Norwegian Air Shuttle (NAX)

[SelectSys]

On 10/30/2018 at 4:03 PM, Globaliser said:

 

Really, if you think that that Skytrax reviews are any indication of the financial health or robustness of a company, I have a bridge to sell you! (I'd offer you that bridge if you think that Skytrax is even a reliable indicator of perceived service quality. In the industry, good Skytrax ratings for an airline are often regarded as a better indicator of the level of that airline's advertising spend with Skytrax.)

 

 

Last legs? No, not necessarily. I'm not an insider, I'm not a financial expert, and I'm not privy to how the company works. But you cannot deny that the years of quiet gossip about the precariousness of Norwegian's financial situation have now burst into the open, or that it has been engaged in asset sales to raise cash.

 

If you want to get away from stories planted by Norwegian's PR department, here are a couple of recent ones. The second one gives an insight into what Norwegian needs and wants: amongst other things, someone to take those shiny new aircraft off its hands, in exchange for ~$1bn in cash - not least because Norwegian (highly indebted and highly operationally-geared) is under-hedged in a season of rising oil/fuel prices.

 

 

 

I offered Skytrax customer rating as an indicator that the public is satisfied with the service and value they receive on the airline. If the reviews were bad, I would be more inclined to see this as a negative and that Norwegian is at near term risk.  Also, are you suggesting that Skytrax censors customer reviews based on some advertising spend?  You complain about Skytrax along with your typical disparaging remarks (i.e., bridge to sell)  without providing an alternate source suggesting a negative customer outlook on Norwegian.

 

I am not an financial expert with respect to airlines either.  However, it is hardly new news nor has it been quiet that Norwegian's model is viewed with suspicion by others in the industry.  Citing comments by Ryanair's Michael O'Leary suggesting his competitors are on the ropes isn't really all that compelling.  O'Leary has talked negatively about other airlines for years and anything he says simply reflects his own self interest  - I guess sort of like Norwegian's marketing department.  Also, we know he has been admonished by the courts for lying previously -

https://www.rte.ie/news/2010/0326/129233-ryanair/

 

Again, I view Norwegian's backlog as a potential asset valuable asset and hedge.  That just gives them even more time and the flexibility to gain better terms in the capital markets.  According to this article, Norwegian believes that might even make some money due to the popularity of their aircraft order types. https://uk.reuters.com/article/uk-norwegian-air-fleet/norwegian-air-sees-possible-airbus-aircraft-sales-before-year-end-idUKKCN1LK1QA.  This all seems to suggest a savvy management team with an ability to navigate challenging times. 

 

As I said previously, I would not hesitate to book a ticket on Norwegian for a cruise. 

[SelectSys]

48 minutes ago, Globaliser said:

Here's a new story (from yesterday) from Business Traveller:-

 

 

 

 Sounds like prudent business practice to me.  All airlines make changes for the off season.  I'll bet even BA changes schedules during the winter.  I know for a fact that AA does.

 

Still not an indicator that failure is eminent.  I also saw new service to Tampa launched yesterday:

https://www.bizjournals.com/tampabay/news/2018/10/31/norwegians-tampa-to-london-flight-takes-off-today.html

[Globaliser]

21 minutes ago, SelectSys said:

All airlines make changes for the off season.

 

But not at a few weeks' notice - that is what the article is talking about. It is part of a pattern of recent short-notice withdrawals from entire routes.

 

Really, Norwegian is doing all these things as part of it fighting for its survival. It may well be ultimately successful, but you have to be wearing rose-tinted glasses to think that this is a fit, strapping and healthy operator whose march to domination is assured. You cannot do that on a -8% operating margin. That is not a question of other airlines viewing Norwegian's model with suspicion - that is an unviable business.

 

29 minutes ago, SelectSys said:

Also, are you suggesting that Skytrax censors customer reviews based on some advertising spend?

 

Either that (which is widely believed to the the case) and/or on the basis of some other arbitrary criteria. They certainly do censor reviews, and they do not publish them neutrally. They have been the subject of adverse findings by the advertising regulator in the UK for precisely this.

 

In any case, if an airline is selling its product to the public at prices well below the cost of production, it is hardly surprising that the public will rate the airline as excellent value for money.

