itsallgood

Those darned accounting rules. Why can't they keep the value of sold assets on the books, as if they still own them? I mean, if I sell my house and pocket the cash, I should be able to report both the cash and the value of the sold house as part of my net worth, right?

iahphx

Is anyone going to jail for this, or do they not do that in Norway?

Meanwhile, I'm listening to the AA earnings call today and their stock is getting hurt bad because of rising fuel cost. Nothing fundamentally wrong with their business whatsoever, but their fuel bill has increased yoy by $2.3 BILLION. So now they project they'll make 50 cents per share less this year than last, "only" $5 or $6/share.

That's bad for AA shareholders (especially given the way Wall Street overreacts to short term "issues"), but what about Norwegian shareholders? AA has a good business plan and can obviously afford the fuel hit until it can raise airfares to cover it. Norwegian has a horrific business plan and was losing money before the fuel spike. And remember, as an ULCC, Norwegian fuel bill as a percentage of their overall costs is much higher than at AA. And the ability to raise ticket prices at a low cost airline -- where your customers are more price sensitive -- is much less certain. I think everybody who has a stake in Norwegian better hope fuel prices go lower ASAP, or there won't be enough cash come next winter.

iahphx

I should note that while Norwegian management isn't actually building a profitable, long term business, they do seem very adept at protecting their own interests. While shareholders at "real" airlines like AA suffer, due to fuel costs, Norwegian shareholders are actually benefiting as their company teeters on insolvency, thanks to the acquisition talk. Amazing: I thought building utterly unsuccessful companies and then selling them only worked in tech!

https://www.washingtonpost.com/busin...=.33494e971d97

southpac

then why are IAG & others(if you believe the talk of others) looking to buy in ?

southpac

they why are IAG & others(if you believe the latter) are looking to buy in ?

CPH-Flyer

They probably want the assets to add to their own operations. Mainly aircrafts and AOCs.

southpac

I think IAG etc. can see that the Norwegian business model works. 30 million plus passengers a year is not to be sneezed at. They only have to increase revenue by a few dollars per passenger to get into profit & with world slipping into recession, it's the LCC's who will benefit, as legacy airlines have way too much in way of expensive overheads.

CPH-Flyer

There would be a question to that how many of the 30 million passengers are on short haul, and how much of the loss is on long haul?

They would need to increase profit with about 5 to 6 GBP per passenger. Which does not seem unreasonable on long haul, but on their short haul model it is far more difficult. So the truth is maybe that they would need to increase maybe 20 to 30 GBP per long haul passenger.

Just guessing here, but the short haul network is doing fine, and as you would want to build a sustainable business you would not want one business area paying for the other, so long haul needs to come to breakeven, so the average extra revenue per passenger is a very misleading approach to solve the underlying problems of Norwegian.

LupineChemist

The problem with Norwegian'' long haul is they are forced to grow because of the order book. IAG could easily right size it and redeploy 787s elsewhere. I think there's a very good argument to send tjet to IB to make sure Airbus gets the message that they still have to compete and would be great for Iberia's MRO given how ubiquitous they are becoming.

itsallgood

This same blanket statement could be said about every failing business ever. If Toys R Us had raised all of their prices, they'd still be in business!

Yes, you're correct. Selling any product below cost usually increases demand.

And sure, Norwegian could increase revenue by a few dollars per passenger. But that will result in less passengers. Which will cause Norwegian to increase revenue by a few more dollars per passenger. Which would result in even less passengers.

As far as Norwegian being able to raise prices, they need to raise prices anyway just to keep from losing even more money due to higher fuel costs. On page 14 of Norwegian's first quarter report, it states that a 1% decrease in jet fuel prices will save 101 million NoK. Now, take a look at how much oil prices have risen this year. I doubt that Norwegian will be able to pass all of the increased fuel costs on to their passengers, much less have increases on top of that.

southpac

the statement above ....

"Norwegian could increase revenue by a few dollars per passenger. But that will result in less passengers. "

is not necessarily true. Small increases might make no or very little differences, especially, if on things like drinks, which are not part of the airfare. An extra 50 cents for a drink ? No idea what they charge for a beer, but if it was USD$6 & they increased it to USD$7 doubt it would make people stop & say I'm not going to buy that beer. It's not like they can go anywhere else & buy one, while on board.

usbusinesstraveller

southpac

I would suggest that Noerwegian has more cheap seats than other legacy carriers, which means that although at some point in time, all airlines might display similar prices for a few seats, once the legacies sell out, Norwegian will be cheaper, much cheaper, especially as many people have now learnt to stop carry so much stuff when they fly.

itsallgood

That's great. Of course when Norwegian goes out of business - and they will - leaving a bunch of passengers stranded without recourse, they will have to buy expensive last minute tickets which will be priced in the highest fare buckets because all other carriers will be close to sold out.

Norwegian is very close to breaching their bond covenants so I'm not even sure that they can make it through the summer.

Sometimes, buying a discount airline ticket can be the most expensive airline ticket you can buy. Norwegian will prove this once again to those travelers who get stranded when Norwegian shuts down operations. And they will, just like every other business that loses a lot of money for an extended period of time.

iahphx

Yup, it's increasingly likely that some passengers will be left "holding the bag" when Norwegian shutters some or all of its operations. That said, I'm not sure folks should book away. Yes, it would be dumb to book beyond summer on Norwegian now. But before then, it's significantly more probable than not that they will be flying. You do still risk irregular ops, and Norwegian has plenty of those, but the company should be in business.

It's all a question of risk v. reward. In the USA, I fly Frontier a few times a year. My average Frontier fare is about $20. It usually works fine. But not always. Like they stranded me in New Orleans last December because, unlike the other airlines flying there, they didn't bother to stock any de-icing fluid, so when there was a little ice, they shut down operations. I had to buy an award ticket on UA to get home (as a 1K, I fortunately didn't have to pay a last minute ticketing charge for the award ticket). So it was a much more expensive trip than I anticipated. Still, it was a much better option than most pax on their cancelled flights that day had. But you have to be willing to live with the risk. If you can tolerate the risk, I'd go for the Norwegian ticket this summer IF it was significantly cheaper than the alternatives.