With fuel prices continuing to rise, Norwegian is heading towards an expensive end-of-summer season. Having bet on a fuel price drop, the airline failed to buy up reserves as usual. They say hindsight is 20/20, but what about the future? How will Norwegian growth be affected by this fuel event? And what about IAG lurking in the wings?
Norwegian and fuel prices
This spring, the Oslo-based low-cost airline, decided not to hedge the full half of its fuel needs. This made headlines – as they usually do – most do. Ryanair and Lufthansa did so and questioned Norwegian’s decision. But in the case of Norwegian, many speculate they had other things on their mind. Namely, Norwegian has been experiencing unprecedented growth in routes, reputation and capacity.
The airline has been very proactive in terms of opening up new long-haul routes. To date, you can fly from London Gatwick to Buenos Aires, Los Angeles, New York City and Singapore and many more. It’s also recently applied for Swedish AOC to operate out of its neighbouring country.
Out of all the European low-cost carriers, Norwegian is by far the bestAdvertisement
Aside from this increased service, its reputation has also been soaring. Out of all the European low-cost carriers, Norwegian is by far the best. Essentially, you get polite, relaxed staff, free Wi-Fi, new planes, and chilled-out baggage rules.
But how can Norwegian grow so quick?
With so much growth going on, it’s no wonder they were reluctant to buy fuel while it was expensive. In flying as in many services as they do, ‘a penny earned is a penny saved’. Also, ‘He who dares (sometimes) wins’. Many have also linked their massive growth to their risk-taking. By not buying fuel have they fooled themselves into thinking they’re doing better than they are?
It’s hard to say. The CEO at Norwegian, Bjorn Kjos is known for being a maverick. The ex-fighter pilot has just entered his seventh decade and is going hammer and tongs at Norwegian, with surprisingly good results. Since taking the reins, Kjos, has spent billions on the new fleet of fuel-efficient aircraft. He’s also seen as the single-handed navigator behind the rapidly expanding long-haul routes. And naturally, he refuses to be moved by the doomsayers from other companies.
Positive thinking leading to Norwegian growth
After a summer of 3 1/2-year highs, Norwegian is still talking fuel price drops. Current prices have been dancing around $700 a ton but Norwegian are always looking on the bright side. The company reported that every 1% drop in fuel prices will translate as 101 million kroner ($12.6 million) saved in costs. This is an interesting tactic as many are assuming fuel will drop to $644 per ton this year. This would mean a price decrease of 8%, a saving of $100 million.
However, should prices rise to reach $830 a ton, Norwegian would lose $291 million. And that is a hard number to ignore.
So while Norwegian are still talking growth and fuel price drops, we can see there are other forces at work. IAG bought a 4.6% stake in Norwegian this year and are considering trying to buy it out. Kjos had always refuted these offers and laughed them off. But now we see, he has finally admitted hiring advisers to manage interest from ‘very serious offers’.
Basically, it looks like, despite their lack of fuel, Norwegian could still continue to grow, just under the IAG banner. But let’s just hope they hold on to everything which makes the airline special.