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
0

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.


Oil prices rise on Libyan export interruption, but markets remain weak

Updated 11 December 2018
0

Oil prices rise on Libyan export interruption, but markets remain weak

  • The rise came after crude prices dropped by 3 percent the session before amid ongoing weakness in global stock markets and concerns that slowing oil demand-growth could erode supply cuts
  • Crude futures have lost around a third of their value since early October amid the financial market slump and an emerging oil supply overhang

SINGAPORE: Oil prices edged up on Tuesday after Libya’s National Oil Company declared force majeure on exports from the El Sharara oilfield, which was seized at the weekend by a local militia group.
Despite that, overall sentiment on oil prices remained weak amid worries over global stock markets and doubts that planned supply cuts led by producer club OPEC will be enough to rein in oversupply.
International Brent crude oil futures were at $60.19 per barrel at 0336 GMT, up 19 cents, or 0.3 percent, from their last close.
US West Texas Intermediate (WTI) crude futures were at $51.16 per barrel, up 16 cents, or 0.3 percent.
Libya’s National Oil Company (NOC) late on Monday declared force majeure on exports from the El Sharara oilfield, the country’s biggest, which was seized at the weekend by a militia group.
NOC said the shutdown would result in a production loss of 315,000 barrels per day (bpd), and an additional loss of 73,000 bpd at the El Feel oilfield.
The rise came after crude prices dropped by 3 percent the session before amid ongoing weakness in global stock markets and concerns that slowing oil demand-growth could erode supply cuts announced last week by the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia.
Crude futures have lost around a third of their value since early October amid the financial market slump and an emerging oil supply overhang.
In a show of no confidence, money managers cut their bullish wagers on crude to the lowest in more than two years in the week ending Dec. 4, the US Commodity Futures Trading Commission (CFTC) said on Monday.
The financial speculator group cut its combined futures and options position in New York and London by 25,619 contracts to 144,775 during the period. That is the lowest level since Sept. 20, 2016.
In physical markets, Kuwait and Iran this week both reduced their January crude oil supply prices to Asia
“There remains a lot of uncertainty if the production cut is thick enough to make a significant dent in global supply,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.
“The general risk-off tone in global markets and the stronger dollar ... are contributing to the selling pressure.”
The OPEC-led group of oil producers last Friday announced a supply cut of 1.2 million barrels per day (bpd) in crude oil supply from January, measured against October 2018 output levels.