Norwegian Air Shuttle ASA Q2 2014 Presentation Photo: Lasse Andreas - - PowerPoint PPT Presentation

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Norwegian Air Shuttle ASA Q2 2014 Presentation Photo: Lasse Andreas - - PowerPoint PPT Presentation

May 24, 2023 203 likes •466 views

Norwegian Air Shuttle ASA Q2 2014 Presentation Photo: Lasse Andreas Vestli Berg / Fuglya on approach to Bod in Northern Norway Europes best low-cost airline 2013 & 2014 Europes best low-cost airline Double digit revenue growth

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SLIDE 1

Europe’s best low-cost airline 2013 & 2014

Norwegian Air Shuttle ASA

Q2 2014 Presentation

Photo: Lasse Andreas Vestli Berg / Fugløya on approach to Bodø in Northern Norway

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SLIDE 2

Europe’s best low-cost airline 2013 & 2014

  • Group revenues of MNOK 5,043 in Q2 2014

Double digit revenue growth in Q2

Revenues 2 725 3 170 4 012 5 043 Domestic revenue 982 1 017 1 192 1 173 % y.o.y. chg

28 % 4 % 17 %

  • 2 %

International revenue 1 743 2 153 2 820 3 870 % y.o.y. chg

38 % 24 % 31 % 37 %

1 000 2 000 3 000 4 000 5 000

Q2 11 Q2 12 Q2 13 Q2 14

MNOK

Domestic Revenue (MNOK) International Revenue (MNOK Total Revenues (MNOK)

+ 26 %

2

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SLIDE 3

Europe’s best low-cost airline 2013 & 2014

Q2 14 Q2 13 EBITDAR MNOK 563 878 EBITDA MNOK 94 574 EBIT MNOK

  • 85

446 Pre-tax profit (EBT) MNOK

  • 137

277 Net profit MNOK 129 197

Q2 affected by one-offs and price pressure

Q2 11 Q2 12 Q2 13 Q2 14 Q2 11 Q2 12 Q2 13 Q2 14 EBITDAR margin 13 % 21 % 22 % 11 % EBT margin 3 % 4 % 7 %

  • 3 %

347 680 878 563

100 200 300 400 500 600 700 800 900 MNOK

74 125 277

  • 137
  • 200
  • 150
  • 100
  • 50

50 100 150 200 250 300 MNOK

EBT development Q2 EBITDAR development Q2

3

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SLIDE 4

Europe’s best low-cost airline 2013 & 2014

  • Wet-lease on long-haul

– Previously delayed Dreamliner deliveries with knock-on effects (crew training) – Slow US DOT approval process causes suboptimal scheduling

  • One-man strike caused MNOK 101 in lost revenue
  • Unit revenue

– Own capacity investment – Price pressure in the Scandinavian market

Operational and currency headwinds in Q2

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SLIDE 5

Europe’s best low-cost airline 2013 & 2014

Ancillary revenue remains a significant contributor

  • Ancillary revenue comprises 14% of Q2 revenues
  • NOK 110 per scheduled passenger (an increase of 38% from last year)

5

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Europe’s best low-cost airline 2013 & 2014

  • Cash flows from operations in Q2 14
  • Cash flows from investing activities in Q2 14
  • Cash flows from financing activities in Q2 14
  • Cash and cash equivalents at period-end

MNOK 2 339 MNOK 660 MNOK -1 902 MNOK 416

(MNOK 1084) (MNOK -702) (MNOK 96) (MNOK 2923)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

Unaudited Q2 Q2 YTD YTD Full Year Full Year (Amounts in NOK million ) 2014 2013 2014 2013 2013 2012 Net cash flows from operating activities 416 1 084 1 518 2 046 2 377 2 022 Net cash flows from investing activities

  • 1 902
  • 702
  • 2 936
  • 544
  • 2 126
  • 2 766

Net cash flows from financial activities 660 96 1 588

  • 310

184 1 369 Foreign exchange effect on cash 5

  • 1

3 Net change in cash and cash equivalents

  • 821

478 173 1 192 435 626 Cash and cash equivalents in beginning of period 3 160 2 445 2 166 1 731 1 731 1 105 Cash and cash equivalents in end of period 2 339 2 923 2 339 2 923 2 166 1 731