[fbgd]

1 hour ago, SelectSys said:

 

I offered Skytrax customer rating as an indicator that the public is satisfied with the service and value they receive on the airline. If the reviews were bad, I would be more inclined to see this as a negative and that Norwegian is at near term risk.  Also, are you suggesting that Skytrax censors customer reviews based on some advertising spend?  You complain about Skytrax along with your typical disparaging remarks (i.e., bridge to sell)  without providing an alternate source suggesting a negative

customer outlook on Norwegian.

 

That's exactly what they do. A while back I submitted three reviews; one was uploaded as expected, a second was not at all and a third had a large proportion removed. 

 

Skytrax is seen as an industry joke. Airlines that have won awards have refused to recognize them in some cases for this reason, whilst others are somehow lauded despite being seen as bang average. Hainan Airlines, for example, a 5* carrier... 

 

The whole premise of the press release seems rather pointless. Yes, Norwegian carry more people to Europe from New York but then BA only carry passengers from NYC to London, DY spread that across 7 cities.

 

 

Edited November 1, 2018 by fbgd

[fbgd]

On 10/30/2018 at 4:56 PM, SelectSys said:

 

You are also aware that Norwegian is in the middle  of renewing and in some cases upgaging (sic )their fleet with many aircraft on order.  They may have scaled back the near term growth rate, but having all the new aircraft on order from Airbus and Boeing give them latitude to manage their fleet and keep it fresh.  The fact remains that they will end the year with more aircraft than they started with. 

 

 

Renewing what? Norwegian's longhaul arm is essentially brand new, there's nothing that's being renewed.

 

Ending the year with more aircraft than you start with proves nothing besides you have someone will to lend you money or lease you aircraft. There's a strong market for gently used 787s if they get taken back so it's not an enormous risk on the part of the bank/lessor.

[SelectSys]

On 11/1/2018 at 12:47 PM, Globaliser said:

 

Really, Norwegian is doing all these things as part of it fighting for its survival. It may well be ultimately successful, but you have to be wearing rose-tinted glasses to think that this is a fit, strapping and healthy operator whose march to domination is assured. You cannot do that on a -8% operating margin. That is not a question of other airlines viewing Norwegian's model with suspicion - that is an unviable business.

 

 

I never claimed Norwegian is the world's most profitable airline, only that I would have no trouble booking a ticket on them for an upcoming cruise.  Why not save some money?  

 

For sure Norwegian is still on IAG's mind:

https://skift.com/2018/11/02/rebuffed-british-airways-parent-still-interested-in-buying-norwegian-air/

 

On 11/1/2018 at 1:35 PM, fbgd said:

 

That's exactly what they do. A while back I submitted three reviews; one was uploaded as expected, a second was not at all and a third had a large proportion removed. 

 

 

 

More fake news on the internet!  I must confess that your anecdotal experience with Skytrax is interesting to hear about. 

 

On 11/1/2018 at 1:44 PM, fbgd said:

 

Renewing what? Norwegian's longhaul arm is essentially brand new, there's nothing that's being renewed.

 

Ending the year with more aircraft than you start with proves nothing besides you have someone will to lend you money or lease you aircraft. There's a strong market for gently used 787s if they get taken back so it's not an enormous risk on the part of the bank/lessor.

 

I am generally referring to the A321LR's orders that will be taking place of some of the 737's for transatlantic service.  This is certainly a big upgrade in terms of aircraft capability.  

https://www.ch-aviation.com/portal/news/64172-norwegian-eyes-transatlantic-ops-with-a321lrs-in-2019

 

More aircraft in the fleet year over year indicates more capacity and growth.The fact that the capital markets aren't closed to the company is absolutely key for someone considering travel on Norwegian.  If the banks trust Norwegian to operate the aircraft over the next year or so, I am willing to fly them and keep a few $ in my pocket.  

[Globaliser]

10 minutes ago, SelectSys said:

If the banks trust Norwegian to operate the aircraft over the next year or so ...

 

I think the thing that the banks trust is that their security is secure. You have presumably seen the aircraft parades when other airlines have gone bust? Always entertaining to see what happens to them, albeit the events themselves are always sad for the airline's staff.

 

12 minutes ago, SelectSys said:

I never claimed Norwegian is the world's most profitable airline, only that I would have no trouble booking a ticket on them for an upcoming cruise.  Why not save some money?  

