Expansion pushes Norwegian Air to larger than expected loss

Carrier aims to crack transatlantic market with low-cost model

OSLO: Budget carrier Norwegian Air suffered a worse than expected loss in the last three months of 2017 and ate into its cash reserves as the cost of expansion weighed.

Unlike other budget airlines that focus on shorter routes, Norwegian is trying to crack the transatlantic market by undercutting established rivals but faces pressures to control costs and shore up its balance sheet to weather competition.

The company swung to a net loss of 919 million Norwegian crowns ($118 million) from a year-ago profit of 197 million crowns, while analysts in a Reuters poll anticipated a quarterly loss of 598 million.

“We are not at all satisfied with the 2017 results,” CEO Bjoern Kjos said, while adding that major investments made in 2017 had put the company on course for growth.

“We truly hope 2017 will be the last year with loss. We are very optimistic for 2018. Bookings are looking good and cost is on track,” he told a news conference.

The full-year net loss came in at 299 million crowns, down from a profit of 1.14 billion in 2016. In three months, the firm’s cash liquidity reduced by 27 percent to 4.04 billion crowns.

A profit for the coming year would be better than most analysts have expected, with participants in the Reuters poll on average forecasting a net loss of 690 million crowns for 2018.

Norwegian Air maintained expectations for 40 percent capacity growth in 2018.

The airline has embarked on an ambitious expansion plan, buying more than 200 new fuel-efficient jets yet investors worry its drive to put, more passengers on more planes is pushing up costs quickly without producing higher returns.

Norwegian’s fate rests on the still unproven strategy of adapting the success of low-cost short-haul travel to long-haul routes, as well as making a parallel bet on leasing out jets to rival carriers pay off.

After launching its London-toBuenos Aires flight this week, Norwegian said on Tuesday it plans to introduce more routes to South America, as well as adding more destinations in the US and Asia in coming years.

While Norwegian expects to add 25 aircraft to its fleet in 2018, it has also initiated a process to sell older planes and thus reduce its capital expenditure commitments.

The company’s gross capex for 2018 is now seen at $1.9 billion, down from $2.1 billion in October. In 2019, the company plans gross capex of $2.6 billion, but the net numbers will be lower as older aircraft are sold, the company added.