Continued positive cash flow from operations in Q2

6

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SLIDE 7

Europe’s best low-cost airline 2013 & 2014 12 mth rolling development

Total investment (MNOK) 107 640 596 1 722 1 835 1 939 2 654 4 519

102 %

  • 253 %

54 % 60 % 48 % 53 % 24 %

  • 65 %

Invested internal funds in percent of total investment

( 271) 650 ( 385) 419 976 930 1 603 2 437 237 36 3 1 175 615 1 285 2 952 1 849

508 ( 105) 283 1 039 678 1 033 2 381 1 793 ( 500)

  • 500

1 000 1 500 2 000 2 500 3 000

Q2 07 Q2 08 Q2 09 Q2 10 Q2 11 Q2 12 Q2 13 Q2 14

MNOK Invested internal funds (Cash Flow from Investing activities less Cash Flow from financing activities (12 mths)) Cash Flow from Operations (12 mths) Net surplus cash (accumulated) (from 2007)

  • Cash flow from operations NOK 8.2 billion since aircraft renewal program began in 2007
  • Invested NOK 14.0 billion of which NOK 6.4 with internal funds
  • Future sublease or sale of aircraft will boost cash

Strong operating cash flow invested in aircraft

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SLIDE 8

Europe’s best low-cost airline 2013 & 2014

  • Total balance of NOK 18.9 billion
  • Net interest bearing debt NOK 6 billion
  • Equity of NOK 2.3 billion at the end of Q2 14
  • Group equity ratio of 12% (17%)

Three on-B/S737-800 and one on-B/S 787-8 delivered in Q2 alone:

Equity ratio affected by NOK 4.5 billion increase in non-current assets

2 923 Cash 2 339 2 027 Receivables 2 585 9 472 Non-current assets 14 000

2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000 Q2 13 Q2 14

MNOK

Equity 2 299 2 503 Pre-sold tickets 4 579 3 377 Other current liabilities 3 725 3 688 Long term liabilities 8 321 4 855

Q2 14 Q2 13

8

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SLIDE 9

Europe’s best low-cost airline 2013 & 2014

Record-high Q2 load in spite of 41% capacity increase

  • 46% traffic growth
  • Average flying distance up 18%
  • Short-haul load up 2.0 p.p.

ASK 940 1 323 1 763 2 974 3 469 4 449 5 518 6 357 8 541 12 012 Load Factor 77.7 % 79.1 % 79.4 % 78.4 % 78.3 % 75.4 % 78.3 % 76.5 % 76.9 % 79.8 % 77.7 % 79.1 % 79.4 % 78.4 % 78.3 % 75.4 % 78.3 % 76.5 % 76.9 % 79.8 %

0.0 % 20.0 % 40.0 % 60.0 % 80.0 % 100.0 % 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 9 000 10 000 11 000 12 000

Q2 05 Q2 06 Q2 07 Q2 08 Q2 09 Q2 10 Q2 11 Q2 12 Q2 13 Q2 14

Load Factor Available Seat KM (ASK)

ASK Load Factor

+ 41 %

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SLIDE 10

Europe’s best low-cost airline 2013 & 2014

6.4 million passengers in Q2

  • An increase of 900,000 passengers

Pax (mill) 0.9 1.3 1.6 2.3 2.8 3.2 4.0 4.5 5.5 6.4

0.00 1.00 2.00 3.00 4.00 5.00 6.00

Q2 05 Q2 06 Q2 07 Q2 08 Q2 09 Q2 10 Q2 11 Q2 12 Q2 13 Q2 14

Passengers (million)

+16 %

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SLIDE 11

Europe’s best low-cost airline 2013 & 2014

  • Business model works – lower costs and prices attract volume

Strong demand:

