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SelectSys

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See the following two stories regarding increased flight frequencies, city pair movement and a few new destinations.  What I find interesting is that Norwegian Air may now be a viable option for cruisers from Europe departing a couple of ports in South America.  

 

https://www.usatoday.com/story/travel/flights/todayinthesky/2018/11/28/norwegian-air-miami-san-francisco-boston-new-flights/2130019002/

https://www.usatoday.com/story/travel/flights/todayinthesky/2018/11/27/norwegian-airs-route-map-expands-brazil-rio-de-janeiro-flights/2125066002/

 

 

 

 

 

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Thank you for the update. Maybe too fast expanding. 

When you book make sure you do have insurance coverage in case Norwegian will be out of business - and make sure that you are traveling some days before your cruise - can easily be several days delayed in case of problems with flights.

Also check additional fees when booking as well as luggage allowance  - normally a limit og 20 kg (44 lbs)

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5 hours ago, hallasm said:

....and make sure that you are traveling some days before your cruise - can easily be several days delayed in case of problems with flights...

 

I always give myself at least a couple of days in advance of the cruise if I am flying long haul to meet the cruise.  I was happy to see was an increase in flight frequencies from LAX (my nearest Norwegian airport) which should help alleviate delays when one Norwegian flight gets delayed or cancelled. . 

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15 hours ago, hallasm said:

Thank you for the update. Maybe too fast expanding. 

When you book make sure you do have insurance coverage in case Norwegian will be out of business - and make sure that you are traveling some days before your cruise - can easily be several days delayed in case of problems with flights.

Also check additional fees when booking as well as luggage allowance  - normally a limit og 20 kg (44 lbs)

 

Yes, at this point, I do admit my concerns about Norwegian's viability within the next 6-12 months. I wish them the best, but personally would be a bit concerned relying on them.

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55 minutes ago, Zach1213 said:

Yes, at this point, I do admit my concerns about Norwegian's viability within the next 6-12 months. I wish them the best, but personally would be a bit concerned relying on them.

 

The announced increase in Norwegian flights isn't itself a sign of health. It's only a sign that they've got new aircraft coming. The aircraft have got to be used somewhere. Because they're new, it's particularly damaging financially for the airline to not operate them. (Other airlines that have older aircraft, which are basically paid for, can just park them at minimal cost if they can't be flown profitably.)

 

The article on Wow to which I linked in the other Norwegian thread observed how Wow used to be doing the same - appear to be expanding unstoppably. Yet Wow is currently at serious risk of going under in the short term.

 

What is helping Norwegian at the moment is the oil price, which is soft and it seems under sustained attack in that direction from hedgies. If the oil price stays low/lower, they have a better chance of getting through the winter without succumbing to a fatal illness.

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1 hour ago, Globaliser said:

 

The announced increase in Norwegian flights isn't itself a sign of health. It's only a sign that they've got new aircraft coming. The aircraft have got to be used somewhere. Because they're new, it's particularly damaging financially for the airline to not operate them. (Other airlines that have older aircraft, which are basically paid for, can just park them at minimal cost if they can't be flown profitably.)

 

The article on Wow to which I linked in the other Norwegian thread observed how Wow used to be doing the same - appear to be expanding unstoppably. Yet Wow is currently at serious risk of going under in the short term.

 

What is helping Norwegian at the moment is the oil price, which is soft and it seems under sustained attack in that direction from hedgies. If the oil price stays low/lower, they have a better chance of getting through the winter without succumbing to a fatal illness.

 

Norwegian has an aircraft shortage though. They have been leasing planes from charter companies to fill the void. They have expanded fast, but their operations have been around for some time now. Longer than WOW. 

 

Interesting to see the London-Ft. Lauderdale flight change to London-Miami. Wonder if the other flights will move to MIA as well. 

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2 hours ago, Globaliser said:

 

 

What is helping Norwegian at the moment is the oil price, which is soft and it seems under sustained attack in that direction from hedgies. If the oil price stays low/lower, they have a better chance of getting through the winter without succumbing to a fatal illness.

