Norwegian Air Shuttle ASA

Good morning and welcome to the First Quarter presentation for Norwegian. My name is Jesper Hatletveit and I'm the VP of Investor Relations here at the company.

Today, I am joined by CEO, Geir Karlsen, I am also joined by our CFO, Hans-Jørgen Wibstad who joined us only this week. Today's presentation will be held by Geir, and it will be followed by Q&A from the audience and the web.

Geir, please go ahead.

Thank you, Jesper. I would also like to welcome to you all.

We also like to welcome [Indiscernible] again to the team. Finally you are on board.

You have been here for just a few days. So I'm sure you will help me doing the presentations from next quarter.

So where -- the First Quarter of 2022, I think was another special quarter. Finally we thought when we were coming to the end of 2021 that we would get into some normality.

That didn't happen, and we had the Omicron situation kicking in late last year, and certainly that has an effect on the figures and the results for the region for the first quarter of 2022. We became out of the quarter with $849 million in loss on EBIT.

And it's disappointing obviously, but at the same time, this is pretty much in line with what we hoped for, I would say, when we saw the situation last -- late last year and we -- I think we -- during the Omicron situation or even early in that situation, I think we acted pretty quickly and we adjusted the capacity. And I think if we hadn't done that, I think the results for the first quarter would have been in the area of $700 million higher when it comes to the losses.

We have seen throughout the quarter though, that the demand has been coming back. And I will get into more detail on that later.

We have been pretty good taking care of or liquidity in Norwegian the last year. We are continuing to do that.

So even if we have a loss in the quarter, we have more or less the same liquidity position coming out of the quarter as we had in the fourth quarter of 2021. We are continuing to ramp up and we have been doing that throughout the quarter and the effects of that we'll be seeing now through this current quarter and into the peak season in the summer.

We had load of 76.9 in the quarter is as an average, and we took care of 2.2 million passengers. When it comes to the development over the -- through the quarter on yields, on load factors, etc.

You can see development here. So what we did back in December when we saw the Omicron situation coming in, reduced the capacity with 26% in the first quarter compared to what we planned for.

So we did plan for to fly 10% increased capacity compared to Q4, and we ended up flying 16% lower than the previous quarter, but we're seeing a very healthy development in yields and in load. And we're very happy that we're now seeing the April figures, especially when the summer season is really here where we have a pretty nice increase in yield, taking it up to 0.77.

We have been ramping up as I said. We were having approximately 900,000 seats for sale in February, increased to 1.3 million in March, and we have two million seats for sale -- we had two million seats for sale for sale in April and we're even increasing that figure to 2.2 million into May.

The good thing here is that even if we are putting that much capacity into the market, we are still able to fill up the aircraft and thereby we're seeing a steady load in the area of 80%. And hopefully we can continue to do that and even increase it into the summer.

And another good thing, and this is the graph you're seeing here to the right, is the development relative between the seven-day rolling sale on pax and on revenues. And the spread between the two is even increasing a little bit, meaning that we're selling tickets at a higher yield, which is very good.

In certain part of the market that we're operating, we're now selling tickets, especially in July -- let's say late June into the whole of July, between 40% and 45% higher yield than we did in the same period in 2019 as a whole for the company. If you add in all the routes, all the markets, we are above 30% higher than what we did back at the same period in 2019, we do also know that was quite a few passengers, people that are going on vacation for the coming someone that has still not booked the summer holidays.

And thereby, we do expect to see a pretty nice developments both in load and on yield going into the, going into the peak summer, we have 208 routes for sale as we have been telling many times. And we are sticking to that and we are planning to fly those routes as well.

We have been working pretty hard to see what we can do on the corporate market in Norwegian. So what we have been, first of all, accompany focusing on the leisure markets.

But what we have been seeing now, both in absolute terms and also in relative terms compared to all our revenues, is that we're seeing an increased portion of our revenues coming from the corporate markets. That is nice to see.

We have a regularity in the quarter of 99.4%, meaning that the routes we're saying we're going to fly we are actually flying. And that is also the plan going forward.

And I do anticipate that that is a good thing and we are now able to attract a little bit more of the corporate travels than what we have done before. So as a percentage of the total revenue, we are seeing here the corporate market is having an increase.

And that is something we will look into going forward as well to try to see if we can make it a little bit more attractive for the corporate travelers compared to what we have done previously. The results, we're not happy with the results just to make that clear.

But the same time, I think we have done quite well over the quarter. We have obviously a decrease in the total RASK down to 0.48.

