LupineChemist

Results are in and it's not pretty.

https://norwegian-uk.mynewsdesk.com/...-costs-2417623

Looking at the actual results makes things seem a whole lot worse. Their tangible assets barely went up despite taking deliveries and leasing costs were up 50%. This would suggest they are really pursuing heavily the strategy of sell and lease-back.

The problem with this is their expansion is lowering the yields available by just saturating the market and their costs are going up (something that is VERY bad for an expanding airline). So unit revenues are down, while unit costs are up.

This is the line that really caught my attention:

What in the world could they possibly have in investments with that kind of return. I have a suspicion it's Bitcoin, but nobody would ever say it because of just how insane it is that the viability of an airline is dependent on bitcoin.

No idea if their increased cash position came from sell and lease-back or selling "investments", but it just seems to be completely unsustainable in the long term. And we all know Argentina has historically been kind to foreign companies going to operate there.

They'll clearly be able to make it through this winter, but I have serious doubt about next winter.

irishguy28

Bitcoin?

Maybe they have invested in a pile of as-yet-unscratched lottery instant win tickets, too

LupineChemist

Seeing as how NOFI has about a 9.3% return on the year and they are looking at 1000% percent gains, I'm suspecting "unrealized gains on currency" could actually be Bitcoin. That would just make this whole story even crazier if it's a house of cards built on Bitcoin of all things.

iahphx

I'd never say never, but Bitcoin would be VERY weird.

I haven't had time to go through the numbers myself, but I'm curious if you can tell how much money the Irish subsidiary (the one that operates transatlantic flights to the USA) is losing. They've had to pump hundreds of millions into it, but maybe most of that is aircraft rent and such.

https://fora.ie/norwegian-air-losses-3-3852934-Feb2018/

I'm curious if there's an analyst call transcript I can read. I'd particularly want to know what the unit cost is of the USA operation, compared to unit revenue. My hunch is that, without a premium cabin and heavy competition, they can never consistently charge fares high enough to turn a profit on such service. It's certainly crazy that they're losing money here when almost every other airline in the world is profitable. It's even crazier that the USA airlines' transatlantic unit revenue is RISING despite Norwegian selling airline tickets below cost.

James91

I mean I fly across the Atlantic 5-6 times a year from airports that have multiple carrier service, Norwegian are usually the cheapest but I avoid them like the plague. WAY too many reports of being stranded in the US after planes have gone tech. At least with the US carriers you'll end up home (Even if its on another carrier). The potential stress and in flight experience for me personally, just isn't worth the cost savings.

irishguy28

you do realise that NAI (the Irish subsidiary) is not the only "one that operates transatlantic flights to the USA"? Norwegian Long Haul (based in Norway) were the ones performing all such flights while they waited for the stalled approval for NAI and NUK. Now, all 3 perform transatlantic flights.

ng1265

Coming here to share a positive experience about EU261:
Flight DY7016 was delayed last friday (STD 2230, ATD 0233+1, STA 1000+1, ATA1401+1)
Claim submitted on Monday for 600€ as part of EU261, claim accepted today by Norwegian, money to be transferred "in a timely manner"
Quite impressed by the speed it took to solve the case despite the delay incurred (4 extra hours at JFK T1 is not that nice :-) )

iahphx

More evidence that Norwegian's business plan is terrible and that they might be running out of money. There's new allegations that their accounting practices are improperly understating their losses.

With allegations of dubious accounting, it's obviously harder to understand just how perilous Norwegian's financial condition is. With moderating fuel prices, I would have thought they'd have one more summer before going broke. Now I don't know. What I do know is that their business plan is extremely unlikely to ever be profitable, and that they don't seem to have a way to rationalize that plan.

3 Links I Love: Norwegian?s Finances Look Bad, How Delta Sells Tickets, Yet Another 747 Article | Cranky Flier

oliver2002

They still have plenty of sale and lease back reserves plus valueable production slots: https://leehamnews.com/2018/03/07/no...ve-accounting/

iahphx

At some point the music will have to stop. Their whole business strategy is based on a "first mover" advantage -- to get big in this low-fare transatlantic game before they face new competitors. Well, nobody is going to be lining up to get into this unprofitable game that Norwegian has confirmed it is a bad business idea. It was a dumb strategy that has now been confirmed to be dumb.

