IAG acquires 4.61% stake in Norwegian
#121
Join Date: Sep 2003
Location: OSL
Posts: 2,643
I really do smile at who comes out to air their wings during these sorts of threads.
Some of you talk about buying airlines if you cannot compete with them as if it were something novel. BA bought BCAL and Dan-Air (and all their debts and pensions problems) years ago, and BMI a few years ago. All were on the verge of collapse. From what you say about Norwegian - which may or may not be accurate - the same may be true. BA does not like competition in its own back yard. I cannot bear Richard Branson, but had he not had the guts to stand up to Lord King, Virgin would be a thing of the past as well.
This is history, it is not speculation. What will, if anything, happen is within the knowledge of no one here.
Unless one of you happens to posting here happens to be Mystic Meg
Some of you talk about buying airlines if you cannot compete with them as if it were something novel. BA bought BCAL and Dan-Air (and all their debts and pensions problems) years ago, and BMI a few years ago. All were on the verge of collapse. From what you say about Norwegian - which may or may not be accurate - the same may be true. BA does not like competition in its own back yard. I cannot bear Richard Branson, but had he not had the guts to stand up to Lord King, Virgin would be a thing of the past as well.
This is history, it is not speculation. What will, if anything, happen is within the knowledge of no one here.
Unless one of you happens to posting here happens to be Mystic Meg
If this happens, it is a horrible outcome for European consumers.
#122
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Join Date: Jun 2008
Posts: 2,246
I really do smile at who comes out to air their wings during these sorts of threads.
Some of you talk about buying airlines if you cannot compete with them as if it were something novel. BA bought BCAL and Dan-Air (and all their debts and pensions problems) years ago, and BMI a few years ago. All were on the verge of collapse. From what you say about Norwegian - which may or may not be accurate - the same may be true. BA does not like competition in its own back yard. I cannot bear Richard Branson, but had he not had the guts to stand up to Lord King, Virgin would be a thing of the past as well...
Some of you talk about buying airlines if you cannot compete with them as if it were something novel. BA bought BCAL and Dan-Air (and all their debts and pensions problems) years ago, and BMI a few years ago. All were on the verge of collapse. From what you say about Norwegian - which may or may not be accurate - the same may be true. BA does not like competition in its own back yard. I cannot bear Richard Branson, but had he not had the guts to stand up to Lord King, Virgin would be a thing of the past as well...
#123
FlyerTalk Evangelist
Join Date: Aug 2002
Location: London
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Posts: 38,644
Would it be less horrible for European consumers if Norwegian were simply to go bust of its own accord? That is not a certainty, of course, but there seems to be widespread commentary about how it is a real possibility.
#125
Join Date: Sep 2003
Location: OSL
Posts: 2,643
In my view, DY releases far too little information to the market, making valuing them hard. You can value lack of cash, you can't value a black hole...
Its full accounts are only out on Monday, so hard to say, but believe it largely comes down to CASK being higher than RASK, largely as a result of overexpansion, ie yields/load factors not good enough.
#126
Join Date: Dec 2009
Location: Arizona
Programs: BA (GGL G4L), AA (Gold), HH (Diamond); Marriott (Gold)
Posts: 3,011
Not only might IAG be interested in acquiring DY, but a purchase like this makes it even more difficult for someone else to buy them. Given how they did not end up with Niki or Air Berlin, it seems like a smart move to give IAG more leverage. Or if someone else does make a better offer, then IAG profits as well.
So from my perspective no matter what happens with DY (sale to IAG, sale to another airline, becoming insolvent, or becoming a profitable airline), IAG wins.
So from my perspective no matter what happens with DY (sale to IAG, sale to another airline, becoming insolvent, or becoming a profitable airline), IAG wins.
#127
Join Date: May 2003
Location: DEL
Programs: Mucci du Miel d'Or
Posts: 2,374
I really do smile at who comes out to air their wings during these sorts of threads.
