Norwegian Air struggles to fill planes as fleet grows

Bjorn Kjos, CEO of Norwegian Group, presents Norwegian Air's first low-cost transatlantic flight service from Argentina at Ezeiza airport in Buenos Aires, Argentina. (Reuters)
Updated 06 December 2018
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Norwegian Air struggles to fill planes as fleet grows

  • The company, which has been courted by British Airways owner IAG, has ramped up its transatlantic business but has also said that growth will slow as it prioritizes profitability over expansion
  • While the recent fall in crude oil prices will eventually bring down fuel costs, the company is expected to first book substantial losses from hedging positions it entered into at higher prices

OSLO: Budget carrier Norwegian Air struggled to fill its aircraft in November as capacity growth far outpaced demand, while a loss on fuel hedge contracts added to the airline’s woes, sending its shares down 9 percent.

The company, which has been courted by British Airways owner IAG, has ramped up its transatlantic business but has also said that growth will slow as it prioritizes profitability over expansion.

“Several of our summer routes have been extended into November, which has affected the load factor,” Chief Executive Bjoern Kjos said in a statement.

“A full transition into the winter program will take place early next year, once the busy holiday season is behind us.”

While the airline’s capacity grew 34 percent year-on-year in November, revenue-generating passenger kilometers increased by 26 percent, its monthly traffic report showed, lagging a forecast of 33.7 percent in a poll of analysts.

 

The load factor, a measure of how many seats are sold on each flight, fell to 78.8 percent for the month, the lowest since May 2014. That fell short of a forecast of 82.7 percent and was down from 83.7 percent a year ago.

“Overall, we find the traffic figures to be soft,” Danske Bank analyst Martin Stenshall, who has a ‘sell’ recommendation on the stock, wrote in a note to clients.

While the recent fall in crude oil prices will eventually bring down fuel costs, the company is expected to first book substantial losses from hedging positions it entered into at higher prices, Pareto Securities said.

For the first two months of the fourth quarter, Norwegian estimated a loss from fuel hedging amounting to 1.46 billion Norwegian crowns ($171 million), although the full quarterly loss will only be calculated at the end of December.

On the positive side, the company’s November yield, a key measure of revenue per passenger carried and kilometers flown, was unchanged year on year at 0.33 Norwegian crowns. Analysts had expected it to ease to 0.32 crowns.

“Keep in mind that November is a transition month from summer to winter program and (that) demand will restore,” brokerage Pareto said, reiterating a ‘buy’ recommendation.

Norwegian’s shares were down 8.2 percent lower at 195.7 Norwegian crowns at 0932 GMT, against a 2.1 percent drop for the Oslo benchmark index.

FASTFACTS

For the first two months of the fourth quarter, Norwegian estimated a loss from fuel hedging amounting to $171 million.


‘Don’t be too optimistic’: Huawei employees fret at US ban

Updated 37 min 48 sec ago
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‘Don’t be too optimistic’: Huawei employees fret at US ban

  • This week Google, whose Android operating system powers most of the world’s smartphones, said it would cut ties with Huawei
  • Another critical partner, ARM Holdings, said it was complying with the US restrictions

BEIJING: While Huawei’s founder brushes aside a US ban against his company, the telecom giant’s employees have been less sanguine, confessing fears for their future in online chat rooms.
Huawei CEO Ren Zhengfei declared this week the company has a hoard of microchips and the ability to make its own in order to withstand a potentially crippling US ban on using American components and software in its products.
“If you really want to know what’s going on with us, you can visit our Xinsheng Community,” Ren told Chinese media, alluding to Huawei’s internal forum partially open to viewers outside the company.
But a peek into Xinsheng shows his words have not reassured everyone within the Shenzhen-based company.
“During difficult times, what should we do as individuals?” posted an employee under the handle Xiao Feng on Thursday.
“At home reduce your debts and maintain enough cash,” Xiao Feng wrote.
“Make a plan for your financial assets and don’t be overly optimistic about your remuneration and income.”
This week Google, whose Android operating system powers most of the world’s smartphones, said it would cut ties with Huawei as a result of the ban.
Another critical partner, ARM Holdings — a British designer of semiconductors owned by Japanese group Softbank — said it was complying with the US restrictions.
“On its own Huawei can’t resolve this problem, we need to seek support from government policy,” one unnamed employee wrote last week, in a post that received dozens of likes and replies.
The employee outlined a plan for China to block off its smartphone market from all American components much in the same way Beijing fostered its Internet tech giants behind a “Great Firewall” that keeps out Google, Facebook, Twitter and dozens of other foreign companies.
“Our domestic market is big enough, we can use this opportunity to build up domestic suppliers and our ecosystem,” the employee wrote.
For his part, Ren advocated the opposite response in his interview with Chinese media.
“We should not promote populism; populism is detrimental to the country,” he said, noting that his family uses Apple products.
Other employees strategized ways to circumvent the US ban.
One advocated turning to Alibaba’s e-commerce platform Taobao to buy the needed components. Another dangled the prospect of setting up dozens of new companies to make purchases from US suppliers.
Many denounced the US and proposed China ban McDonald’s, Coca-Cola and all-American movies and TV shows.
“First time posting under my real name: we must do our jobs well, advance and retreat with our company,” said an employee named Xu Jin.
The tech ban caps months of US effort to isolate Huawei, whose equipment Washington fears could be used as a Trojan horse by Chinese intelligence services.
Still, last week Trump indicated he was willing to include a fix for Huawei in a trade deal that the two economic giants have struggled to seal and US officials issued a 90-day reprieve on the ban.
In Xinsheng, an employee with the handle Youxin lamented: “I want to advance and retreat alongside the company, but then my boss told me to pack up and go,” followed by two sad-face emoticons.