Growing market share in all markets

Marketshare Oslo Airport (OSL) Marketshare Stockholm Airport (ARN) Marketshare Copenhagen Airport (CPH) Marketshare Helsinki Airport (HEL) Marketshare London Gatwick (LGW) Marketshare Spanish bases (AGP, ALC, BCN, LPA, MAD, TFS) Q2 09 33 % 11 % 7 % 0 % 2 % 1 % Q2 10 37 % 13 % 10 % 1 % 2 % 1 % Q2 11 37 % 17 % 11 % 7 % 3 % 1 % Q2 12 36 % 19 % 13 % 8 % 4 % 1 % Q2 13 38 % 22 % 17 % 11 % 5 % 2 % Q2 14 39 % 23 % 17 % 12 % 7 % 3 % 0 % 5 % 10 % 15 % 20 % 25 % 30 % 35 % 40 %

+ 174,000 pax 47% of mkt growth + 193,000 pax 33% of mkt growth + 90,000 pax 14% of mkt growth + 47,000 pax 26% of mkt growth + 235,000 pax 29% of mkt growth + 369,000 pax 18% of mkt growth

  • Mkt. Size:

2.4 mill

  • Mkt. Size:

2.2 mill

  • Mkt. Size:

11.2 mill

  • Mkt. Size:

3.6 mill

  • Mkt. Size:

1.5 mill

  • Mkt. Size:

2.5 mill

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Europe’s best low-cost airline 2013 & 2014

Lowest cost always wins

  • Cost per available seat kilometer is an industry-wide cost level indicator often referred to as “CASK”. Usually represented as operating expenses before depreciation and amortization (EBITDA level) over produced seat kilometers (ASK).
  • Foreign exchange rates used are equivalent to the daily average rates corresponding to the reporting periods and as stated by the Central Bank of Norway
  • Note: For some carriers the available financial data represents Group level data which may include cost items from activities that are unrelated to airline operations.
  • Other losses / (gains) is not included in the CASK concept as it primarily contains hedge gains/losses offset under financial items* as well as other non-operational income and/or cost items such as gains on the sale of spare part inventory and unrealized foreign currency effects on receivables/payables and (hedges of
  • perational expenses).

*Norwegian hedges USD/NOK to counter foreign currency risk exposure on USD denominated borrowings translated to the prevailing currency rate at each balance sheet date. Hedge gains and losses are according to IFRS recognized under operating expenses (other losses/ (gains) while foreign currency gains and losses from translation of USD denominated borrowings are recognized under financial items. Sources: Norwegian Q2 2014 report (period displayed July 2013 – June 2014), SAS Interim Reports (including latest February 2014 – April 2014). Figures as reported in respective quarters and not restated - Scandinavian Airlines (SK) only from February 2013 – October 2014, SAS Group figures from November 2013 – April 2014 after divestment of Widerøe. Finnair Plc. Annual Report 2012 and Finnair Group Financial Statements Bulletin 2013 (period displayed January 2013 – December 2013), Ryanair Annual Report 2013 (period displayed April 2012 – March 2013), easyJet 2013 full year results statement and Annual Report 2013 (period displayed October 2012 – September 2013), Air Berlin Annual Report 2013, IAG Annual Report 2013 (period displayed for Vueling from April 26th 2013 to through December 2013) and Norwegian’s estimations.

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Europe’s best low-cost airline 2013 & 2014

Operation skewed towards high cost competitors

  • Competitors largely high-cost and/or charter
  • Highest cost competitor also the largest competitor

Routes which overlap

(% of Norwegian’s total – Summer 2014 – not volume weighted)

Volume-weighted city-pair overlap

(City-pair volume share of Norwegian’s total capacity * competitor market share on given city-pair)

(Head-on competition) (Indirect competition)

Source: OAG Aviation Worldwide Schedules Analyser.

