COPENHAGEN — Norwegian Air Shuttle on Tuesday became the latest budget carrier to cut its earnings outlook amid tough competition and after British Airways’ parent company, IAG, ruled out a bid for the loss-making company.
Norwegian’s CEO, Bjoern Kjos, said the airline “has been through a period with significant growth” that left it with hefty losses and high debts. He said in a statement that the company needed more capital and was selling shares worth 3 billion kroner ($350 million).
The airline’s problems echo those of rivals, with Ryanair – Europe’s biggest airline by passengers – issuing recently its second profit warning in four months as tough competition pushed down fares over the winter. Other budget carriers, like Iceland’s Wow, have needed financial rescues or takeovers.
According to preliminary figures, Norwegian Air is expected to report next month that its revenues last year were 40.3 billion kroner ($4.7 billion), leading to an operating loss of approximately 3.8 billion ($ 446 million) kroner.
“Now we will concentrate on optimizing our international business and reducing costs,” Kjos said.
To cut costs, the airline will sell aircraft, possibly establish a new holding company for parts of the aircraft fleet, and postpone aircraft deliveries. It aims to reduce costs by at least 2 billion kroner in 2019.
Kjos also said the cost reduction plans included compensation from British plane engine manufacturer Rolls Royce related to engine problems on the company’s Dreamliner operation. Last year, the British company discovered problems with its Trent 1000 engines, which power Boeing’s 787 Dreamliner aircraft.
Shares in Norwegian Air dropped some 25 per cent in early trading in Oslo on Tuesday but later recovered somewhat to trade down 14 per cent.
Norwegian claims to be the world’s 5th largest low-cost airline operating 500 routes to 150 destinations across the world. In 2018, Norwegian had 11,000 employees, carried more than 37 million passengers last year and has a fleet of more than 150 aircraft with an average age of nearly 4 years.