Video of the week – Norwegian: to profitability and beyond

It is tough when the boss of one of your biggest rivals regularly predicts your demise, even more so when you are clearly facing a few hurdles, market conditions are transitioning in the wrong direction, and you haven’t proved that your business model is sustainable. But Tore Østby, EVP strategic development at Norwegian is confident that following a few notable tweaks the airline is now heading in the right direction.

Earlier this year at the CAPA Airline Leader Summit, he explained that after years’ of “crazy growth” that has “put pressure on the airline”, it is now “changing its focus from growth to profitability”. He said there is a “focus on profitability and cash flow” and a “continuous effort to reduce costs”. The airline is now working with an “optimisation of the base structure and route network based on 12-month profitability criteria” and will “divest aircraft not required for the company’s commercial needs”.

Almost six months later, returning to the stage at the recent CAPA Low Cost Long Haul Summit, and with evidence of this changing focus clear to see, he highlighted plans to continue to “tune” its cost base, reducing cost growth by NOK3 billion (EUR298.6 million). The carrier continues the “fine tuning” of its trans-Atlantic network with additional counter cyclical leisure routes to Asia, acknowledged Mr Østby and “we are looking at others,” the executive confirmed.

There continues to be much talk about the success of the airline’s long haul offer. Mr Østby said revenue is growing the most on its US network. But, we all know that growing revenues does not necessarily mean profitability. Nevertheless, he noted trans-Atlantic routes are “key drivers” of revenue, adding US revenue is the highest contributor to group revenue at more than 20%, with the Norwegian brand starting to get recognition in the US, which is “extremely important”.

The LCC registered revenue growth of more than NOK700 million (EUR69.7 million) from its US segment in 2Q2019 with Athens – New York “one of our best yielding routes” in summer 2019 based on US traffic, according to Mr Østby. The carrier launched the twice weekly service with Boeing 787-9 aircraft in early Jul-2019.

The tweaking of its model and the ongoing Boeing 737MAX grounding sees Norwegian predicting a more than 20% year-on-year capacity shrink on short haul routes during winter 2019/2020. The 737MAX could return to the air early next year and Mr Østby describes it as “perfect for a low cost airline”, adding the aircraft’s cost structure is “the best we have seen”. He noted the challenge for the aircraft will be building up the right route structure and utilising it in the right way. He is also positive about the arrival of the Airbus A321LR in the Norwegian fleet with its cost structure and range opening up new opportunities for the carrier.

HEAR MORE… Norwegian’s EVP strategic development, Tore Østby, presented the airline’s development plans during a keynote presentation at the CAPA Low Cost Long Haul Summit in Hamburg, Germany, in Oct-2019. You can view the full presentation here via CAPA TV.

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