Norwegian silences naysayers – for now – after securing new capital

Budget long-haul airline is safe for another year but many in the industry are still sceptical about the viability of its business model
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Norwegian airlines, Norwegian, Long haul low cost, Budget long haul, Long haul, LCC
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Norwegian is safe for another year after it raised new capital following a challenging 12 months which has seen it rack up large debts and cancel routes.

The airline, which became well-known for its aggressive pursuit of the untested long-haul low-cost model, secured around $273 million in gross proceeds and a convertible bond issue of $150 million.

Norwegian said in a statement that it is now “fully funded through 2020 and beyond based on the current business plan”.

This year, the carrier has adjusted its strategy from focusing on growth to profitability and withdrawing some of its long-haul routes.

Norwegian said that its strategy shift has resulted in “strong operational improvements”. Profits in the company’s third quarterly results were the highest ever and the company has taken several actions to increase liquidity and reduce capital commitments, it said.

Acting CEO Geir Karlsen said: “The capital raise will secure required financing of working capital during the winter season and create financial headroom as the company moves from growth to profitability.

“The actions we are now taking will enable us to embark on the next chapter of Norwegian, to the benefit of all shareholders, customers and employees.”

But Ryanair’s CEO Michael O’Leary said that Norwegian’s model would not be able to survive.

He told reporters that the carrier was “doomed”, that the business model “doesn’t work” and that it is “only a matter of time before it goes bust”.

Others believe that the long-haul low-cost model has potential with analysts believing that with the rise of new midsize fuel efficient aircraft, it can be achieved. There is particular optimism for the model working in Asia where it is easier for airlines to fill planes.

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