Looking at April though, we have a RASK of approximately 0.6. We had reduced the capacity as we see on the RPK with 16% compared to the last quarter.

And salaries are having a nice increase of 10%. Hopefully, that will continue and we can see higher values over the over the next months.

And then we have, as I said, the 468 loss in the quarter. But at the same time, we have been able to preserve the liquidity and we're still sitting with $7.5 billion in cash.

Looking at the P&L top-line of $1.9 billion, we have a reduction in costs of approximately 10% even taking in the fact that we have pretty steep increase in the fuel price and we have a cost per seat kilometers of 0.55. We're certainly not happy with that, but at the same time, I think we will see going forward that you will have a drastic reduction in cost going into the peak season.

Looking at the P&L, I think it's important that you know that we have been reducing the capacity. We went into the quarter with I'd say too much capacity also on the crew side.

But at the same time, we were very happy that we could avoid to furlough people or colleagues throughout the quarter because it really makes sense. We had also struggled with very high sick leave due to the Omicron and by that, we decided not to do any furloughing throughout the quarter.

At the same time we have, I would say, invested massively into recruiting new colleagues that we're planning to use when we are ramping up to the operation into the summer season. We have taken in more than 800 people, employees into the company throughout the last very few months and it's 540 in the cabin and 280 pilots.

And we have done that investment, meaning that we are taking them into the company, we're doing all the training necessary and thereby we will then put them into operation throughout the next month. And by that, we are quite comfortable that we have enough crew and pilots for the summer season.

And that is obviously a high investment than we have taking throughout this quarter. Other than that, we have EBITDA of 468 minus as I said, we have 183 on net financial items, we have $17 million not in interest, in income, and we have $165 million in interest expenses.

When we are ramping up the way we're doing now, that’s when we are seeing -- we will start to see the effects on the scale that we're building into the operation and especially on the cost side, you will see an effect. We're saying here today that we do expect to see -- we have already finished with April.

So in April, we have the cost of low 40s. And when we're going into the summer and throughout 2022, we have a target from now until the end the year to have a cost below 0.40.

That's when we are starting to see an area where we should be. And we will continue throughout the remainder of part of this year and also into next year to even push that level down.

That's when we are starting to get really competitive. And that's why we're all -- that's when we're also starting to get closer to the best guys in class and this is where we need to be in order to be competitive for the periods forward.

Balance sheets, not much to mentioned. Obviously, we're putting in six more aircraft this quarter compared to four -- fourth quarter of last year.

We are seeing a pretty nice as we have promised, development towards the credit cards acquirers. We were coming from a level last year over hold back.

It was actually more than a 100%, then we took it down to 120%. We had in fourth quarter 109%.

And now we're down to 73% hold back. You're seeing that the accounts receivable is increasing.

That is absolute increase in whole back. But if you see it -- if you look at it as a percentage of the air traffic settlement liabilities of 3.6 billion, you're seeing that the whole back is actually in percentage coming down.

That means that we're getting rather terms with the credit card acquirers, and we do expect that that level will continue to come down where it should be. And I think where it should be is probably below to 50%?

I think it would take a little bit of time before we're getting there. But let's hope we can get there as soon as possible.

The liabilities are going up with 15.5 to 17.8, as long as, as long as the main reason for that is a traffic pilot liabilities. I'm happy that because that means that we have sold more tickets.

And that's a good thing. Cash flow a very simple view of the cash flow.

So what you're seeing here as the, if you look at operations, the operating activities, and that includes the change in the working capital, which also includes them, the effects from these credit card acquirers. And that's I would say that's probably the main reason that we're not burning cash in this quarter.

And we are now into the summer season and we can start to really ramp up and to look at good figures into the high season. So we are cash flow-wise, liquidity-wise, very well positioned, I would say.

And we're heading into the high season. If you look forward on the fleet plan, we are flying today 61-62 aircrafts.

We are in the process of adding in a 7, 8, 9 aircraft into the peak season. So we will have 70 aircraft as we have been saying, also previously, during this summer.

We had also signed up 15 additional MAXs that we will take delivery of early next year. I mean, I think a few of them already come in this fall.

But the ones coming in this fall, we'll have power-by-the-hour, so we're not paying for them until we're starting to fly them into the spring. I think that the MAXs that we have signed up for next year has attractive terms and certainly below the terms that you are actually able to get today.

And then so we will go into the top season in 2023 with 85 aircrafts. We have five re-deliveries next year.

So in that, going into the fall of 2023, we will have -- we will be down to 80. One thing that is very important also to say is that the 19 aircraft we had taken in this year has powered by also next winter.

