Norwegian’s plans to have a profitable first quarter of 2019 are at risk, with the airline facing a $171 million dollar loss.
This is due to a variety of problems, one of which is their fleet of 737 MAX aircraft being grounded throughout the spring.
What are the details?
The first quarter of the year is a tough one for European airlines. For one, they are just coming out of winter (which has been a killer of airlines this year) and there are not really any holidays to spike demand (Easter this year is in Q2 in April).
But as our friends at Onemileatatime.com posted, things were looking good for Norwegian. Specifically:
- Their revenue had increased to 14%
- They carried 8 million passengers in Q1, which is an increase of 9%
- They have continued to save money, around half a billion NOK
- Their variable costs per flight decreased by 8%
But they also suffered some major setbacks. Some of the 787 Dreamliners are still in the shop due to the faulty Rolls Royce engine issue, and their fleet of 18 737 MAX aircraft have been grounded since the MAX disaster earlier this year. Norwegian is not confident that they will be flying anytime soon.
“None of them are of course up and flying, and we don’t expect them to be up and flying this summer,” said CEO Bjørn Kjos when discussing the earnings report earlier this week.
“Due to the uncertainty related to the Max grounding, the company [sees] increased risk related to the target of a positive net profit in 2019,”
And how much is this possible risk of positive net profit? To the tune of $171 million USD (nearly 1.4 billion NOK).
Can Norwegian absorb this loss?
Fortunately for Norwegian, they recently received around three million NOK in funding from John Fredriksen (Norway’s richest man) to help them through this troubling time.
But this amount of money is roughly half of what Norwegian just lost. This means that Norwegian can only have two more terrible quarters like this one and they will be out of business (or have to sell to IAG for pennies on the dollar).
But as luck would have it, Europe is about to enter peak season and Norwegian is in a good position to take advantage of the summer trade. With low cost carriers like WOW Air no longer operating, Norwegian can predict much higher load factors over the Atlantic, and be ready to take on British Airways and others. Additionally, Norwegian is moving some of its routes to primary airports in a bid to compete directly with flag carriers.
Lastly, the rumor is that Norwegian will be compensated by Boeing for the 737 MAX 8 being grounded. Naturally, we the public will never hear about the exact amount (“[Any agreement] would be subject to an NDA”), but Bjørn Kjos is confident that his close relationship with Boeing will reap in some reward.
What do you think? Is this a minor roadblock for Norwegian?