Contributor - Europe

Cathy Buyck

Norwegian Air Shuttle is accelerating the pace of its restructuring with a further reduction of its capacity growth and the start of a search for a new CEO to replace Bjorn Kjos, who stepped down Thursday after 17 years in the role. Kjos, a former fighter pilot and co-founder of the Europe’s third largest low-cost carrier (LCC) by passenger numbers and the continent’s largest long-haul LCC, will become an adviser to the chairman.&nbsp; Kjos called his retirement “way overdue” &nbsp;during a news conference on Thursday. “You shouldn’t run an airline past your seventies,” he said. Kjos,&nbsp;72,&nbsp;last year indicated his readiness to hand over the reins of the company he built from a small domestic operation with 130 employees and four aircraft to a global LCC with more than 11,000 employees and 162 aircraft. “I look forward to spending more time working on specific strategic projects that are crucial to the future success of Norwegian,” said Kjos, who insisted he is “very happy” with the new arrangement.

 


CFO and deputy CEO Geir Karlsen will act as interim CEO.

 


Kjos’s retirement from Norwegian follows the resignation of Bjorn Kise as chairman in May. Kise participated in the founding of the company in 1993 and served as chairman since 2010.&nbsp; Kjos and Kise are Norwegian’s largest shareholders, holding a near 20 percent stake though their joint investment vehicle, HBK Holding.

 


Niels Smedegaard, who became chairman in May, said the new CEO’s main mission will center on running a profitable business and boosting company value for shareholders, customers, and employees. On the back of an unstainable level of debt due to its rapid expansion, Norwegian in 2018 changed its strategy from growth to profitability. &nbsp;“We have to ensure that Norwegian is well prepared and positioned to handle volatile markets and unexpected events,” Smedegaard emphasized. “It is crucial that we continue to deliver on our cost reduction initiatives and that we constantly ensure that we have a route portfolio that yields profit.”

 


The airline plans to further reduce capacity growth, to between 0- and 5 percent for 2019 compared with previous guidance of 5- to 10 percent.

 


The LCC will receive one new Boeing 787-9 in the second half—it added four examples in the first half ending June 30—as expected, though the narrowbody fleet will remain largely stable in part thanks to the ongoing problems with the Boeing 737 Max 8. Norwegian now expects to add only “up to” six Max aircraft this year, or 10 less than initially planned. “For 2019 to 2021 the delivery schedule for the Max fleet is uncertain,” Norwegian cautioned in its second quarter results presentation on Thursday. It revised downward the number of expected Max deliveries by seven in 2020 and by 16 units in 2021.

 


The lower number of Max deliveries reduces the contractually committed capital expenditure estimate from $1.7 billion to $1.2 billion this year. The model’s grounding, however, cost the operator 400 million Norwegian kroner ($46.4 million) in the second quarter and it expects that effect will rise to NOK700 million for the full year. Norwegian has 18 Max jets sitting idle. Negative effects include reduced revenue from cancellations and other disruptions as well as increased expenses from crew inefficiencies, increased fuel consumption, and passenger compensation, Norwegian noted.

 


The airline anticipates its 18 grounded Max airplanes to return to service in October, after previously targeting a return to service in August.

 


Norwegian reported a net profit of NOK82.8 million in the three months ending June 30, down from a NOK300.3 million net profit during the same period a year earlier. It carried 10 million passengers, on par with the previous year’s corresponding quarter, and load factor averaged 88 percent, a gain of 1.2 percentage points. Available seat kilometers (ASKs) rose 6 percent, down from the peak growth of 48 percent in the second quarter of 2018; unit revenue rose 13 percent and yield increased 11 percent year-over-year.&nbsp; The second quarter results showed the company is delivering on its strategy of moving from growth to profitability, said Kjos. “Despite operational issues outside of our control, like the grounding of our 737 Max fleet, we are delivering the highest second quarter operating revenue in the history of Norwegian,” he declared.

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