And I think we will see -- I don't know if it's the first time in Norwegian's history, but you will see next winter that we will take down capacity. We will fly less and we are aiming as per today, to take down the capacity with probably as much as 25%.

That means we have the capacity -- we have the ability to take down the capacity on the aircraft side to be that much as well on the PBH side. We have also been able to arrange to get to a solution with the pilots and the crew, which also gives us that ability and thereby we have the flexibility we need in order to have a winter season that could be pretty good as it looks today.

This is very important for Norwegian going forward as well. We don't have an issue with this for the coming winter.

So it's all about now finding the good solutions also for the winter of 2023 and 2024. So what we're trying -- we will try to do is to probably not park aircraft, but we will fly them will be less capacity we're also trying to put as much of the heavy maintenance of our fleet into the winter season.

And by that freeing up that capacity also throughout the summer season. And that's been saying many times, I think it's all about if you want to deliver a good result in this company, it's all about the winter really, because l think we have lost too much money previously in the previous winters.

I mean, need to fix that. Everyone can make money during the summer is all about the winter.

And I think we're very close now to finding a solution on that. So just as a summary, I think we're not happy with the first quarter results and we have though, seeing very nice development both in yields and in ROSC over the last months.

We have, as I said, a strong liquidity position, we have the flexibility that we need, and we are -- we have taken this year a bet. And you are seeing that the ticket prices for this summer is more expensive, unfortunate for the passengers.

But you could say in an indirect way that fuel prices -- the high fuel prices is starting to get into the -- into the ticket prices. And then if the fuel prices continue at the high level we're seeing today, I think unfortunately, you might see that the ticket prices will stay at the level they are today and even getting higher as the loads are getting higher and such.

And that is just the result of the environment. But we have not pushed out a lot of what have we called the cheap tickets over the winter.

And because we do believe that there is the pent-up demand in the market. We think we will see and we're already starting to see that flow.

I mean, we're selling now on a 7-day rolling sale between 400,000 and 500,000 tickets a week. I think that will increase.

There is a lot of people that has not booked their summer holidays still. and hopefully they will soon, and then we will just see how this develops.

When we're looking at the different markets for the coming summer, we're seeing that we're selling very well in certain markets while we are not doing that well in other markets. So we are -- we will be spending a little bit time now in May to fine-tune the network.

We might do some smaller changes. It will not affect the passengers but this is just to optimize the capacity and to use the capacity where the passengers would like to travel.

But this is what I will say, is fine tuning, and not any dramatic changes. And very importantly, we are continuing to work on the cost side.

I think for the years to come, it's going to be a cost game. And we're now starting to see what we have been promising to the market, meaning that we will take the cost level down.

0.55 for the current quarter, not happy with that at all, but the same time it is difficult when you're reducing the capacity with 26% and you're keeping the costs, you have high sick leave and so on. But now, we're really starting to see it.

So April cost, the month behind us, we're down below 0.40. As I said, target is to get below 0.40 for the remaining part of this year and then we will just continue that.

We have an organization today that is running 60 to 70 aircraft. I think we can run with the same administration; we can probably run 20 to 30 more aircraft with the same costs on the fixed cost side.

And so we have more capacity to put into a bigger fleet. With that, I think we conclude.

Jesper.

Okay, we then open up for questions from the audience. Please raise your hand and wait for the microphone.

Hans Jørgen Elnæs, Winair. The fuel impact for Q2, Q1 versus Q4 was 35%.

But if you look in the relative increase and if you price from December through April it's up like 70%. And there is a lag in how this impact on Norwegian.

So we should expect that the fuel impact will be higher in Q3 -- Q2 and Q3 and how will you compensate that? We can go a little bit further into that.

And secondly, you're going to look for more aircraft and the leasing regime is not as good as it was before. Can we see that Norwegian is going more aggressively to close the deals now for the future and can you give an update also on the situation with Boeing?

I think on the fuel side, obviously, that is something that is impacting us all at an oil price between 105 and 107, and it's kicking in and it's definitely, it is having an effect on the results. I mean, if you saw that fuel price, the fuel costs in this quarter compared to fourth quarter is actually down.

It's not because of the fuel price has reduced its because we're just flying less, and that's also a way to mitigate those losses. That said, I think if you look at the few prices now and also going forward, I think let's say in the current quarter, I think you could say that it has starting to flow into ticket prices and I would say that the relative fuel increase we have seen over the quarters, I think we have compensated close to 50% of it into the ticket prices so far.

