Norwegian Group, the parent company of Norwegian Air and Wideroe, reported strong financial results in the third quarter of 2024, with significant increases in earnings before tax and EBIT, alongside improvements in capacity and load factors. Despite facing delivery delays from Boeing (NYSE:BA) and rising costs, the company is focusing on operational excellence and cost reduction initiatives, with a positive outlook for the upcoming winter season.
Key Takeaways
- Norwegian Group's earnings before tax reached NOK 2 billion, with an EBIT of NOK 2.128 billion.
- The cash position improved to NOK 11.5 billion following the all-cash acquisition of Wideroe.
- Capacity rose by 10% year-on-year, while revenues increased by 32% to NOK 11.6 billion.
- Unit revenue and ancillary revenues saw an increase, despite a rise in unit costs, excluding fuel, by 8%.
- The equity ratio improved to 19%, and a dividend fund accumulated to NOK 836 million.
- Boeing's delivery delays are expected to impact growth into 2025, but the company remains focused on Nordic routes and cost management.
- The Swedish government's elimination of the passenger tax presents expansion opportunities, while Denmark's new tax may pose challenges.
- Concerns about Boeing's financial stability and Avinor's planned aviation charge increases could affect future capacity.
Company Outlook
- Norwegian Group anticipates a strong performance in the winter season, with planned capacity increases of 30% in November and 19% in December.
- The company is preparing for streamlined operations with reduced capacity growth, focusing on cost initiatives and competitive pressures.
Bearish Highlights
- Rising costs due to inflation, currency fluctuations, and wet lease expenses have led to an 8% increase in unit costs, excluding fuel.
- Boeing's ongoing strike and delivery delays are expected to affect the company's growth plans for 2025.
- Avinor's planned aviation charge increases from 2025 could impact airline capacity in Norway.
Bullish Highlights
- Strong demand outlook is driven by potential interest rate declines and real wage growth anticipated in 2025.
- The company is 70% hedged for fuel in 2024 and 45% for 2025, providing some protection against volatile fuel prices.
- The integration with Wideroe and the rollout of a new distribution platform are expected to yield significant synergies and enhance pricing capabilities.
Misses
- The yield reduction expected in November due to increased sector length.
- Initial disruptions followed the decision to close two bases in Norway, although operations normalized quickly.
Q&A Highlights
- Management addressed the risks associated with Boeing's potential entry into Chapter 11, as prepayments to Boeing are unsecured.
- Concerns about Avinor's deficit and the potential impact of increased fees on airline capacity were discussed.
- The closure of two Norwegian bases was clarified as a difficult but necessary decision, unrelated to employee sick leave, with operations returning to normal post-cancellation.
Norwegian Group, under the ticker NAS, has demonstrated resilience in the face of industry-wide challenges, showing a robust financial performance in the third quarter of 2024. The company's strategic focus on operational excellence and cost reduction initiatives, coupled with a strong cash position and improvements in capacity and load factors, positions it well for continued growth. However, external factors such as Boeing's delivery delays and potential increases in aviation charges by Avinor remain areas of concern that Norwegian Group will need to navigate in the coming years.
InvestingPro Insights
Norwegian Air Shuttle ASA (NWARF) has shown remarkable resilience in the face of industry challenges, as evidenced by its strong Q3 2024 performance. This resilience is further supported by data from InvestingPro, which offers valuable insights into the company's financial health and market position.
According to InvestingPro data, Norwegian Air's revenue growth has been impressive, with a 32.68% increase over the last twelve months as of Q2 2024. This aligns well with the 32% year-on-year revenue increase reported in the article for Q3. The company's ability to grow revenue in a challenging environment underscores its operational strength and market adaptability.
InvestingPro Tips highlight that Norwegian Air is trading at a low earnings multiple, with a P/E ratio of 5.88. This suggests that the stock may be undervalued relative to its earnings, potentially offering an attractive entry point for investors. Additionally, the company's profitability over the last twelve months, as noted in another InvestingPro Tip, corroborates the strong financial results reported in the article.
The company's EBITDA growth of 111.57% over the last twelve months is particularly noteworthy, indicating significant improvement in operational efficiency and profitability. This aligns with the company's focus on cost reduction initiatives and operational excellence mentioned in the article.
While the article discusses concerns about rising costs and external challenges, InvestingPro Tips indicate that Norwegian Air operates with a moderate level of debt. This could provide the company with some financial flexibility as it navigates through industry headwinds such as Boeing delivery delays and potential increases in aviation charges.
It's worth noting that InvestingPro offers 8 additional tips for Norwegian Air, providing investors with a more comprehensive analysis of the company's prospects and challenges.
