Scandimonium: As most of Europe booms, Scandinavia’s Norwegian flies deeper into trouble

The alarm bells are ringing. The concerns are mounting. Is Norwegian, with its bold experiment in low-cost longhaul flying, falling apart?

The numbers aren’t good. In this year’s first half, Norwegian suffered a negative 12% operating margin at a time when most other European carriers are surfing a wave of expanding demand, falling costs and reenergized economies. A year earlier, Norwegian’s positive 2% operating margin was itself a concern, relative to what its LCC peers were earning. The same was true with its lackluster 5% figure for all of 2016, and its 4% figure in 2015. We’re not talking about Air Berlin or Alitalia. Norwegian, in fact, was profitable in all but one year this decade. But never were its profits anything but small, and never were its challenges greater than they are today. In fact, from that 5% operating profit margin for 2016, Norwegian’s earnings have deteriorated so dramatically that its margin for the most recent 12 months reported (through June), still including the decent summer of 2016, is already down to negative 2%. That margin contraction, if it continues, projects to a double-digit loss margin for all of 2017, which would indeed be Air Berlin-like at a time when only a few major airlines in the world are losing any money at all.

Norwegian Air Shuttle, as it was then known, began life as a low-cost carrier in 2002, just as a long oil boom was beginning to rain riches on oil exporting countries like Norway. The boom would last until 2014, giving Norwegian advantages other LCCs didn’t have. Though it too was paying uncomfortably high prices for fuel, its revenues were simultaneously turbocharged by an influx of oil money into Norway’s economy. This influx also strengthened Norway’s currency, which eased Norwegian’s fuel bill and bolstered outbound demand. As it happens, Norway’s geography and topography make it unusually dependent on air travel for its population size.

It didn’t hurt that Norway’s leading airline SAS had a high cost base. Or that many eastern European migrants were flying to Norway for jobs, prompting Norwegian to establish a base in Warsaw in 2006, a year after earning its first profit. In 2007, the airline purchased a rival named FlyNordic from Finnair, which gave it a base in neighboring Sweden. That same year, it ordered 42 B737-800s, launched a loyalty plan called Norwegian Rewards and even established an online banking subsidiary, whose credit cards offered Norwegian…

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