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Europe’s best low-cost airline 2013 & 2014

Cost gap is widening in favor of Norwegian

  • Cost per available seat kilometer is an industry-wide cost level indicator often referred to as “CASK”. Usually represented as operating expenses before depreciation and amortization (EBITDA level) over produced seat kilometers (ASK).
  • Foreign exchange rates used are equivalent to the daily average rates corresponding to the reporting periods and as stated by the Central Bank of Norway
  • Note: Group level data may include cost items from activities that are unrelated to airline operations. SAS CASK is excluding both positive and negative “one-off” items as reported by the company.
  • Other losses / (gains) is not included in the CASK concept as it primarily contains hedge gains/losses offset under financial items* as well as other non-operational income and/or cost items such as gains on the sale of spare part inventory and unrealized foreign currency effects on receivables/payables and (hedges of
  • perational expenses).

*Norwegian hedges USD/NOK to counter foreign currency risk exposure on USD denominated borrowings translated to the prevailing currency rate at each balance sheet date. Hedge gains and losses are according to IFRS recognized under operating expenses (other losses/ (gains) while foreign currency gains and losses from translation of USD denominated borrowings are recognized under financial items. Sources: Norwegian Q2 2014 report (period displayed July 2013 – June 2014), SAS Interim Reports (including latest February 2014 – April 2014). Figures as reported in respective quarters and not restated - Scandinavian Airlines (SK) only from February 2013 – October 2014, SAS Group figures from November 2013 – April 2014 after divestment of Widerøe.

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Europe’s best low-cost airline 2013 & 2014

High cost competitor with the highest capacity growth

Source: OAG Aviation Worldwide Schedules Analyser. The graph depicts change in departing intra-Europe seat capacity from Scandinavian airports April 2014 – September 2014 as per April 30 2014.

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Europe’s best low-cost airline 2013 & 2014

Cost per ASK (CASK) (NOK) CASK ex. fuel 0.31 0.46 0.29 0.41 0.28 0.42 0.32 0.46

0.32 0.31 0.29 0.28

0.15 0.15 0.15 0.14 0.25 0.30 0.35 0.40 0.45 0.50 Q2 11 Q2 12 Q2 13 Q2 14

Operating cost EBITDA level per ASK (CASK)

Fuel share of CASK CASK excl fuel

  • 4%
  • 2%

Unit cost at constant ccy and excl one-off down -7%

  • Unit cost ex fuel down 4% - hampered by weak NOK & Long-Haul wet lease
  • Unit cost including fuel down 2% - hampered by weak NOK & Long-Haul wet-lease

Other losses / (gains) is not included in the CASK concept as it primarily contains hedge gains/losses offset under financial items* as well as other non-operational income and/or cost items such as gains on the sale of spare part inventory amd unrealized foreign currency effects on receivables/payables and (hedges of operational expenses). *Norwegian hedges USD/NOK to counter foreign currency risk exposure on USD denominated borrowings translated to the prevailing currency rate at each balance sheet date. Hedge gains and losses are according to IFRS recognized under operating expenses (other losses/ (gains) while foreign currency gains and losses from translation of USD denominated borrowings are recognized under financial items.

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Europe’s best low-cost airline 2013 & 2014

  • Uniform fleet of Boeing 737-800s
  • Overheads
  • 3 new 737-800 delivered in Q2 (13 y.o.y.)

Aiming for FY CASK NOK 0.25 excluding fuel

  • Flying cost of 737-800 lower than 737-300
  • 737-800 has 38 “free” seats
  • 1.3% lower unit fuel consumption in Q2

Scale economies New more efficient aircraft Growth adapted to int’l markets Crew and aircraft utilization Optimized average stage length Automation

  • Fixed costs divided by more ASKs
  • Frequency based costs divided by more ASKs
  • Q2 sector length up by 18 % (short-haul +8%)
  • Cost level adapted to local markets
  • Outsourcing/ Off-shoring
  • Rostering and aircraft slings optimized
  • Q2 utilization of 11.8 BLH pr a/c (+0.2 BLH)
  • Self check-in/ bag drop
  • Automated charter & group bookings
  • Streamlined operative systems & processes

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Europe’s best low-cost airline 2013 & 2014

Fuel 31 % Personnel 16 % Airport & ATC 14 % Handling 9 % Leasing 9 % Technical 6 %

  • Gen. and
  • adm. exp.

5 % Other Flight

  • ps. exp.