And as I said, I think if that level is continuing into the next few quarters, meaning yet we're seeing a full jet fuel price at $1,100. Unfortunately, I think that will probably flow into the ticket price even more than what it is doing -- have have done so far.

But it will have a negative effect to us. Looking at the market that we're operating in, I would say we are in pretty much the same situation as the other guys, especially the main competitor which is SAS, where they are sitting in the same position, not hedged as such.

And I wish we had been doing some hedges last year. We didn't mostly because we couldn't due to the fact that we came out of this restructuring and and we had to wait for a little while today.

We have all the necessary lines we need and we can hedge whatever we need. But so this is something we just need to follow.

On the fleet side, yes, it is correct there until again, the leasing market is tightening in very much, I mean, in 3, 4, 5 months ago, you could probably take in MAX at the below -- way below 300,000 a month. Today, you are probably paying 350,000 plus a month for take -- to taking a brand-new MAX.

We have secured what we need for next year, the 15 MAXes at what I would say attractive terms. We have continued with dialogue with Boeing, as well as with Airbus.

And I think I can't say that we are definitely much closer to a solution on the plan going forward. And we will be sharing news when we have the news to share, but we're definitely closer to a solution.

I think going forward, what we would like is to have a portion of the fleet, maybe even more than 50% owned. I think we have a -- if we are doing well going forward, we should have a credit that should give us the ability to finance our assets, probably cheaper than we have done ever.

I think that is important, is necessary in order to keep the cost levels and the cost levels in general in the company going forward. And that's the only way to go in my opinion.

Did I answer your questions [Indiscernible]?

Yes, Hatletveit. And I think I support you in them to own aircraft today versus leasing at the current situation than going forward that way a better deal for you if you buy the aircraft from Boeing if you cut a deal with them.

We will then open up for some questions from the web. We will start with Olazar Martin Vasco (ph), from DME Markets.

First question, are you able to pass on the high fuel costs to the passengers? I think you have answered that.

I've tried at least.

You've tried a couple of times. We move on to next question.

How do you see capacity growth in the Nordic for the summer season?

Well, in the Nordic, it's I think the market is - for which period, by the way?

Going summer season.

Well, I mean, we have said throughout the last month that we have set the network both for the spring and into the summer that is still the network we're trying to fly 70 aircraft. You have our friends in [Indiscernible] and they have -- I think they have eight to ten aircraft today, maybe adding in a couple of more.

So that is what they are going to contribute with. We're obviously seeing that SAS is taking down capacity.

They had been taken down capacity already in certain parts of the markets. There are -- they shared the news last for this week, they're doing 4,000 cancellations, and they will probably fly with somewhat lower capacity than what they were planning to do a little bit earlier.

I think as I said, we have been carefully planning the summer season on the crew side, and that's why we have invested massively into taking in crew throughout a difficult quarter in the first quarter. But we are comfortable that we will be able to fly what we're going to do.

And other than that, what we're seeing is that if you look at Lionair, for example, they have -- they're not flying more than they have been planning to do. We are seeing that Eurowings is doing a massive marketing campaign now Elounda, for example.

But the same time, I think they are flying less than 50% of what are we trying to fly. And so I think we're comfortable with the competition on the capacity coming into what I'd say, our markets.

And then maybe we'll just see.

We then move on to our question from Jaako Tivolan at ICB. How comfortable are you with current equity level?

Well, as I tried to say, obviously we had to -- we took a hit on equity level in this quarter, and that's not to plan going forward. And I think even if we have a relatively strong balance sheet, in my opinion today, and definitely compared to our competitors, it's not like we're going to fall asleep on this level.

I think we have to even strengthen the balance sheet and we will try to find all the measures to be able to do that. And I think we need a more stronger balance sheet than what we have today.

And so let's see how we can get that done going forward. I think in 2022, its all about coming out of the year with a black figure on the bottom line.

I think we will be able to do that and even maybe loss in this quarter, let's see how we can do it but I don't think we can, and then continue from there. But as I said, it's all about getting the cost level to the level it needs to be.

And then we will work on the top-line as well. We are also looking into the reward program.

We have a fantastic reward program. It's very much liked by our loyal customers.

We have more than 4.2 million customer numbers today. We are working to get -- to increase that, but we're also looking into what we can do with the reward program.

Can we make it even more attractive? Can we think even a little bit more smarter on the reward program?

Let's see over the next periods if we can share some news on that.

Okay. There are no further questions.

So I think we conclude the session then. Thank you.

Thank you for coming, guys.