Norwegian Air SWOT analysis: innovative but overexpanded

Premium Analysis

Norwegian's 2018 results revealed its third set of losses in five years. Although it was burdened by higher fuel costs and by costs related to Rolls Royce engine problems on its 787s (now resolved), its track record points to more fundamental flaws in its model, particularly as its losses have coincided with a period of strong margins in the global airline industry.

Norwegian's rapid expansion along with its new market entries has spread its management focus, weighed on its margins and burdened it with ever growing debt and worryingly low cash levels. At the same time, it has given it a network with strengths in the Nordic region and on the North Atlantic that attracted interest from IAG during 2018.

After rebuffing that interest, and in the absence currently of alternative bidders, Norwegian is to issue NOK3 billion of new shares in 1Q2019 (but this compares NOK32 billion of net debt at the end of 2018). Taken with cost reductions, aircraft sales and delivery postponements, this emergency rights issue should rescue Norwegian.

Longer term, it may need to find a buyer.

This report considers the group's strengths, weaknesses, opportunities and threats.

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