 

Because they may go bust. That's the nub of the matter. Buying a ticket on Norwegian is not risk-free in this sense; if they did go bust, how much more will you have to pay to get to your cruise? That's the question that you need to address, the risk that you need to weigh, and the contingency against which you might want to plan.

[SelectSys]

32 minutes ago, Globaliser said:

 

I think the thing that the banks trust is that their security is secure. You have presumably seen the aircraft parades when other airlines have gone bust? Always entertaining to see what happens to them, albeit the events themselves are always sad for the airline's staff.

 

 

Because they may go bust. That's the nub of the matter. Buying a ticket on Norwegian is not risk-free in this sense; if they did go bust, how much more will you have to pay to get to your cruise? That's the question that you need to address, the risk that you need to weigh, and the contingency against which you might want to plan.

 

Many businesses go bankrupt.  It is always sad for the employees and the creditors.  I personally have experienced unpaid receivables due to business failures.  Never a fun time for those involved.

 

You may feel different, but my own personal estimation is that Norwegian will still be flying through the end of next summer with its transatlantic service largely intact.  Norwegian still had $400 million+ on hand at the end of Q3,  their non fuel unit costs are down 10% and the stock is up 18% year to date.  Suppose in the worst case they get acquired.  IAG or someone else will honor the tickets.  A hard shutdown in 12 months just seems super unlikely to me.  For me, this seems like a manageable risk.

 

Edited November 8, 2018 by SelectSys

[Globaliser]

21 minutes ago, SelectSys said:

You may feel different, but my own personal estimation is that Norwegian will still be flying through the end of next summer with its transatlantic service largely intact.  Norwegian still had $400 million+ on hand at the end of Q3,  their non fuel unit costs are down 10% and the stock is up 18% year to date.  Suppose in the worst case they get acquired. IAG or someone else will honor the tickets.

 

If someone buys Norwegian, then all will be well.

 

The worst-case scenario is actually that Norwegian simply goes bust. Like Monarch, Primera, Cobalt and others, it would probably happen with no or little warning. (There was a little warning of Monarch's demise, but that was because the mix of Monarch's business meant that its regulator had to charter in rescue capacity in advance, and in today's information-heavy world it was impossible to do that without us noticing.)

 

It is not so much I who feels differently from you, but many disinterested industry observers who have in the past few months been openly voicing things that have been being said privately for many months before that. They may be proved wrong, and the future may turn out to accord with your hope. But costs are fickle, and for a highly-geared company like Norwegian, that is where most of the risk comes from. It is only risk, not certainty - but the risk is there.

[SelectSys]

5 hours ago, Globaliser said:

 

It is not so much I who feels differently from you, but many disinterested industry observers who have in the past few months been openly voicing things that have been being said privately for many months before that. They may be proved wrong, and the future may turn out to accord with your hope. But costs are fickle, and for a highly-geared company like Norwegian, that is where most of the risk comes from. It is only risk, not certainty - but the risk is there.

 

One thing that I have learned over my business career is that there are very few, if any, disinterested industry observers of note.  Sure, there are people like us opining for fun on web sites, but paid observers always have a commercial interest.  The bankers, activist investors, press, politicians and competitors all have direct commercial interest in talking up or down a company.  

 

One bit of good news on the cost front for all airlines is that oil prices are trending down from the previous forecasts:  https://oilprice.com/Energy/Crude-Oil/US-Oil-Production-Is-Set-To-Soar-Past-12-Million-Bpd.html

 

Edited November 9, 2018 by SelectSys

[Globaliser]

4 hours ago, SelectSys said:

... but paid observers always have a commercial interest.  The bankers, activist investors, press, politicians and competitors all have direct commercial interest in talking up or down a company. 

 

Are you suggesting that these commentators are now publicly saying things that they do not believe to be accurate, in order to generate a public effect for their own commercial benefit? If so, why would they have been saying the same things privately for many months, in fora from which there would be no public effect from what they said? Does that not suggest that these are not things merely being said for the purposes of cynical manipulation?

 

In any event, these commentators have not only been saying these things about Norwegian. They have been saying the same things about other airlines, too. And so far, the tenor has been proved right: the current hostile costs climate is going to kill some of them, starting with those in the worst position to deal with it. Norwegian is merely one member of that group.

