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Norwegian Air's fleet expansion cost forecast sinks shares
February 16, 2017 / 10:44 AM / a year ago

Norwegian Air's fleet expansion cost forecast sinks shares

OSLO, Feb 16 (Reuters) - Norwegian Air, Europe’s third-biggest budget airline by passenger numbers, warned on Thursday costs are rising faster than expected as it expands worldwide, knocking its shares.

The airline is building up its transatlantic operations, has up to 29 Dreamliners on order from Boeing for $18.5 billion and is considering ordering more.

Shares in the airline were down 5.52 percent at 0949 GMT, lagging an Oslo benchmark index down 0.27 percent.

Its underlying unit cost, which excludes fuel, was 0.32 crown in the fourth quarter, down 1 percent year-on-year, a lower-than-expected reduction for some analysts.

“Q4 results show another disappointing cost performance,” said Ross Harvey, an analyst at Irish brokerage Davy.

“The underlying cost performance was again disappointing – down 1 percent versus our -3 percent expectation, with the largest escalation occurring across peripheral cost lines in anticipation of 2017 growth.”

”Cost guidance for 2017 has increased by circa 2.6 percent on previous guidance, which means we will revise our expectation of a 4.7 percent improvement (at constant currency) downwards.

In addition, Norwegian Air said its 2017 unit cost would be higher than it previously expected, now guiding for a range of 0.39-0.40 crown, against 0.38-0.39 crown previously.

“Unit cost for 2017 is guided up by NOK 0.01 ... due to more training and more leasing costs, this is likely to lead to lower estimates for 2017,” said Dan Togo Jensen, an analyst at Handelsbanken Capital Markets.

Norwegian Air defended the higher cost expectations, saying it had to build capacity. “It is necessary for us to build up as we receive Dreamliners,” CEO Bjoern Kjos said during a presentation.

“We are guiding upwards on costs as we have to consider our growth and what our ramp-up implies. We are recruiting 2,000 people in 2017. And those who will fly the Dreamliners, we have to train up ourselves,” said CFO Frode Foss. ($1 = 8.3068 Norwegian crowns) (Editing by Alexander Smith)

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