While some carriers in Europe are cutting their capacity up to 50% due to travel demand drop caused by the coronavirus outbreak, Norwegian Air Shuttle says it is in a slightly better position as its network has limited locations in regions heavily affected by the virus. Nevertheless, investors are skeptical the airline has enough resilience to survive the times.
Norwegian Air Shuttle said it was too early to assess the full impact of the coronavirus outbreak to its business at this stage, as outlined in a statement on March 5, 2020. Admitting having experienced reduced demand on some routes, the airline has withdrawn its 2020 guidance provided to the market a couple of weeks earlier, on February 13, 2020.
Nevertheless, Norwegian claims it has a certain resilience to the coronavirus outbreak, as only a small portion of its flights are to the most Covid-19 affected regions: “Norwegian has a limited number of flights to Northern Italy and other regions heavily affected by the virus,” as outlined in the statement. “In addition, the company has a higher share of leisure traffic, which seem less affected than business traffic.”
Norwegian to start Summer 2020 Season with less flights
The slump in demand, caused by the Covid-19 virus outbreak, is affecting future bookings more than those in the coming weeks, according to Norwegian. So far, the airline has canceled 22 long-haul flights between Europe and the United States.
In particular, the airline is reducing the number of flights on Rome – Los Angeles, Rome – Boston, Rome – New York, and London – New York routes. On the latter route, three daily departures are reduced to two on some days.
The cancellations come into effect in the first month of the (Northern) Summer Season 2020 ‒ the travel demand peak time in the region. The season begins on March 29 and lasts until October 24. Norwegian has canceled flights from March 28 to May 5, 2020.
The cut of the 22 long-haul flights come on top of the previous capacity reduction by up to 15%. Further trimming of flights also cannot be ruled out, as Norwegian continues to monitor the situation and is “continuously evaluating additional changes to its schedule.”
Norwegian operates over 40 nonstop routes from Europe to the US. In 2019, the airline became the biggest foreign operator in New York City, coming ahead of such competitors as Air Canada (ADH2) or British Airways, as announced on March 2, 2020.
Will Norwegian survive the Covid-19 infodemics?
Despite all of the above, Norwegian Air Shuttle is the most affected European airline in terms of share price, as they fell by over 67% since February 2020, Reuters reported on March 6, 2020. The underlying reason lies in the company’s fragile financial situation, as it had $8,547 million (NOK 81,218 million) of debts and liabilities as of the end of 2019.
In 2019, Norwegian faced several headwinds, including ongoing Rolls Royce Trent 1000 engine issues that affected its 787 Dreamliner fleet and the global grounding of the Boeing 737 MAX aircraft – the two aircraft that are the backbone of Norwegian’s fleet.
Under its #Focus2019 strategy, aimed to transform the company form a rapidly growing airline to a profitable one, Norwegian managed to reduce its costs by $242 million (NOK 2.3 billion) in 2019. During the year, the carrier sold several aircraft, postponed deliveries of new planes cut routes and sold its Argentinian subsidiary.