[FlyerTalker]

The trans-atlantic shakeout has gone even further now.  Icelandair has announced the acquisition of WOW.

[SelectSys]

On 11/9/2018 at 12:14 AM, Globaliser said:

 

Are you suggesting that these commentators are now publicly saying things that they do not believe to be accurate, in order to generate a public effect for their own commercial benefit? If so, why would they have been saying the same things privately for many months, in fora from which there would be no public effect from what they said? Does that not suggest that these are not things merely being said for the purposes of cynical manipulation?

 

In any event, these commentators have not only been saying these things about Norwegian. They have been saying the same things about other airlines, too. And so far, the tenor has been proved right: the current hostile costs climate is going to kill some of them, starting with those in the worst position to deal with it. Norwegian is merely one member of that group.

 

I believe all true professionals speaks with their commercial interest in mind.  Also, representing this interest is completely different from lying.   I would be surprised if you thought differently.   As a lawyer, you know more than most that what and how information is presented can help create or reinforce a belief.   I will let you decide if this is cynical manipulation or not.  

 

In terms of Norwegian's survival prospects, here is a recent article suggesting failure is not imminent:

https://www.wsj.com/articles/norwegian-air-may-survive-after-all-1542025947

 

Again, I still have no problem buying a ticket for my next cruise on Norwegian. 

 

On 11/9/2018 at 7:09 AM, FlyerTalker said:

The trans-atlantic shakeout has gone even further now.  Icelandair has announced the acquisition of WOW.

 

Saw that as well.  Good news for Norwegian!  

[Globaliser]

2 hours ago, SelectSys said:

In terms of Norwegian's survival prospects, here is a recent article suggesting failure is not imminent:

https://www.wsj.com/articles/norwegian-air-may-survive-after-all-1542025947

 

That headline says what I've been saying throughout this thread: Norwegian may survive the winter, or it may not.

 

If you buy a ticket for, say, next summer, you're therefore gambling on the outcome being one thing rather than the other.

[SelectSys]

19 hours ago, Globaliser said:

 

That headline says what I've been saying throughout this thread: Norwegian may survive the winter, or it may not.

 

If you buy a ticket for, say, next summer, you're therefore gambling on the outcome being one thing rather than the other.

 

Perhaps you weren't able to read the article as much of the WSJ is behind a paywall.  The gist of the article is that the company may now likely survive as an independent entity and those banking on an acquisition by Lufthansa or IAG may be disappointed.  The article makes no hint of an operational shutdown and thus tickets purchased today are highly likely to be honored.

 

The contributing factors to independent operations are:

 

• Damage payments by Rolls Royce for their engine debacles
• Improved operating performance and balance sheet well above their loan covenant levels 
• Lower oil prices

The main challenge according to the WSJ is the need make a deal with the aircraft lessors to avoid making a dilutive share sale to take on more aircraft.

 

Again, no problem for me buying a ticket on Norwegian.  However, I think it is a bit early to lock in on next summer travel unless I was looking to use a low mileage level award ticket.  Personally, I would wait until the first of the year to start looking to a cash purchase for Spring / Summer 2019 regardless of carrier.

 

 

 

 

Edited November 15, 2018 by SelectSys

[Globaliser]

On 11/9/2018 at 3:09 PM, FlyerTalker said:

The trans-atlantic shakeout has gone even further now.  Icelandair has announced the acquisition of WOW.

 

It looks like it may now not happen. The Independent reports:-

 

Quote

Wow Air: Icelandic Airline Hands Back Four Planes As Cash Crisis Worsens

...

A planned takeover by Wow’s bigger rival, Icelandair, has stalled. The €18m (£16m) deal was due to be approved at a shareholders´ meeting on 30 November. But Bogi Nils Bogason, Icelandair Group’s chief executive, said: “The share purchase agreement contains numerous conditions which will have to be fulfilled before the meeting.

“At this moment, Icelandair Group estimates that it is unlikely that all of the conditions will be fulfilled by that time.

“The company will continue to work on the transaction and the parties are continuing dialogue on next steps.”

...

 

With aircraft going back to lessors, there's now a possibility that Wow may not last out this week.

 

Even if it does, there have been further route cuts, made more quietly this time.