I'm not an expert in how bankruptcy works in Europe, but I'm pretty sure that's where this story is headed. I don't see how Norwegian can reverse course in time. From a consumer perspective, the trick is to just not be holding the bag when the music stops. Like it's probably not the best strategy to be planning on flying Norwegian for your summer vacation. I think it's still more probable than not it would work, but it's certainly a bit risky at this point. Next fall would be significantly more risky.

onuhistorian0116

Wow’s business model makes more sense than Norweigan’s. Wow takes advantage of geography to offer relatively short flights between KEF and the U.S., with European connections, which allows for a cost advantage using narrow body planes, without pushing them to their limits (in most cases). Other than an established carrier like Ryanair or JetBlue jumping into some O/D heavy East Cost US to Western Europe (BOS/JFK/PHL/IAD-LON/DUB/CDG/LIS/BCN) routes, which they have not shown much inclination to do, a stop in Iceland is probably the only reasonable way to operate discount flights over the Atlantic.

Norwegian just seems to throw darts at the Trans-Atlantic dart board. Without a centralized hub, Norwegian is completely dependent on O/D traffic. Wow’s hub at KEF allows them to penetrate secondary cities like CVG, CLE, PIT, IND, etc, and also offer low cost competition in fortress hubs like DTW, because they are simply in the business of getting people from the U.S. to Europe and vice/versa. Wow has expended operations at CVG before their maiden flight, I have a hard time seeing Norweigien being able to be competitive in the same market.

LupineChemist

Honestly, I actually think Norwegian showed that low-cost long-haul DOES have a place in the market. It's just a lot smaller than Norwegian seems to think and might be part of a segmented product on legacy flights or something similar. I think the problem with Norwegian isn't the idea of low-cost long-haul, but with Norwegian.

I wouldn't be shocked if FR is waiting for Norwegian to collapse to pick up 5-10 liquidated Dreamliners on the cheap to be able to do it themselves. MOL has already said that the reason they haven't gotten into the business is the capex for the aircraft. The idea that you have to have expensive aircraft with continuous growth

irishguy28

iahphx

Yeah, I would say low-cost transatlantic MIGHT work to some limited extent. We don't really know. There are certainly some major financial/logistical obstacles for long haul low fare service, but we know that customers in general like low fare airline service. The prudent strategy, of course, would be to go slow, try the routes with the highest probability of success and see what happens.

But that hasn't been Norwegian's strategy at all. They think low fare long haul is the greatest airline business opportunity in the world and they want to dominate the market before others jump into the game. This approach is beyond foolish given the obvious obstacles to success. Which is why these guys seem almost certain to go broke.

iahphx

I find it hilarious that this reporter thinks Norwegian is going to cause big problems for AA and UA on their new O'Hare to Gatwick flight. And Lazare is even an EXPERIENCED airline reporter.

https://finance.yahoo.com/m/7114c138...nd-united.html

Newsflash: this move is also doomed to fail for Norwegian. Sure, it will temporarily depress fares in the rear cabin for UA and AA and maybe cost them a few bucks, but Norwegian will lose buckets of money on this service until they pull out. This in an easy Airline Management 101 case study. That Norwegian can't grasp the foolishness of their move is another example of why they will soon go broke.

First, taking on an incumbent airline at their hub is a tall order. Taking on two incumbents at their hub (ORD's about the only place you can do this) is mind-boggling.

Second, Norwegian will offer an inferior product. Nobody voluntarily flies to Gatwick if they can fly to Heathrow. Unless they're clueless, of course. It would be like preferring Newburgh to Newark.

Of course, most of the profitability of the route is in the front cabin. But wait -- Norwegian doesn't even have a premium cabin!

And, of course, since UA and AA operate hubs in ORD, they don't have to offer so many cheap fares for ORD-LHR customers -- they can sell those seats to folks starting in other USA cities. And they -- especially AA (oneworld) -- can connect people to other cities in Europe when they arrive at LHR. Norwegian has to fill all their seats with ORD-LGW pax; their unit revenue disadvantage, even in coach, is going to be astonishing.

And did I mention that "everybody" has heard of AA and UA in their hub city and will prefer the free included amenities (like food, drink, free seat assignments, checked luggage and operational reliability) that they provide?

Now you could argue that if Norwegian somehow had dramatically lower unit costs, maybe they'd have some shot. Other than labor, though, somebody please tell me how Norwegian is going to fly their brand new 787 across the Atlantic so much cheaper than AA and UA will. It's certainly not going to be on "utilization."

But sure, when Norwegian starts selling it's tickets for $99 on the route, some fool in the media will tout their "success." Sigh.