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Norwegian aims for cost cuts after heavy losses

Scandinavian budget carrier Norwegian is to concentrate on cost-reduction efforts, optimising its route structure and divesting aircraft as part of measures to reinforce its financial position.

Norwegian emphasised its strategy after turning in a full-year net loss of NKr1.45 billion ($170 million), including a NKr3 billion net loss in the fourth quarter.

This fourth-quarter loss – four times deeper than the previous figure of NKr713 million – included losses of NKr1.8 billion on its hedge positions.

“Some of the loss has since reversed due to the latest increase in the jet fuel price,” the company says.

Norwegian states that measures are being put in place in order to return to profitability this year, and it is underpinning its balance sheet with a NKr3 billion rights issue.

“We have optimised our base and route structure to streamline the operation as well as divested aircraft, postponed aircraft deliveries and, not least, started an internal cost reduction programme,” says chief executive Bjorn Kjos.

Norwegian points out that “several unforeseen challenges” affected the company over the course of 2018, including high fuel prices and unexpected costs associated with servicing Rolls-Royce Trent 1000 engines on its Boeing 787s.

The airline has been forced to wet-lease capacity and cancel flights as a result of the 787 situation, but says it has reached an agreement with Rolls-Royce which will have a “positive effect” this year.

It states that the 787 operation is “now running smoothly” and the carrier does not expect engine issues to affect service further.

Norwegian will introduce another five 787-9s as well as 16 737 Max jets in 2019, and continue to divest 737-800s, as it aims to increase capacity by just 9%. Last year the carrier took 25 aircraft which lifted capacity by 37%.

It says the addition of just five 787s this year, taking its long-haul fleet to 37 aircraft, means its long-haul growth rate will “significantly drop”.

Norwegian will also reduce its short-haul operations, closing four bases in the Mediterranean, and redistributing some of the capacity to reinforce core Nordic markets.

But it adds: “Demand for travelling with Norwegian has been satisfactory and advance bookings have been acceptable entering the first quarter.”

Norwegian revenues reached more than NKr40 billion last year, up 30%, while unit costs – excluding fuel – fell by 12%. Growth and investments will fall “considerably” this year, the company says.

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