4 % Depr. 4 % Sales/ distrib. 2 %

0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 Q2 09 Q2 10 Q2 11 Q2 12 Q2 13 Q2 14 12 mths rolling 12 mths rolling 12 mths rolling 12 mths rolling 12 mths rolling 12 mths rolling

Personnel Other Technical Airport/ATC Leasing Depreciation Sales & Distribution Handling Fuel

Unit cost under control – further upside

– Phase-out 737-300 (Fuel, Tech, Handling, Airport/ATC & Personnel) – Phase-in Max / Neo / Dreamliner (Fuel & Tech) – Larger scale (Overhead, Sales & distrib., Personnel) – Further automation (Overhead, Personnel, Handling, Sales & distrib) – Higher short-haul utilization (Leasing, Depreciation) – Global operations (Personnel, Handling, Airport, Overhead)

Cost per seat per KM (NOK)

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Europe’s best low-cost airline 2013 & 2014

  • 2014 CASK in the area of NOK 0.36 (excl. accrued IRR costs)
  • 2015 CASK target NOK 0.34 – 0.35 (not previously disclosed)
  • 2015/16 CASK target NOK 0.35 – 0.30 (unchanged)

– Higher-end of range with majority of US bound flights – Lower-end of range with majority of Asia bound flights

  • 787-9 from 2016 expected to further reduce CASK

Long-haul financial targets maintained

January 2014 December 2014

Scale of operation

Larger scale reduces CASK

Network affects CASK

Higher landing & handling chgs in the U.S.

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Europe’s best low-cost airline 2013 & 2014

A fleet of 17 Dreamliners by 2018

One 787-8 on firm order Seven 787-8 in operation Nine 787-9 on firm order

2016 2015 2017 2018

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Europe’s best low-cost airline 2013 & 2014

EU-AOC necessary to obtain traffic rights for growth

EU-AOC

  • nly

EU-AOC

  • nly

EU-AOC

  • nly

EU-AOC

  • nly

EU-AOC

  • nly

EU-AOC

  • nly
  • Norway not part of European horizontal Air Traffic Agreements
  • Irish AOC necessary to fly to Asia, Africa and South America from Europe
  • Local employment irrespective of country of incorporation
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Europe’s best low-cost airline 2013 & 2014

2014: Re-deliveries 737-300

  • 740 seats

Re-deliveries 737-800

  • 558 seats

Deliveries 737-800 +2,604 seats Deliveries 787-8 +1,164 seats

Current committed fleet plan

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SLIDE 23

Europe’s best low-cost airline 2013 & 2014

Leasing company provides tremendous flexibility

  • Arctic Aviation Assets (AAA) with up to 466 aircraft in 2022

– 316 aircraft delivered or on firm order – 150 purchase rights (100 max, 50 neo)

  • Permits a flexible fleet growth for the airline - tailored to demand

Now

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SLIDE 24

Europe’s best low-cost airline 2013 & 2014

  • Business environment

– Economic uncertainty in parts of Europe – Seasonal fluctuations – Yield pressure from capacity investment – Increased competitive pressure in the Nordic region

  • Production

– The company expects a production growth (ASK) in excess of 35% (changed from 40%)

  • Increasing the fleet by adding 737-800’s and 787-8’s
  • Utilization and distance increase short-haul driven by UK and Spanish bases
  • Expanding long-haul operations

– Capacity deployment depending on development in the overall economy and marketplace

  • Cost development

– Unit cost expected in the area of 0.40 – 0.41 (changed from 0.40)

  • Changed guidance from slightly lower Q4 production and accrued long-haul IRR costs
  • Excluding hedged volumes
  • Fuel price dependent – USD 950 pr. ton
  • Currency dependent ● USD/NOK 6.00 ● EUR/NOK 7.75 ●
  • Production dependent
  • Based on the currently planned route portfolio

Expectations for 2014 (Group)

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SLIDE 25

From bases in NORWAY From bases in SWEDEN

DENMARK FINLAND

From theUK base From bases in SPAIN From bases in theUSA & THAILAND

Norwegian offers 417 scheduled routes to 126 destinations in 39 countries