The InvestingPro Fair Value for Norwegian Air is estimated at $1.27 USD, compared to its previous closing price of $1.01 USD. This suggests potential upside for the stock, which could be realized if the company continues to execute its strategy effectively and navigate the challenges outlined in the article.
These insights from InvestingPro complement the article's analysis, offering investors a more rounded view of Norwegian Air's financial position and market valuation as it continues to adapt to the dynamic airline industry landscape.
Full transcript - Norwegian Air Shuttle ASA (NWARF) Q3 2024:
Jesper Hatletveit: Good morning, and welcome to the third quarter 2024 presentation for the Norwegian Group. My name is Jesper Hatletveit, and I'm the VP of Investor Relations here at Norwegian. Today's presentation will be held by our CEO, Geir Karlsen; and our CFO, Hans Joergen. It will be followed by a Q&A from the audience and the web. Please go ahead, Geir.
Geir Karlsen: Thank you. Good morning, everyone. Welcome. Also good morning to all of you that are following us online. The third quarter delivered an earnings before tax of NOK 2 billion, the EBIT of NOK 2.128 billion, divided on NOK 1.9 billion for Norwegian and NOK 192 million for Wideroe. The unit cost is affected by the cost increases that we are seeing in general and also some costs associated with the fact that we have late deliveries from Boeing, and we had to take in more capacity from the market, i.e., wet lease capacity, which is generating cost. We think even if we had to take on that cost, it makes sense because we were able to fly all the good passengers and in a peak season, that is in any way profitable for the company. We also saw some increases in maintenance costs. We had, I would say, some extraordinary items during the quarter in the peak season on some of the -- our aircraft. We are also seeing as a factor of the fact that we are actually gaining market share and doing quite well in the corporate market. We are seeing the distribution costs are going up. We are doing whatever we can to compensate that on the top line, and I think we are actually doing quite well in doing that. Cash position, NOK 11.5 billion. It's up NOK 2.1 billion in the quarter, and that is after we have done an all-cash acquisition of Wideroe. Capacity-wise, increase of 10% year-on-year. Even doing that, the load factor is up compared to 2023 and 2023 third quarter was a very good quarter, record quarter for the company. And now we are, as such, on the record, and we are doing another record now on the unit revenue. Also, Wideroe is performing well. Load factor up 5.5 percentage points. Very happy to see that the commercial part of Wideroe is performing well. That has been an issue over the last years in Wideroe, where they have been actually loss-making. Now they are profitable. And it's also the first quarter ever where Wideroe has been flying more than 1 million passengers. 450 routes divided on 350 Norwegian and 100 Wideroe, quite significant network. We are focusing on the operational excellence, as we call it. I think we're doing well. We have seen a dip on on-time performance. That is normal in the peak season. And we are seeing a good trend now going into the fall where we are getting close to the levels that we would like to be. On regularity; however, we are doing fine. We are not canceling much, close to 0, and that has also continued into the fall. We are talking to our customers all the time. So the Net Promoter Scores is at high levels, and we are doing whatever we can to increase it. And even if we are looking at the traffic numbers in Norway, actually being lower today compared to 2019 on short haul, we are seeing that both Norwegian and Wideroe is now carrying more passengers than what we did in 2019. We are very much affected by the delays from Boeing. And Boeing is, as many of you know, on strike with -- in the organization. I think they are into the seventh week of strike now. Before the strike happened, Boeing were, let's say, 11 to 13 months late on deliveries. Now I think we can add 3 -- at least 3 months depending on when the strike is coming to an end. That means that we have had to kind of take down the growth into 2025. So coming from 2 years with a pretty decent growth, we are now going into a year where Norwegian is not growing that much due to the situation with Boeing. This is an industry-wide situation, of course. And it means that there's going to be less capacity coming into the market in 2025, especially, but I think this will last into 2026 as well. We are doing whatever we can to work on all initiatives, both on the revenue side and definitely on the cost side to stay competitive. We have done some investments over the last 1 year, 1.5 years, which we are now going to harvest from into 2025. I'll come back to the details. Also, the base structure kind of optimization is something we have been looking at in 2024 and into 2025 in addition to a number of cost reduction initiatives. Wideroe is also a project that we have been working on since January when we joined forces with Wideroe. We have already taken out quite a lot of synergies, but the majority of the synergies will come into effect throughout the next year and through 2025. Looking at the number of passengers, 8.2 million passengers in the quarter, 88% load in Norwegian. Very happy to see again that Wideroe is increasing the load factors. 