Some of you talk about buying airlines if you cannot compete with them as if it were something novel. BA bought BCAL and Dan-Air (and all their debts and pensions problems) years ago, and BMI a few years ago. All were on the verge of collapse. From what you say about Norwegian - which may or may not be accurate - the same may be true. BA does not like competition in its own back yard. I cannot bear Richard Branson, but had he not had the guts to stand up to Lord King, Virgin would be a thing of the past as well.
Some of you talk about buying airlines if you cannot compete with them as if it were something novel. BA bought BCAL and Dan-Air (and all their debts and pensions problems) years ago, and BMI a few years ago. All were on the verge of collapse. From what you say about Norwegian - which may or may not be accurate - the same may be true. BA does not like competition in its own back yard. I cannot bear Richard Branson, but had he not had the guts to stand up to Lord King, Virgin would be a thing of the past as well.
As for the frothy talk of brand consolidation etc, I doubt BA will have looked at this properly and will want to make a fuller assessment of the value of the Norwegian brand.
#128
Fontaine d'honneur du Flyertalk
Join Date: Jul 2001
Location: Morbihan, France
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Posts: 19,172
I don't quite understand your point. Are you saying that BA was the white knight? The competitive landscape and corporate culture has changed massively in the last 30 years, and quite significantly in the last 10.
If this happens, it is a horrible outcome for European consumers.
If this happens, it is a horrible outcome for European consumers.
No - my point was all these pundits and people who seem to have IAG's company accounts to hand suddenly appear and seem to know the lot. Clearly we have a Forum full of Clairvoyants, so could anyone give me the numbers for the next Euro millions lottery please? I'll tell you if I win anything.
#129
Fontaine d'honneur du Flyertalk
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Posts: 19,172
#130
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#131
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Join Date: Jun 2008
Posts: 2,246
Pucci G, you appear to be simply ignoring that a lot of forumites have considerable airline business knowledge and can remember in detail why, when and what has happened on a global scale and are well aware of the nature of the airline business.
#132
Join Date: Dec 2016
Programs: BAEC GGL/CR; Hilton Diamond; Mucci des Puccis
Posts: 5,602
Norwegian are a great airline to fly precisely because they are in a market share grab phase and aiming (and largely succeeding) to delight, this is also why they're losing money when the other LCC are profitable, they haven't tightened up their business model yet. That would come one way or another eventually. At the moment we're in an artificial situation where consumers are essentially getting something for nothing.
It'll be interesting to see how IAG consolidate their low cost portfolio. At present it's confusing, with Level, Vueling, maybe Iberia Express, and bits of BA. There's no clear IAG low cost brand to counter Ryanair and EasyJet. With Norwegian that could change, it's got excellent brand equity. So for me this is a very sensible and sound strategic move.
It'll be interesting to see how IAG consolidate their low cost portfolio. At present it's confusing, with Level, Vueling, maybe Iberia Express, and bits of BA. There's no clear IAG low cost brand to counter Ryanair and EasyJet. With Norwegian that could change, it's got excellent brand equity. So for me this is a very sensible and sound strategic move.
#133
Join Date: Dec 2003
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Posts: 3,507
I don't think Norwegian is viable long term - but it would be hugely preferable for someone with less UK presence to take them over. I can't see any upside to UK passengers if IAG take them over and would hope the EU regulators would take the same view.
#134
Moderator, Iberia Airlines, Airport Lounges, and Ambassador, British Airways Executive Club
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I will just put in this partial extract from an Financial Times article, since it points to a number of other scenarios for consideration by all the lovely armchair CEOs here gathered.
In the battle for the skies over the Atlantic, International Airlines Group is eyeing another co-pilot. The owner of British Airways has taken a 4.61 per cent stake in Norwegian Air Shuttle, the low-cost airline whose launch of ultra-cheap US flights from Europe has led to a scramble among established players to mimic offerings or risk losing passengers. [...]
