January 7, 2020 / 7:09 AM / 14 days ago

Norwegian Air makes progress on turnaround plan after cutting capacity by a quarter

OSLO (Reuters) - Norwegian Air (NWC.OL) cut its capacity by a quarter in December, removing loss-making routes as it made headway on its plan to regain profitability, traffic data from the budget carrier showed on Tuesday.

FILE PHOTO: A Norwegian Air plane is refuelled at Oslo Gardermoen airport, Norway November 7, 2019. REUTERS/Lefteris Karagiannopoulos

Shares in the carrier jumped as much as 6% in opening trade as Norwegian said reduced capacity helped lift average income per passenger by 14%.

The airline has shaken up the transatlantic travel market with low fares, but breakneck expansion and the forced grounding of its Boeing (BA.N) 737 MAX fleet also brought mounting debts and losses.

Norwegian has raised funds from investors three times in 20 months to prevent it from joining the ranks of airlines that have collapsed due to industry overcapacity.

The airline’s overall capacity, a measure of distance flown and the number of seats available (ASK), fell 25% year on year in December, while analysts in a Reuters poll had on average expected a 24% drop.

But the airline’s yield - income per passenger carried and kilometre flown - rose 14% to 0.43 Norwegian crown (0.0372 pounds), beating a 0.41 crown forecast.

“Stellar December traffic figures - stock to move up,” Danske Bank analyst Martin Stenshall wrote in a note to clients.

By 0727 GMT, Norwegian’s shares were up 5.3% at 40.60 crowns. They have tumbled 60% in the last year but have risen 19% in the last three months as the turnaround plan gained traction.

Routes between Ireland and the United States and Canada were cut from Norwegian’s schedule last September, and last month the company also announced the sale of its domestic business in Argentina to JetSMART Airlines.

The cutbacks may also alleviate the pressure on rivals such as Scandinavian Airlines (SAS.ST), which now faces less head-to-head competition on routes between Europe and the United States and Thailand.

Norwegian on average filled 83.5% of seats in December, up from a load factor of 78.6% in the final month of 2018 and beating an average forecast of 82.4%.

“The ticket sales for the next months ahead are looking good, both for business and leisure travellers,” newly appointed Chief Executive Jacob Schram said in a statement.

Prior to October, when Norwegian’s capacity fell by 5% from the corresponding month of 2018, the airline’s ASK had risen every month since the airline went public in 2003.

As part of the carrier’s turnaround, it announced in October it would cut its ASK capacity by 10% in 2020 from 2019.

“Norwegian’s dedicated employees have made an impressive effort delivering on the strategy of moving from growth to profitability,” Schram said.

Editing by Gwladys Fouche and Louise Heavens and Susan Fenton

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