10% growth; punctuality 74.2%, not happy with that. It has improved into the fall as expected. And then again, regularity, we are doing fine. So this is a graph that we use every quarter. It shows how we are kind of ramping up into the peak season, which we have done as well. Interesting to see that we are flying 2.5 million passengers in July compared to 1.1 million. So it shows that the seasonality that we are exposed to and the fact that we are now going into a low season. But I have to say that September and also October is performing well. October, in my opinion, a little bit better than expectations. So even if we are increasing the capacity with 10%, the load factor is improving. Coming into the second quarter and third quarter, we have invested in quite many new routes, and it's very comforting to see that these routes are now performing better through the peak season and also into the fall. To invest into new routes, it takes some time for the new routes to mature and happy to see that, that is moving in the right direction. So unit revenue is up 2% and quite good unit revenue, I would say, in the third quarter. And again, October numbers is looking comforting. Looking at Wideroe, also shows the steady increase in passengers through the year. Also interesting to see the counter seasonality that we have in Wideroe compared to Norwegian, where Wideroe is actually reducing the capacity in the summer. But this year, keeping up a very high load and up close to 5% compared to last year's third quarter. Also very, again, comforting to see that a lot of this improvement is also on the commercial side of Wideroe, meaning not only on the PSO route as such and unit revenue up 20% year-on-year. And Wideroe has 1/5 of the seasonality that we have in Norwegian. So in that sense, it's good to see that even in a kind of low season for Wideroe, they are performing well. One reason for acquiring Wideroe was that we would like to have more of the interlining or the connecting traffic in combination between the two airlines. And very happy to see that, that has increased with 67% since we took them over. And that is in a situation where we expect the majority of that synergy actually to come when we can integrate even more the networks that will happen through 2025 and also in a situation where Norwegian will start to sell Wideroe tickets on our own platform, which we are not doing today. Also good to see that the codeshare agreement with Lufthansa is starting to take effect even if it's coming from low levels. The traffic has quadrupled since they started up that cooperation. Looking at the bookings forward. As you can say that -- as you can see on the red line there, we are keeping the spread between '24 and '23. I think the winter -- new winter destination that we have put for sale is actually working and performing quite well, not at least to Dubai and also the routes that we have put in place then from Europe to Northern destinations. Very exciting to see what's happening in Tromso, where Tromso is now going, this winter, to have 37 international flights, direct flights out of Tromso. I think it's 14, 15 airlines flying there. Let's see if that is potentially an overcapacity into this winter. But hopefully, it's not. Looking at the bookings forward, it's also diversified both across different destinations and also on travel month. We are putting more capacity into the market this winter compared to last winter, as much as 30% in November, 19% in December. But be aware of the fact that if you count that as number of seats, it's only 11% to 12%. So due to the fact that the sector lengths are much longer, the number of seats are not increasing with those figures. Due to the fact that we are increasing the sector length to 15%, we are expecting a decline in yield, especially in November, but you have to look at those in combination, but it should improve the underlying profitability. So the additional capacity we are putting in, approximately 600,000 seats. As per today, we have sold close to 60% of those already. That is for the next 3 months. which accounts for the 340,000 seats. Looking at -- we have less visibility, let's say, from January, February compared to the closest months. But looking at the bookings that we currently have, it's looking like it's -- the good trend that we have seen in September, October is also continuing in then into the first quarter of next year. So if you look at the capacity reduction that we had last winter, meaning the winter '23-'24, where we reduced the capacity with as much as 25% to 40% depending on which month, which weeks you looked at, now we are reducing with 25% to 35%. So we are flying more because we think it's more profitable as such. With that, Hans-Joergen?