 

Good news for Norwegian and likely all airlines in that Bloomberg suggests that oil prices are going to stay lower based on increased  US production and a new field coming on line in the North Sea:

 

https://www.bloomberg.com/opinion/articles/2018-11-29/opec-meeting-can-t-reverse-larger-trend-to-lower-oil-prices

 

Even more US capacity will likely reach markets as new pipeline capacity is rapidly coming on line possibly allowing for another leg up in US production and export:

 

https://www.news-journal.com/news/business/local/texas-pipelines-draw-attention-expansion-plans-in-oil-boom/article_41115a7e-e965-11e8-89a0-33f580424ceb.html

 

 

1 hour ago, Flymia said:

 

Norwegian has an aircraft shortage though. They have been leasing planes from charter companies to fill the void. They have expanded fast, but their operations have been around for some time now. Longer than WOW. 

 

Interesting to see the London-Ft. Lauderdale flight change to London-Miami. Wonder if the other flights will move to MIA as well. 

 

The movement to Miami and San Francisco from Ft. Lauderdale and Oakland was said to have been done to attract more business passengers.  I actually like traveling to Oakland as it has far fewer weather impacts than SFO with its closely spaced, crossing runways.  

 

I think the real reason Norwegian needed to lease planes is the horrible performance of the Rolls Royce engines powering their 787 aircraft.  Many, many flight cancellations for airlines operating this combination.  What makes it worse is that while other airlines might be able to substitute aircraft types, Norwegian's fleet has no such spare capacity.

Edited by SelectSys

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17 hours ago, Flymia said:

Norwegian has an aircraft shortage though. They have been leasing planes from charter companies to fill the void.

 

16 hours ago, SelectSys said:

I think the real reason Norwegian needed to lease planes is the horrible performance of the Rolls Royce engines powering their 787 aircraft.  Many, many flight cancellations for airlines operating this combination.  What makes it worse is that while other airlines might be able to substitute aircraft types, Norwegian's fleet has no such spare capacity

 

I agree that the 787 engine issues are currently the basic problem here. Norwegian has had it worse than many, in part because the low operating costs of the 787 have led to Norwegian becoming particularly reliant on this type, but many other airlines are also having to sub in replacement capacity as well as simply cancelling flights.

 

But Norwegian's long-haul operational reliability was pretty dicey even before the 787 problems. They can only try to offer the fares that they do by working their aircraft really hard, so there is little slack and little spare capacity anyway. One aircraft going sick will inevitably lead to disruption. For passengers, this is magnified by two things: many of Norwegian's routes are very thin and operated even less than daily - and Norwegian cannot easily put their passengers onto other airlines.

 

17 hours ago, Flymia said:

Interesting to see the London-Ft. Lauderdale flight change to London-Miami. Wonder if the other flights will move to MIA as well. 

 

16 hours ago, SelectSys said:

The movement to Miami and San Francisco from Ft. Lauderdale and Oakland was said to have been done to attract more business passengers.

 

Norwegian thought that they could get away with operating these routes without competition, even though competition is said to be their raison d'etre. They got competition, and they couldn't deal with it. So they're retreating to routes on which they think that they might get higher yields after all, despite existing competition there.

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6 hours ago, Globaliser said:

 

But Norwegian's long-haul operational reliability was pretty dicey even before the 787 problems. They can only try to offer the fares that they do by working their aircraft really hard, so there is little slack and little spare capacity anyway. One aircraft going sick will inevitably lead to disruption. For passengers, this is magnified by two things: many of Norwegian's routes are very thin and operated even less than daily - and Norwegian cannot easily put their passengers onto other airlines.

 

 

I agree their fleet size and utilization plan doesn't leave too much for error.  That is why I was happy to see the frequencies and locations get upped from LAX.  This gives me more faith that I will get where I want to go even with a failure.  Also, with over 600+ 787's in the air, logistical support from major airports must be pretty good when a 787 has a mechanical issue.

 

6 hours ago, Globaliser said:

 

Norwegian thought that they could get away with operating these routes without competition, even though competition is said to be their raison d'etre. They got competition, and they couldn't deal with it. So they're retreating to routes on which they think that they might get higher yields after all, despite existing competition there.

