Issue No. 728
Norwegian's New Way
For a while, it looked like Norwegian wouldn’t make it. Now, following release of its second-quarter financial results, those fears are easing if not extinguished.
Last year, Norwegian suffered a $356m operating loss, which alone makes clear just how precarious things had become. In January, not for the first time, the airline had to raise additional equity capital, this time from a local billionaire. That replenished its cash reserves temporarily. More importantly, it dramatically altered its business plan, slamming on the brakes with respect to capacity growth. Just how dramatically? In last year’s second quarter, Norwegian grew ASK capacity 48%. In this year’s second quarter, it grew capacity 6%. Measured by flight departures and seat counts, Norwegian is now a shrinking airline.
The sudden shift in emphasis from growth to profits is already beginning to pay dividends. The carrier earned a 6% operating margin last quarter, up sharply from the negative 3% figure it reported in the same quarter a year earlier. Two years earlier, Norwegian’s Q2 operating margin was also negative, though the year before that it was positive 8%. That helps put things in perspective—Norwegian’s latest performance was a big step in the right direction but hardly good enough to assure its longterm viability. During that year it earned an 8% Q2 operating margin, by the way (2016), its full year margin was a mere 5%. It will need to do better than that.
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