Hans Joergen: Thank you, Geir. Good morning, everyone, those here and those on the web. As usual, I will go through the quarterly results in some more detail. First, taking a look at the revenue and the revenue for the group increased to NOK 11.6 billion for the quarter, which is up 32% for the group. Taking into account that Wideroe was not part of in Q3 of '23, the revenue increase on the Norwegian part is 11% and with Wideroe contributing NOK 1.9 billion. As mentioned, capacity increase is quite a healthy 10% for Norwegian, and we're very happy to see that it given also the significant capacity increase that has been absorbed in the market. And as mentioned, the unit revenue is up 2% and also with the load factor at the same time coming up, which is a bit different from the picture we saw in the second quarter when we saw kind of a slower pickup of -- on the loads and the yields. But the third quarter, as mentioned, we've seen a good performance in the market actually absorbing the capacity increase. Ancillary revenues, a healthy increase from NOK 198 to NOK 211. That's still be an important part as we move forward to improve that further. Operating profit is -- or EBIT is NOK 2.1 billion, as mentioned, with Norwegian contributing NOK 1.9 billion and with Wideroe contributing NOK 192 million. It's also worth noting that for -- this is the third quarter of Wideroe. And for the first 9 months of 2024, actually, Wideroe is contributing with an EBIT of NOK 371 million. And on the back of an acquisition of about NOK 1 billion, it's a very, very strong performance by Wideroe and their team. As mentioned, the cost is a factor for us this quarter. It has been impacted by several factors, inflationary pressure, currency and wet lease on top, of course, of the -- of additional costs related to our salary and crew level. So which means that the unit cost, excluding fuel is up 8% for the quarter or NOK 0.03, which is quite significant, but it can largely be explained by these three factors, which is crew, it is wet lease, it is technical and some additional maintenance cost. And on top of that, the foreign exchange rate, the weakening of the Norwegian kroner has had an impact in the quarter, which is quite significant. As mentioned also, the wet lease cost is NOK 133 million for the quarter. On the back of the delays with Boeing, we've had to have these kind of adjustments to enable us to service the important -- our customers during the summer and delivering a strong operational performance in -- for the third quarter. Strong cash position, we're coming out of the quarter with a good balance sheet, NOK 11.5 billion in cash. We've been able to reduce the net interest-bearing debt by NOK 0.5 billion or NOK 500 million on the back of a flat cash balance and also reduced debt related to our leases. Equity ratio is on the rise at 19%, 4.5% higher than the previous quarter. And just to mention again, we've set aside money from the earnings from 2022 and 2023, and that dividend fund is now at NOK 836 million. Initially, it was NOK 819 million. So it has yielded about 2% in the 4-month period, which is quite good. Taking a closer look at the revenue bridge from Q3 '23 to Q3 '24. Comparing those quarters, the volume is up -- the volume impact is 10% up. As mentioned, the yield impact of the improved yields and the loads is up NOK 137 million and NOK 62 million, respectively. And then we have a reduction on the expiry of CashPoints from the COVID, which has an impact of NOK 121 million, which ends up then with an increase on the revenue side of Norwegian of 11% to NOK 9.7 billion. On top of that is the healthy increase in contribution from Wideroe of NOK 1.9 billion approximately, which ends up with a total revenue of NOK 11.6 billion. Slightly more mixed picture sort of on the EBIT side. You can see the contribution on the -- from the just increased volume is NOK 294 million. We call it the EBITDAR column. Then we have the combined yield and load impact of NOK 198 million. We have the impact of the expiry of the CashPoints from the COVID, NOK 121 million. We have a negative impact on the fuel, a combination of foreign exchange impact and other ETS and also fuel cost combination, NOK 137 million. Then we have the CASK, which is the combined impact of the higher crew cost and salary level as well as some additional technical cost on the maintenance side, which is the negative NOK 174 million. Other losses and gains is pretty neutral. And then on top of that, we have an increase on the depreciation and aircraft side with NOK 300 million, and that is largely mostly explained by wet leases, but also, again, going back to some maintenance reserves and also a bigger fleet. So that brings us to EBIT contribution from Norwegian of NOK 1.9 billion and a very healthy contribution from Wideroe of NOK 192 million, and that -- which brings us for a total EBIT for the quarter of NOK 2. 1 billion. This is just putting up the P&L in a traditional table. No big things to mention that -- other than that we're comparing Norwegian in the third quarter 2023, which is without Wideroe and it's with Wideroe in the third quarter 2024. And so it's very hard to compare those directly. But obviously, the impact of these kind of additional cost items is quite significant on the personnel expenses. Also, of course, on the aircraft lease and depreciation line, we see the impact of that. And also just a healthy comment on the net financial items. It is at the same level as last year despite the growth, and that's partially due to good yields on our deposits and also money market instruments. So I'll come back to that in a minute. And then we're ending up with a net profit for the quarter of NOK 2,004 million, which is very, very close to where we were in the same quarter last year. As mentioned, we're coming out of the quarter with a robust balance sheet, where actually, the total assets is down moderately by about NOK 2 billion for the quarter. Cash balance, as mentioned, is at the same level and the equity ratio is at 19%, which is up from 14.5% previously. What's worth mentioning is that, of course, due to seasonality, the air traffic settlement liabilities is down from previous quarter, and that has to do with the summer season. That number, by the way, last year was NOK 3.9 billion. Out of the -- this