IAG, which also owns Vueling, Aer Lingus and Iberia, brings with it financial muscle to help patch Norwegian’s wounds, which include deep losses and a NKr22.3bn ($2.9bn) debt mountain. But its investment, or even a full takeover, does not solve the Scandinavian carrier’s most fundamental problem — how to make money flying passengers across the Atlantic for under £70. “Unless you have the right business model, deeper pockets only help you fund losses for longer,” says Jonathan Wober, analyst at CAPA Centre for Aviation.
IAG has timed its approach as its quarry looks to raise badly needed finances to help it nurse increasing levels of red ink. Norwegian booked a NKr299m loss last year, against a profit of NKr1.14bn a year earlier — its third year of losses in the last four. Michael O’Leary, chief executive of rival Ryanair, even went as far as to predict last September that Norwegian would run out of cash in “four to five months”. The move also comes at a time of consolidation among European airlines, driven by a brace of corporate failures as years of discounting drives the need for scale to thrive. [...]
In its brief statement on Thursday, IAG offered little insight into the rationale for its move, leaving analysts and industry insiders to speculate over the myriad reasons it may want to invest in another low-cost carrier. BA, which missed out on the low-cost short-haul bonanza in Europe by selling its cut-price Go brand to EasyJet, is keen to avoid a similar mis-step when it comes to the lucrative long-distance market. IAG has launched Level, a Spain-based low-cost service offering hand luggage-only flights to the US, but the fledgling operation remains a long way behind Norwegian in its share of the budget market. “Growing that to scale organically is very, very difficult,” says Daniel Röska, an analyst at Bernstein.
IAG may also bring a degree of business restraint to Norwegian, whose years of rapid growth have seen it plan ventures as varied as domestic flights in Argentina and leasing aircraft to other carriers — on top of operating its existing European short-haul network while pioneering long-haul budget travel. Mr Wober at CAPA says: “They have been fighting battles on many fronts for too long.” The move may also give Norwegian the chance to offload some of the 200 new aircraft it ordered in 2012 to other IAG brands, Mr Röska at Bernstein suggests.
Norwegian’s strategy of avoiding larger airports and flying “point to point” from cities such as Edinburgh or Dublin avoids the costs of the “hub and spoke” model offered by larger players, but leaves potential customers the headache of reaching those second-tier airports. IAG’s network of short-haul flights would offer additional travel options, regardless of whether the businesses fully merge. At the same time, Norwegian has built a formidable presence at Gatwick, rivalling BA’s position at the UK’s second-biggest airport.
Mr Röska wrote in a note on Thursday: “A partnership that looks to maximise the synergies of the two networks, minimise duplications of capacity and investment on key routes, and use IAG’s travel management capabilities to improve Norwegian’s expertise in this area, could all provide some of the benefits of consolidation without the likely high cost of a deal.” He said he believed IAG would be gambling if it bought the airline outright because it had no proof that synergies would work and the business could be run profitably. But the risk in creating synergies now is it drives up the value of the business — making it even more expensive if IAG does want a full takeover.
Ultimately, the move brings Norwegian funding at a time when it was looking to raise more capital by selling some aircraft and putting its frequent flyer scheme up for sale. Stephen Furlong at Davy says: “Norwegian has been doing in low-cost long-haul what Ryanair did in low-cost short-haul. The difference is that Ryanair did it with conservative financial leverage. “Norwegian needed a partner with muscle. Perhaps this is it.”
In the battle for the skies over the Atlantic, International Airlines Group is eyeing another co-pilot. The owner of British Airways has taken a 4.61 per cent stake in Norwegian Air Shuttle, the low-cost airline whose launch of ultra-cheap US flights from Europe has led to a scramble among established players to mimic offerings or risk losing passengers. [...]
IAG, which also owns Vueling, Aer Lingus and Iberia, brings with it financial muscle to help patch Norwegian’s wounds, which include deep losses and a NKr22.3bn ($2.9bn) debt mountain. But its investment, or even a full takeover, does not solve the Scandinavian carrier’s most fundamental problem — how to make money flying passengers across the Atlantic for under £70. “Unless you have the right business model, deeper pockets only help you fund losses for longer,” says Jonathan Wober, analyst at CAPA Centre for Aviation.