 

I can't really speak to Miami and Fort Lauderdale, but to me OAK and SFO really serve the same market.  Both are connected to the city center via BART.  However, I prefer OAK even though most of my business is in San Francisco due to the frequent weather and traffic related delay issues at SFO.  

 

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On 11/28/2018 at 9:15 PM, SelectSys said:

See the following two stories regarding increased flight frequencies, city pair movement and a few new destinations.

 

And here is the flip side of all these new services (driven by the need to fly their expensive new assets somewhere, anywhere): November load factor was down to 78.8% in 2018 (from 83.7% last year).

 

And it turns out that lower oil prices are going to bite the airline - it's having to book substantial losses from hedging that's gone wrong.

 

Sources: https://www.reuters.com/article/norweg-air-shut-kpi/norwegian-air-struggles-to-fill-planes-amid-fleet-growth-idUSL8N1YA4O7 and https://www.breakingnews.ie/business/growth-slows-for-budget-airline-norwegian-890439.html

 

I'm also seeing suggestions that the press in Norway is reporting that Norwegian is talking to IAG again, only this time IAG has the whip hand because of these adverse developments.

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10 hours ago, Globaliser said:

 

And here is the flip side of all these new services (driven by the need to fly their expensive new assets somewhere, anywhere): November load factor was down to 78.8% in 2018 (from 83.7% last year).

 

And it turns out that lower oil prices are going to bite the airline - it's having to book substantial losses from hedging that's gone wrong.

 

Sources: https://www.reuters.com/article/norweg-air-shut-kpi/norwegian-air-struggles-to-fill-planes-amid-fleet-growth-idUSL8N1YA4O7 and https://www.breakingnews.ie/business/growth-slows-for-budget-airline-norwegian-890439.html

 

I'm also seeing suggestions that the press in Norway is reporting that Norwegian is talking to IAG again, only this time IAG has the whip hand because of these adverse developments.

 

I wonder how many airlines have hedged incorrectly with these low oil prices? That has to be a sickening feeling when you've hedged and oil just keeps dropping.

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So many airlines became enamored of hedging after Southwest's spectacular good luck with hedges.  And most have since become upside-down in the market.

 

Like almost every financial instrument, hedges are to serve a specific need - and have specific costs associated with the "benefit" provided.  Rushing headlong into hedges without a cogent strategy is a recipe for disaster.

 

Pork bellies, anyone??

Edited by FlyerTalker

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For consumers of the underlying product, hedging ought to be capable of being done as part of a risk management strategy, allowing the airline to plan financially on the basis of a particular price over the period of the hedge, regardless of what the actual price is during that period. I doubt that airlines rush headlong into doing this. It's an altogether different approach from that taken by traders of the hedging contracts, of whom we hear rather more.

 

However, any hedging of course inevitably comes with the risk that the price will move in the wrong direction, with the result that you're financially less well off than if you had not hedged - so there is an element of gambling in that. IIRC, WN themselves had a recent period (~2 years ago?) when they had hedged in the wrong direction, resulting in higher costs than if they had not hedged. But deciding not to hedge is equally a gamble.

 

Healthy companies no doubt plan financially for the risk as well. But the situation is rather more dangerous for companies like Norwegian that are much closer to the edge and whose business strategy is much riskier and very highly geared.

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https://www.usatoday.com/story/travel/flights/todayinthesky/2018/12/13/wow-air-flight-cuts-looming-struggling-airline-shrinks-survive/2299874002/

 

Globalizer, thanks for staying on top of this issue at Norwegian and providing your insight into the situation.  Hopefully, your comments caused some people to think twice before reserving with this airline (WOW).

Edited by buggins0402

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On 12/13/2018 at 1:53 AM, Globaliser said:

hedging ought to be capable of being done as part of a risk management strategy, allowing the airline to plan financially on the basis of a particular price over the period of the hedge, regardless of what the actual price is during that period. I doubt that airlines rush headlong into doing this...

However, any hedging of course inevitably comes with the risk that the price will move in the wrong direction, with the result that you're financially less well off than if you had not hedged - so there is an element of gambling in that...  But deciding not to hedge is equally a gamble.

 

 

 

Exactly - this is a standard business practice to manage downside risk.  They are willing to have a loss to try and put a cap on it.   Eventually the lower prices will flow through to Norwegian as well and they are probably in better shape than if prices were going higher at this time as that would tend to suppress almost all economic activity including air travel.