becomes a little bit technical, but out of the NOK 5.2 billion, Wideroe is NOK 0.5 billion of that. So that leaves NOK 4.7 billion for Norwegian and the comparable figure last year was NOK 3.9 billion, and that's kind of reflecting that we have good forward bookings for the fourth quarter and into 2025. So that's looking quite good, and that's kind of natural fluctuations, but it's good to see that we are kind of evidencing that we have good forward bookings, as mentioned by Geir in this particular line item. Looking at the net interest-bearing debt, very nice to see that our net interest-bearing debt is down by NOK 0.5 billion. And it's all purely explained by the reduction in aircraft financing, which are the leases on our books. And we're having 86 aircraft at the end of the quarter, which is unchanged from the previous quarter. I mentioned the dividend fund. We've set aside NOK 0.85, which relates to the 2022 earnings and 2023 earnings. It cannot be distributed still as has been the case in the previous quarters because of restrictions in the bond agreements. And we are also investing the dividend fund in money market low-risk investments that has been yielding about 2% over the last 4 months, which is quite good, and that should be beneficial for the shareholder at such time as we expect to pay dividend, which, as mentioned earlier, is at the latest in September 2026 when the last of these legacy bonds from the reconstruction matures. Last few comments on the balance sheet. We talked about the balance sheet quite a bit, I think, already. But seasonally reduction in prepayments for tickets, of course, going through the low season, NOK 2.2 billion, cash flow from traditional operations of NOK 3.3 billion positive, investment activities of NOK 385 million, out of which Wideroe accounts for about half of that. And that will -- also expected to be part of their investment program going forward. Financing activities, just as planned, NOK 766 million and then coming out with a same cash position as we were in the -- at the end of the second quarter. Excess liquidity, average return about 5.5%, which is the combined return from the bank deposits as well as money market instruments. We're quite pleased with that and kind of having a balanced portfolio on this side. And again, we have prepayments to date of the future deliveries of NOK 3.2 billion on the balance sheet. And we are not -- we will not be having any significant installments on the future deliveries from Boeing in 2025. On that, Geir?
Geir Karlsen: Thank you. So let's look a little bit forward. First, let's talk a little bit more on the Boeing situation. As I said, there is an ongoing strike that is lasting. And we do expect it will last for at least a few more weeks. And hopefully, they can find a solution so they can get back on the floor to produce our beautiful aircraft. Due to the fact that we have delays, we have also been forced to take on extra costs during this summer, taking in wet leases. And the delays will, for sure, also continue into 2025. For 2025 and the fleet, we have been planning that relatively conservatively. And thereby, we are kind of in the network that we have for sale today, assuming only 3 to 4 new aircraft from Boeing prior to the summer season of 2025. So we are not planning with taking in a lot of wet leases for next summer, and then we will see how many aircraft they can deliver. That said, I think we have enough capacity in order to take care of our Nordic production. So what will happen here with the few deliveries is that we are not going to do the planned extensions outside of the Nordic in 2025. This is an industry-wide issue, of course. We have not a similar issue, but we have also issues on the Airbus side where they have engine issues. And based on Cirium's numbers, there are currently 350 320s on ground. and that is expected to continue at least throughout the next couple of years. I think that number actually will go up. So on the fleet, 90 aircraft next year. That's the plan, and that's the network that we have as well for sale currently. Looking at the environment that we are in, and this is an environment that we have been in for quite a while, at least for 2024, where we have an underlying cost pressure on most of the operations that we are running. But at the same time -- and we have a local weak currency that is continuing. That is hitting us. We are exposed, especially on the net side to U.S. dollars. And of course, it includes fuel and it includes all the maintenance side of our aircraft. On the demand; however, we see it continue to be relatively strong. And why is that? Well, it might be that we think that we have reached the peak on the interest rates and that the interest rate is probably coming down in 2025 and the fact that we will probably see a real wage growth in the markets we are flying in, in 2025. So it seems like the willingness to travel is still there with the visibility that we currently are having. On the fuel side, we are 70% hedged. I think we have been in a good position in 2024. We are also 45% hedged now for 2025. The fuel price has come down a bit. It's in between, I guess, 7.20, 7.30 as per today on the fuel price. And Wideroe is even higher hedged both in '24 and in '25. Again, we have had to take on costs on wet lease. We have been flying our aircraft, the current aircraft, longer than planned, meaning that we are also burning more fuel than we would have had done if we had taken more deliveries on MAXs. So that is an effect. But again, on the positive side of that, there is less capacity coming into the market, which might defend the high yields we are seeing longer. But don't misunderstand, we have -- the focus into 2025 will be on the cost side of the business. We have done quite a lot in 2024. That process will continue. Also like to mention that we have ETS allowances coming to an end in 2026. The blending requirements is increasing already from 2025. That will increase the cost for the whole industry, and we are part of that. And that's why we are pushing so hard with everything we can in order to work towards the stakeholders, including the governments to find incentives to get going on production of SAF. But even if we are seeing a cost increase in the Q3 as a stand-alone and remember, in Q2, we had a reduction in CASK compared to last year, we are still guiding a single-digit CASK increase for the 2024 as a whole. 