IAG has timed its approach as its quarry looks to raise badly needed finances to help it nurse increasing levels of red ink. Norwegian booked a NKr299m loss last year, against a profit of NKr1.14bn a year earlier — its third year of losses in the last four. Michael O’Leary, chief executive of rival Ryanair, even went as far as to predict last September that Norwegian would run out of cash in “four to five months”. The move also comes at a time of consolidation among European airlines, driven by a brace of corporate failures as years of discounting drives the need for scale to thrive. [...]
In its brief statement on Thursday, IAG offered little insight into the rationale for its move, leaving analysts and industry insiders to speculate over the myriad reasons it may want to invest in another low-cost carrier. BA, which missed out on the low-cost short-haul bonanza in Europe by selling its cut-price Go brand to EasyJet, is keen to avoid a similar mis-step when it comes to the lucrative long-distance market. IAG has launched Level, a Spain-based low-cost service offering hand luggage-only flights to the US, but the fledgling operation remains a long way behind Norwegian in its share of the budget market. “Growing that to scale organically is very, very difficult,” says Daniel Röska, an analyst at Bernstein.
IAG may also bring a degree of business restraint to Norwegian, whose years of rapid growth have seen it plan ventures as varied as domestic flights in Argentina and leasing aircraft to other carriers — on top of operating its existing European short-haul network while pioneering long-haul budget travel. Mr Wober at CAPA says: “They have been fighting battles on many fronts for too long.” The move may also give Norwegian the chance to offload some of the 200 new aircraft it ordered in 2012 to other IAG brands, Mr Röska at Bernstein suggests.
Norwegian’s strategy of avoiding larger airports and flying “point to point” from cities such as Edinburgh or Dublin avoids the costs of the “hub and spoke” model offered by larger players, but leaves potential customers the headache of reaching those second-tier airports. IAG’s network of short-haul flights would offer additional travel options, regardless of whether the businesses fully merge. At the same time, Norwegian has built a formidable presence at Gatwick, rivalling BA’s position at the UK’s second-biggest airport.
Mr Röska wrote in a note on Thursday: “A partnership that looks to maximise the synergies of the two networks, minimise duplications of capacity and investment on key routes, and use IAG’s travel management capabilities to improve Norwegian’s expertise in this area, could all provide some of the benefits of consolidation without the likely high cost of a deal.” He said he believed IAG would be gambling if it bought the airline outright because it had no proof that synergies would work and the business could be run profitably. But the risk in creating synergies now is it drives up the value of the business — making it even more expensive if IAG does want a full takeover.
Ultimately, the move brings Norwegian funding at a time when it was looking to raise more capital by selling some aircraft and putting its frequent flyer scheme up for sale. Stephen Furlong at Davy says: “Norwegian has been doing in low-cost long-haul what Ryanair did in low-cost short-haul. The difference is that Ryanair did it with conservative financial leverage. “Norwegian needed a partner with muscle. Perhaps this is it.”
#135
Join Date: Aug 2013
Posts: 8,764
I will just put in this partial extract from an Financial Times article, since it points to a number of other scenarios for consideration by all the lovely armchair CEOs here gathered.
Ultimately, the move brings Norwegian funding at a time when it was looking to raise more capital by selling some aircraft and putting its frequent flyer scheme up for sale. Stephen Furlong at Davy says: “Norwegian has been doing in low-cost long-haul what Ryanair did in low-cost short-haul. The difference is that Ryanair did it with conservative financial leverage. “Norwegian needed a partner with muscle. Perhaps this is it.”
Ultimately, the move brings Norwegian funding at a time when it was looking to raise more capital by selling some aircraft and putting its frequent flyer scheme up for sale. Stephen Furlong at Davy says: “Norwegian has been doing in low-cost long-haul what Ryanair did in low-cost short-haul. The difference is that Ryanair did it with conservative financial leverage. “Norwegian needed a partner with muscle. Perhaps this is it.”
I suppose the rise in share price helps it in seeking funding, but the author appears to be suggesting more than that.