 

One bit of news in the story you cited is that the routes slashed by Norwegian from Ireland to the US will come back in summer and that their seat yields are holding up.

 

2 hours ago, buggins0402 said:

https://www.usatoday.com/story/travel/flights/todayinthesky/2018/12/13/wow-air-flight-cuts-looming-struggling-airline-shrinks-survive/2299874002/

 

Globalizer, thanks for staying on top of this issue at Norwegian and providing your insight into the situation.  Hopefully, your comments caused some people to think twice before reserving with this airline (WOW).

 

Norwegian isn't WOW.  Completely different airline.

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1 hour ago, SelectSys said:

 

Norwegian isn't WOW.  Completely different airline.

Similar business models...extremely leveraged balance sheets and rapid expansion into new markets.  

 

Popping popcorn, wondering if the highly leveraged corporate debt market will be as interesting to watch as the mortgage fiasco back 10 years ago. There seems to be a new flavor of financial crisis every decade. 

 

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For what it's worth (from 22 December)...

 

Norwegian Air Is Facing Collapse In 9 Days If It Does Not Secure More Capital

 

The next 9 days are reportedly critical for Norwegian according to newspaper Dagens Næringsliv. The Norwegian newspaper reported on Thursday that the airline was just days away from a “full crisis” regarding its financial state. Due to large acquisitions of aircraft, the airline is currently in the midst of “heavy debt”. As such Martin Stenshall of Danske Bank believes that Norwegian’s loan terms will be violated by the new year. That means that lenders could demand immediate repayment. Mr Stenshall told DN “If the company has to report a violation of the conditions surrounding its debt, it can land in an evil spiral and the crisis will escalate.”

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4 hours ago, Gardyloo said:

For what it's worth (from 22 December)...

 

Norwegian Air Is Facing Collapse In 9 Days If It Does Not Secure More Capital

 

The next 9 days are reportedly critical for Norwegian according to newspaper Dagens Næringsliv. The Norwegian newspaper reported on Thursday that the airline was just days away from a “full crisis” regarding its financial state. Due to large acquisitions of aircraft, the airline is currently in the midst of “heavy debt”. As such Martin Stenshall of Danske Bank believes that Norwegian’s loan terms will be violated by the new year. That means that lenders could demand immediate repayment. Mr Stenshall told DN “If the company has to report a violation of the conditions surrounding its debt, it can land in an evil spiral and the crisis will escalate.”

 

Maybe my above post about concerns for Norwegian over the next 6-12 months should have said 6-12 weeks...

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Thank you for the link. I personally would not book a flight with Norwegian today. Make sure that your have an insurance to cover cost and a backup plan in case of ‘full crisis’.

Flying the day before your cruise might not be sufficient - will be difficult to find alternative flights. The best plan is to book a flight with a legacy carrier.

- saving on cost of flight can be expensive.

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6 hours ago, Gardyloo said:

For what it's worth (from 22 December)...

 

Norwegian Air Is Facing Collapse In 9 Days If It Does Not Secure More Capital

 

The next 9 days are reportedly critical for Norwegian according to newspaper Dagens Næringsliv. The Norwegian newspaper reported on Thursday that the airline was just days away from a “full crisis” regarding its financial state. Due to large acquisitions of aircraft, the airline is currently in the midst of “heavy debt”. As such Martin Stenshall of Danske Bank believes that Norwegian’s loan terms will be violated by the new year. That means that lenders could demand immediate repayment. Mr Stenshall told DN “If the company has to report a violation of the conditions surrounding its debt, it can land in an evil spiral and the crisis will escalate.”

Sounds like they will blow through their financial covenants and will have a come to Jesus meeting with their debt holders. From this report it sounds they are in a more dire financial condition than just getting a minor financial covenant waiver from their debt holders...instead it appears the debt holders will hold their feet to the fire to receive payment. 

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17 hours ago, buggins0402 said:

Sounds like they will blow through their financial covenants and will have a come to Jesus meeting with their debt holders. From this report it sounds they are in a more dire financial condition than just getting a minor financial covenant waiver from their debt holders...instead it appears the debt holders will hold their feet to the fire to receive payment. 

