Norwegian Air gains as carrier reaps rewards of cost focus

Bloomberg

Shares in Norwegian Air Shuttle ASA rose after the budget airline that had once targeted growth at any cost showed it’s now improving profitability.
The carrier, which is based in a suburb of Oslo, gained as much as 6.5% on Tuesday. Norwegian, which has grappled with high debts for years, said its unit revenue rose 21% in December, marking the ninth straight monthly increase. For 2019 as a whole, unit revenue was up 7%. Yield, which measures the average fare per kilometre, rose 14% last month.
Norwegian is slowly emerging from a debt crisis brought on by years of aggressive growth. The company turned around its strategy last year, vowing to reduce capacity and focus on profitability.
The carrier also set in motion a vast array of measures to strengthen liquidity, including raising capital twice in 2019, selling planes and amending loan terms. And it brought in a new chief executive officer, Jacob Schram, a retail specialist who took his new position on January 1.
“Norwegian’s dedicated employees have made an impressive effort delivering on the strategy of moving from growth to profitability,” Schram said on Tuesday. “The company has worked on reducing the capacity in line with demand and worked continuously to set a route structure adapted to the large seasonal fluctuations across the industry.”
“Shrinking a company to financial health is rarely straightforward, and we believe Norwegian Air’s plan to reduce capacity by 10% must be accompanied by steep cost reductions in order to return the company to profitability. Reducing capacity will almost certainly dent the top line, and any turnaround will be years in the making, in our view,” said Rob Barnett, Senior Analyst at Bloomberg Intelligence.
The total number of passengers fell by 3% in 2019 to 36.3 million, while capacity rose 1% during the year, still slightly higher than the target of zero growth, it said. In December, the number of passengers shrank 19% to 2.3 million.