Norwegian Air Shuttle’s 2013 profit falls. Not yet low-cost enough?
Norwegian Air Shuttle's 2013 net profit fell by 30% in the face of rapid capacity expansion, the launch of its first long-haul routes, delays to Boeing 787 deliveries, the negative impact on demand of good summer weather and a very price competitive market place. In short, anything but a run-of-the-mill year. The upshot was that, while its unit cost (CASK) fell in line with its target, its unit revenue (RASK) dropped more rapidly.
The granting by Irish regulators of an air operator's certificate and operating licence to Norwegian's Dublin-based long-haul operator and its recent order for four more 787s (bringing the total to 14: eight 787-8s and six 787-9s) are positive steps in its expansion into long-haul markets, where it has a cost advantage against legacy carriers. Nevertheless, there are some lower cost rivals on short-haul, where most of Norwegian's business still lies.
The downward pressure on RASK looks likely to continue in 2014, particularly given Norwegian's planned capacity growth of 40% (in ASK terms). A return to profit growth will therefore, it seems, need a further significant CASK cut.
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