Skift Take
Norwegian wins lots of awards, and they're well-deserved. But investors aren't sure the carrier will produce major profits any time soon. The problem? It may be growing too quickly.
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Few no-frills airlines delight customers as much as Norwegian Air, the Oslo discounter challenging legacy carriers like American Airlines, United Airlines, British Airways, and Lufthansa on some of their most lucrative transatlantic routes. In an industry that has changed little over the past three decades, Norwegian is a disrupter.
Yes, it charges for nearly everything, including seat assignments and meals, but it's often so much cheaper than big airlines that passengers rarely complain. Travelers like how Norwegian flies new Boeing 787s with high-resolution in-seat screens and mood lighting on many longer routes. And unlike many discount airlines, which serve only larger cities, Norwegian not only flies from New York City and Los Angeles, but also from Hartford, Connecticut; Newburgh, New York; and Providence, Rhode Island, making it a convenient option for more travelers.
Still, not all is perfect at Norwegian, an airline that has won three consecutive awards for the world's best low-cost carrier, and maintains load factors of nearly 90 percent. While it has excelled at making passengers happy, the airline's profits have fallen as costs have increased, leading some investment analysts to question whether Norwegian has grown too quickly. They wonder if Norwegian can withstand competition from legacy carriers, especially since some larger airlines seem willing to lose money to thwart it.
Analysts had been concerned for awhile about Norwegian, and some expressed disappointment when CFO Frode Foss quit unexpectedly in early July after 15 years with the airline to "explore new ventures." But they were more spooked in mid-July when the airline announced second quarter earnings.
Norwegian's adjusted operating profit, before aircraft leasing and depreciation, fell 21 percent year-over-year, to roughly $144 million. It was less profit than most analysts had expected, and the airline blamed the dip on higher-than-expected costs, as well as sagging unit revenue
