This week’s featured link
Norwegian doubles 2019 underlying operating result before ownership costs and achieves cost-reduction target – Norwegian Press Release
Even though Norwegian has released its most recent results, I’m not going to write them up because it’s just more of the same. The airline continues to try to turn the corner and become profitable, and it’s the same story as last quarter. What really matters is… does Norwegian have enough cash to survive the winter? Things do look more encouraging with cash rising to NOK 3.096 billion (~$335 million) at the end of last year from NOK 2.934 billion the year prior at the beginning of the quarter, but the airline is far from out of the woods. Cash is king right now, but that debt is going to be crushing down the line if things don’t improve.
Two for the road
Air France-KLM takes €126m charge for A380 withdrawal – FlightGlobal
There isn’t much sadder than seeing a young airplane head to the graveyard… except seeing an airline take a huge charge to make it happen. Air France has already retired the first of its 10 A380s, and the rest will be gone within 2 years. When a French company takes a big charge to retire an Airbus airplane, you know things are not going well for that aircraft type.
The Pleasures of Plane Spotting at the Proud Bird – Los Angeles Magazine
I love a good article from a non-avgeek talking about the joys of planespotting.
13 comments on “3 Links I Love: Norwegian Keeps Going, An Expensive A380 Move, Pleasures of Plane Spotting”
It does not significantly change your assessment of Norwegian, but its cash at the end of 2018 was 1.922 NOK. The 2.934 NOK number is for cash at the beginning of 2019 Q4. See page 13 of the PDF of the 2019 Q4 Interim Report (https://www.norwegian.com/globalassets/documents/quarterly-results/interim-report-q4-2019.pdf).
Dave – Thanks, fixed that to say it was from the beginning of the quarter.
Oops.
I’ll add that I found the Q4 video presentation interesting. One interesting point from that: the 1.69 billion NOK net loss included a 1 billion NOK charge for grounding of the 737 MAX and a 750 million charge for Rolls Royce engine problems on Dreamliners. Negotiations for compensation with Boeing are ongoing. As for Dreamliner engine issues, the CFO stated, “We have found a solution with [Rolls Royce] with regards to compensation. It’s not a fantastic solution, but it’s a solution we can live with.”
The new CEO was asked about how to make long haul profitable. His answer: “I don’t have the answer on what turns long haul profitable. I just see what Norwegian has done is interesting. Trying to get low costs succeeding on long haul, nobody [has] proven that business model yet, but I see a lot of opportunities that we can do on short term, but then we also need, of course, to think long term, what kind of strategy will bring this to profitability.”
Waxing a bit philosophically, the A380 and 737MAX are examples that industry is a human endeavor. As such, mistakes are inevitable. Obviously, the key is to learn from them.
Not surprising to see Norwegian do a little better as they stop doing things guaranteed to lose them money. It’ still a bit sad to see a CEO say he has no idea what to do with a part of a business he has inherited. “Shut it down” seems like the obvious answer, but maybe he’s willing to tinker for a while and see if there’s any opportunity.
I still believe that Frontier will eventually be the Norwegian of America (if Spirit doesn’t buy them out). I just don’t think they have found a business model that works. It’s just not as horrific a model as transatlantic low cost. In general, I think conditions are a bit rough for continued expansion of budget airlines in the USA. Customers have gotten smarter about ancillary expenses, major competitors have learned new tricks on how to compete, and there are only so many markets to exploit. No business idea grows to the sky.
I’ll give the CEO a pass for now. He had been on the job for 6 weeks at the time of his answer, and this is his first airline job. What is “refreshingly honest” now, won’t be so much in 6 months.
Sincere question – why do you think Frontier hasn’t found a business model that works, while Spirit has been consistently profitable since 2007? Frontier is privately held, so our numbers there aren’t as good, but it was profitable in 2014-2016 according to the S-1 it filed in preparation for its 2017 IPO attempt.
Frontier files Form 41 financials (like any significant carrier, public or private) with DOT. You can see them here: https://www.transtats.bts.gov/Tables.asp?DB_ID=135
They are clearly quite profitable – though the Form 41 data includes writedowns and other things that a public company would generally regard as a “one-time” item in their financials (i.e. Form 41 financials tend to understate underlying profitability).
What document from the BTS do you have that shows Frontier to be “clearly profitable”?
This table: https://www.transtats.bts.gov/DL_SelectFields.asp?Table_ID=295
Although the data is a bit too granular, so you’ll have to open it in a spreadsheet and use a pivot table or something similar. Based on those numbers, Frontier has had positive net income and positive operating profit in every year from 2012 through 2019.
Getting bought out by a competitor would probably be ideal way for Norwegian to ‘make money’ (think Virgin America).
BTW, lets see if this stupid story causes a rally in Norwegian stock: there’s promotion from the ex-CEO’s son-in-law that he’s working with Norwegian on a platform for them to accept “crypto currency” for tickets. Wow! So exciting. What could go wrong? :)
https://finance.yahoo.com/news/norwegian-air-may-allow-customers-130022962.html
The article from LA magazine was fantastic!