2025 for Norwegian. Looking at the last 2 years, we have been growing 18% in 2022. We grew 13% in 2024 in capacity. 2025 will be the first year since the reconstruction or the pandemic that we are growing massively, less than what we have been doing the last couple of years. That gives us also the ability to even focus more on streamlining the operations, work on the cost side of the business, but also to harvest on the investments that we have been doing over the last couple of years. I would like to mention a few of them. The new distribution platform is about to be rolled out. It is already live in the two, three markets where we are flying today as a test that was already live early summer in June. That gives us features that we haven't had ever in Norwegian on pricing functionality, targeting upselling and many more features that we will now get. It will also give us the ability to do what I call a proper interlining. And the first thing we will focus on is to do a proper interlining with Wideroe where we will integrate kind of in a better way the systems. We will, from the Norwegian side, be able to sell Wideroe tickets. And that's when we are expecting to get the full synergies out. It will also give us the ability to do interlining with other airlines, should we wish and time will then show whether we are going to do it. We are continuing to work on the corporate market. We are gaining market share there. We are -- we have been improving the product. We will probably even improve that product even more into 2025. We have also invested into the reward platform with Strawberry and other partners that will be invited, which is coming live in November. And we have, over the year, last year, been signing up many big corporates, Nordic corporates, as well as a massive number of sign-ups from smaller companies. On the cost initiatives, on-time is extremely important to make sure that we run the airline very efficient, being on time. On-time is not -- of course, very important for the passengers, but it's also extremely important to be able to run the airline as competitive on the cost side as possible. Base structure has been mentioned. Customer services, we have increased the efficiency on customer service in the area of 30% to 35% over the last couple of years. That work is continuing. We now have the ability to invest into systems that we have not had before, and that is starting to really, really give good results towards the customers, but also on the cost side of the business. We have a robust financial position, as you know, that gives us better terms overall. It also gives us better terms on the credit card acquirers. We have a holdback that is historically low and is close to 0 as per today. And looking at the offerings that we have on financing our aircraft, we are having offers today that we have never seen in Norwegian before. And again, we have to streamline the airline in 2025 on all parts of the company, including the support functions that we have at Fornebu, in Riga, Latvia and as well in Barcelona. Wideroe, I think we can do cost measures in Wideroe as well on a stand-alone basis. I know Tore has already started that process in Wideroe. But then we can also take out synergies in Wideroe and in Norwegian by combining typical, then, support functions and also in general, when we are talking about the commercial side of the two airlines. Wideroe will also then join Norwegian Reward and leave [EuroBonus]. That will happen very soon. And then again, the majority of the synergies will actually kick in and have a full effect through 2025 when we have done kind of the tweak and bends on the two networks between the two companies. So 2025, much lower growth, higher focus on streamlining the business in both airlines, work on the cost side and then stay competitive -- stay as competitive as absolutely possible. So with that, the outlook, we are growing on capacity 18% in Q4. But remember, if you count on number of seats, it is a lower figure due to the fact that we have a higher sector length. We are flying more long than what we did last year. The EBIT, NOK 2.1 billion to NOK 2.4 billion, slightly down on the upper side of it compared to last quarter, but we are keeping the CASK guidance at a low single-digit increase compared to 2023. Just to summarize, Q3, I think it came out quite well. We had some issues, but quite well. The growth plan into 2025, as mentioned, slow growth, more focus on running the airline efficiently. And then we will work on the fleet plan going forward, not so much for 2025 because we are pretty comfortable on the situation that we are now seeing and the network that we have for sale. And then we will take out the synergies on the investments that we have done throughout the last couple of years. That's all, Jesper.
A - Jesper Hatletveit: Okay. We then open up for questions. If you guys can go over there as well. Yes, we then open up for questions from the audience and the web. We can start with some questions from the audience if we have any. Please state your name, where you're from, before, and then we'll take questions. Okay?
Geir Karlsen: Everything is crystal clear.
Jesper Hatletveit: Everything is very clear. We have no questions from the audience. We'll start with questions from the web. We'll start with one from Stephen Furlong from Davy. How does Norwegian avoid a situation of cost overruns into summer 2025 with the uncertainty of Boeing deliveries? Do you plan for a smaller fleet than planned or wet lease?
Geir Karlsen: We are not planning for wet lease. We have, as I said, planning 2025 conservatively, I would say. We are assuming 3 to 4 aircraft from Boeing. Two of them are already more or less done on the production line. So that's the plan. Have in mind that in 2024, we employed between 600 and 700 new colleagues into Norwegian. That has an investment cost because we have to take them in already prior to Christmas, take them in, train them, make them ready to fly. That investment will be massively smaller into 2025, meaning that the cost on investing into new colleagues is coming down. So -- but again, just to repeat myself, we will streamline the airlines, both airlines, as much as we can going into 2025.