 

Bloomberg has published some details about the covenants: book equity value higher than 1.5bn NOK and more than 500m NOK of liquidity. AIUI, Norwegian may already have had some covenant waivers, so your speculation that this round would involve more than just another round of waivers seems logical.

 

The article also refers to Norwegian having had to lease the A380 again to rescue passengers stranded at Gatwick because of the drone incident. That must have cost money, and this time there is absolutely nobody (other than any business interruption insurance) from which the company could claim it.

 

So all in all, it seems quite telling that the adjective selected for the current liquidity position is "satisfactory". FWIW, a fuller version of the statement containing that adjective is:-

 

This [

Dagens Næringsliv report] is pure speculation. As previously announced, our liquidity is satisfactory, we attract hundreds of thousands of new passengers every month and we are currently working on selling parts of our fleet, which will further strengthen our financial situation.

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5 hours ago, Globaliser said:

 

Bloomberg has published some details about the covenants: book equity value higher than 1.5bn NOK and more than 500m NOK of liquidity. AIUI, Norwegian may already have had some covenant waivers, so your speculation that this round would involve more than just another round of waivers seems logical.

 

The article also refers to Norwegian having had to lease the A380 again to rescue passengers stranded at Gatwick because of the drone incident. That must have cost money, and this time there is absolutely nobody (other than any business interruption insurance) from which the company could claim it.

 

So all in all, it seems quite telling that the adjective selected for the current liquidity position is "satisfactory". FWIW, a fuller version of the statement containing that adjective is:-

 

 

 

Here is a Forbes article I found this morning that seems to hint that Danske was concerned about a payment default.

 

https://www.forbes.com/sites/grantmartin/2018/12/22/discount-carrier-norwegian-air-faces-collapse-by-years-end/#32fbf8744e9b

 

Perhaps the writer of the Forbes article read something different into the Danske statement....or something was lost in the translation.  But, a payment default would be very serious. 

 

Interesting the bank revolving credit had no financial covenants...but, bank credit terms, from loose to tight, seem to run in cycles. 

 

It it makes me wonder what is behind the financial curtain of the privately held Norwegian cruise line (and I don’t mean NCL).  Leverage is a bi*** when operations slow down and cash flow doesn’t meet projections or interest rates rise. 

 

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13 hours ago, buggins0402 said:

Perhaps the writer of the Forbes article read something different into the Danske statement....or something was lost in the translation.  But, a payment default would be very serious. 

This is the statement from Analyst Martin Stenshall at Danske Bank: Norwegian will violate the terms of its loans by New Year, if it fails to sell off many of its new aircraft. That in turn can cause suppliers to demand cash to pay for fuel of aircraft landing fees. If the company has to report a violation of the conditions surrounding its debt, it can land in an evil spiral and the crisis will escalate.

 

13 hours ago, buggins0402 said:

It it makes me wonder what is behind the financial curtain of the privately held Norwegian cruise line (and I don’t mean NCL).  Leverage is a bi*** when operations slow down and cash flow doesn’t meet projections or interest rates rise. 

Do not quite understand "I don’t mean NCL" -  Norwegian Cruise Line Holdings Ltd operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises.

However only the name Norwegian in common with the NAS airline  - and the owner structure very different - Many NAS co-owners are related to the company.

Norwegian Cruise Line Holdings Ltd i s a publicly traded company listed on the New York Stock Exchange, with major shareholders including Apollo Global Management (15.8%), Genting Group (11.1%), and TPG Capital (2.3%).

Norwegian Air Shuttle ASA (NAS) is headed by CEO and largest shareholder Bjørn Kjos (26.8%). The ten largest shareholders are accounted for 75.6% of the shares. The Airline is listed on the Oslo Stock Exchange.

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My best guess is that Buggins0402 may be referring to Hurtigruten which is based in Norway and privately held. 

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4 hours ago, babysteps said:

My best guess is that Buggins0402 may be referring to Hurtigruten which is based in Norway and privately held. 

Hurtigruten is not privately owned - based in Norway - 80% owned by the UK based TDR Capital - 20% by Norwegian investors.

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