Few things are better for a company than a struggling competitor. That is proving true for Norwegian Air following the U.S. bankruptcy filing and subsequent pilot strike at its main competitor SAS this summer.
“We have seen over the last month a pretty drastic shift where we are definitely taking [corporate] market share,” Norwegian Air CEO Geir Karlsen said during the airline’s third quarter-earnings call on Wednesday. While he did not mention SAS by name, the airline is the sole legacy carrier with a dominant share of business travel in Scandinavia.
Norwegian Air’s revenues from corporate travel are already above 2019 levels — albeit a low base for the predominantly leisure airline — and continue to grow, Karlsen said. The discounter’s new partnership with regional airline Wideøe is also helping funnel corporate travelers onto Norwegian’s flights. And, Karlsen added, a recent survey of large Nordic corporates by the airline found that they are booking more than half of their travel on Norwegian.
“This is one of the very high focus areas that we have going forward,” Karlsen said. He added, in response to questions, that Norwegian Air planned a product-related announcement that would be attractive to business travelers before the December holidays.
Norwegian Air is the second largest airline in Scandinavia. The discounter had a nearly 22 percent share of seats in the third quarter compared to SAS’s 39 percent share, according to Diio by Cirium schedules. However, Norwegian Air’s share has only dipped slightly from nearly 25 percent in 2019 while SAS’s fell 10 points.
Norwegian Air’s corporate gains come as SAS said at the end of September that it expected the business travel recovery to “flatten out” at about 80 percent of 2019 levels. The airline is working to cut costs and shrink through its U.S. Chapter 11 restructuring, and has made some progress on labor accords and new aircraft lease terms.
And Norwegian startup Flyr said at the beginning of October that it would at least halve its winter schedule from plan and involuntarily furlough staff to reduce cash burn. Schedule cuts included almost all of its domestic Norway flying.
“I think if you look at the Norwegian market, you have … overcapacity,” Karlsen said citing Flyr and Norwegian Air’s combined fleets. “That’s too many aircraft.”
Norwegian Air has already reduced its capacity this winter by about a quarter from its summer schedule. Karlsen said bookings look good in October and November, and he expects December to benefit from the Christmas and New Years holidays. The outlook for the first quarter remains uncertain, with the airline prepared to make some “amendments” — in other words, cancel flights — to its schedule then if needed, he said.
But the airline is confident in travel demand next summer. Norwegian Air plans to operate around 82 aircraft, including 15 new leased Boeing 737-8s that are scheduled for delivery in 2023, with 274 routes already on sale. Karlsen said the remaining balance of Norwegian Air’s summer 2023 schedule, including an undisclosed number of new routes, will be unveiled shortly.
One throwback network move Norwegian Air will make next year is opening a new base in Riga, Latvia. The airline will base two aircraft there in what Karlsen described as “some kind of a test” of its ability to profitably expand outside of Scandinavia. Norwegian Air’s pandemic restructuring was, in part, the result of an overambitious expansion plan, including money-losing long-haul flights, under the airline’s previous leadership team. Riga is also the home base of AirBaltic.
“We will grow for the next years in line with the demand,” Karlsen said in response to questions over the new base. “We see Riga as an opportunity to do steps outside of the Nordics, but at the same time, we are seeing that Riga is actually — and the countries around — just an extended part of the Nordics … It’s small scale at least for now.”
Norwegian Air did well in the third quarter. The carrier posted a 15 percent operating margin on revenues of 7.1 billion Norwegian kroner ($689 million). It generated a net profit of 910 million Norwegian kroner. Unit revenues increased 61 percent and unit costs excluding fuel decreased 25 percent year-over-year; and, compared to 2019, the former was up 85 percent and the latter 39 percent.
High fuel costs and foreign exchange pressures remain the top concerns for Norwegian Air, Karlsen said.
Norwegian Air provided little guidance for the fourth quarter beyond the previously mentioned comments on bookings. For 2023, the airline plans to fly roughly 27 percent more capacity than it will this year.