt Norwegian will be able to cut costs to the degree they've said. When they try to lay off staff the unions will lose the plot and IAG will swoop in for a takeover.

0
ATH Guest

I was looking to book flights from NY to Krakow via Oslo for a week-long business trip in early March. I am apprehensive re. booking and have a few questions. 1) Has Norwegian completed the changes they are making to their routes? Will there be last-minute cancellations? 2) Have the repairs to the Dreamliner engines been completed? I've read that they were contracting out some of the flights to other (perhaps charter?) companies with old aircrafts in poor condition. Please let me know if you have answers to the above. Thank you.

0
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