Jesper Hatletveit: Then to a question from Andrew Lobbenberg, Barclays. How would you characterize the competitive environment at the moment? How is that developing? In specific, SAS emerging from Chapter 11 and Ryanair coming back with more capacity into Sweden after the aviation tax cut?
Geir Karlsen: Well, I would say that the landscape in general today compared to, let's say, 3 to 6 to 9 months ago, is pretty similar. What we have been seeing now lately is that the fact that the Swedish government has taken away the passenger tax down to 0 from June 1 -- I think it's June 1 next year, that will have an effect that will make it more attractive to go into the Swedish market. On the relative, we are actually doing quite well in Sweden today, and we will increase the capacity in Sweden as well next year. On Denmark -- in Denmark, the Danish government is going the opposite way. They're actually implementing a passenger tax. It's going to be low on short haul, DKK 30 for short haul. But on the long-haul side, it's up to DKK 300. So that's quite massive actually. But I would say that it's pretty equal to what we have seen over the last, let's say, 6 to 9 months, actually.
Jesper Hatletveit: Okay. Another question from Andrew. How are the Norwegian unions responding to your, call it, plans to expand on your offshore bases?
Geir Karlsen: Expand on the offshore bases?
Jesper Hatletveit: Yes.
Geir Karlsen: Well, we have -- we are expanding in the Canary Islands with a base starting up actually next week. So we haven't had any really comments from the unions on that. As you know, we are in the process of closing down two of the bases here in Norway. That was a really tough decision. But again, it is a consequence of what we are seeing around us. I think with the unions, we had -- as we always have a good dialogue. But again, it's a very tough decision to take. It is a decision that we felt that we had to take. And then we will -- hopefully, we will keep all those employees. They are not losing their jobs. But we have to streamline the bases that we have even here in Norway.
Jesper Hatletveit: Okay. Moving on to questions from Ole Martin Westgaard from DNB Markets. What's your current share of corporate travel? Are you able to estimate that well? And where do you see -- let's say, where do you set a realistic target for that for the next year?
Geir Karlsen: As I said earlier, we are increasing the market share on the corporate side. It is -- it's not -- it's difficult to be very precise on how many corporate travelers that we have. But we are assuming that we have somewhere between 20% and 25% of all the passengers that are corporates, and that is increasing.
Jesper Hatletveit: Okay. Another question from Ole Martin. How should we think about CASK for 2025, considering now we are looking at lower capacity growth and the persistent high underlying inflation?
Geir Karlsen: The lower capacity growth, that will make us doing less investments into growing capacity. So that in itself should be cost savings. But again, the focus now is to make sure that we run both the airlines, the absolute -- the most efficient way that we can. I think we can do measures both in Norwegian and in Wideroe as a stand-alone to reduce the costs and CASK. But again, also when we are talking about synergies between the companies, there is absolutely room that will have a full effect in 2025. We are not guiding on CASK in 2025 -- for 2025 today. We will have to come back to that.
Jesper Hatletveit: Okay. Move on to a question from Achal Kumar at HSBC. How would you characterize the trading environment for the coming winter versus what we saw last year?
Geir Karlsen: Well, as I said, I think looking at September, which is behind us, October, which is very soon behind us, it's promising. We have said today that we are expecting a reduction in yield in November. But looking at the next 3 months, we are quite comfortable. The reason for the yield reduction in November is also partly because we are increasing the sector length. So the visibility that we have today is on the demand side is actually okay also into the first quarter.
Jesper Hatletveit: Okay. I'll then ask again if there's any questions from the audience. Yes?
Unidentified Analyst: I see that the Boeing situation is very challenging. So -- and that goes on. You're expecting in relation to the -- I'm sorry, I don't want any pictures. So it is a question about the strike and how long it continues, right? But it's also very challenging in relation to how they're financing Boeing. So what is your thought about their ability to actually fund the business going forward? And what if they are not -- if they do not achieve that, what would the consequences be of a Chapter 11 for Norwegian? What's your thoughts about that?
Geir Karlsen: So good question, [Niels]. Now they are into the seventh week of strike. They have told us that when they are coming out or if or when they're coming out of the strike, it will probably take them, let's say, 2 to 3 months to come back to the level that they were before the strike. So that's why we are saying that you probably have to add 2 to 3 months to the 11 to 12 months that they were late before the strike. As you have probably seen, they have raised money or credit lately. And I do think that because they have a pretty large defense side of Boeing and I don't have -- I'm not the expert here on Boeing, but I think they are too big to fail, to be honest. And looking at the offer that were on the table that the members voted down this week, let's just hope that they can find a solution. But I think it's going to probably take weeks before they are finding a solution. The latest we have from Boeing is that they are now -- they are assuming a few more weeks. What we are also seeing is that the subcontractors are now -- because they're not delivering to Boeing is also starting to furlough. That applies to Boeing, but it also applies to the suppliers delivering to Airbus because it could be the same supplier. And because even Airbus is not getting all the subcontractors to deliver, they are also now starting to canceling order, which again feeds to then contractors starting to furlough. So the longer this situation occurs, the longer it will take before you get back to production. But I think Boeing is too big to fail, but I'm not an expert here.
Unidentified Analyst: I agree with you, it's different. Norwegian was in Chapter 11. You really didn't fail, right? So it's a question of how exposed are you, for instance, on the prepayments? Are they secured in any way? Or are they -- if they did go into Chapter 11, would you lose that money? Or would you become a creditor the same way the leasing companies became a creditor for you? Could you explain a bit about that?
Hans Joergen: Just a comment on Boeing situation. I fully support the view that was shared by Geir. Right now, they're in the process of what they've announced raising $25 billion. So -- and they have engaged serious large investment bankers to do that. So the assumptions that we have faced and we believe that Boeing will figure it out. It is challenging, but they will be able to figure it out. Having said that, should they end in Chapter 11, our prepayments are unsecured. So that's the simple answer to that. It's like any other creditor, and it's an unsecured. And I think it's purely speculative.
Unidentified Analyst: I just want to understand because sometimes you can have it as a secured account, right, but it's not.
Hans Joergen: It's not. It's unsecured.
Unidentified Analyst: The second question, I just wonder is concerning the prices that you are paying for the order. Have they increased since you ordered?
Geir Karlsen: Yes. That's the so-called escalation clauses. But we have -- I think we have negotiated a very good escalation clause with a cap at certain levels. So -- and I think if you look at the prices we are paying on, let's say, $24, it's still very competitive, I would say. But the prices will increase year-by-year. That's the normal thing.
Unidentified Analyst: But if you were to do a new order today, you would pay a substantial higher amount. So what happens in potentially a Chapter 11? Would also the agreements that are entered into, would they be subject to modifications? Just to understand how this would work in case...
Geir Karlsen: I think [indiscernible] that is up for negotiation then exactly like you saw when we did the reconstruction.
Unidentified Analyst: Exactly. You're experts.
Geir Karlsen: Yes. So that will be -- I mean, that will be done.
Jesper Hatletveit: Hans Jorgen?
Unidentified Analyst: One question on Avinor and the expected increase in aviation charges from 2025 and onwards. Do you think that will have some effect on your capacity plans in Norway?
Geir Karlsen: That's a good question again. We have -- as I'm sure you know, we have a very tight dialogue with Avinor. We are concerned about the -- how Avinor is underfunded. They have a deficit carry-forward of more than NOK 2 billion. We are extremely concerned on how -- whether that amount will end up with the airlines, including Norwegian. So we are doing whatever we can to make sure that even Avinor they have to align with the market. We have told Avinor many times that if they're increasing their fees too much, it will lead to less capacity flying on all the airports belonging to Avinor. That will happen. So let's see. I think we had probably a bigger concern a couple of months ago than what we have today for '25, especially, but that there will come increases, absolutely. So our take on Avinor is that they are going -- they are building two new airports, one in -- they're moving an airport in Bodo and building another one in Mo. That is going to be financed over the state budget. But we -- our concern is that when those airports are done, they have to be run, and we will be part of paying that expense. So they have to find a balance where they have to align themselves with the market in a much better way, in our opinion, than what they have been doing so far. And then we will see. But if they are pushing it too hard, it will lead to less capacity, not only for Norwegian, but also for other airlines.
Unidentified Analyst: When it comes to the decision of closing the two bases, I've been just out flying actually on time both times, so very positive. So when you speak to the cabin attendants, you get the impression that, of course, they weren't very positive. You say you have good dialogues with the unions. But is it correct that there was kind of massive people having sick leave and closing and that 4 flights were closed that day? Or is that just rumors?
Geir Karlsen: No. I think, first of all, [Niels], to take a decision like that is a tough one. We spent a lot of time with the unions. We spent time at the two bases, where I myself was standing in front of them telling the rationale for us doing it, why we had to do it, the math behind it to support and to try to explain that we are forced to do it and to take such a difficult decision. And there's nothing to do with sick leave, but I think we had a reaction the first day where we had some cancellations. That's just a fact. Was that because we took that decision? Yes, it was. But it was first -- mostly the first day after we took the decision. And then things got very quickly back to normal.
Unidentified Analyst: [indiscernible] because you have to get the cost down.
Jesper Hatletveit: Okay. There are no further questions, so we will conclude the session. Thank you very much.
Geir Karlsen: Thank you, guys.
Hans Joergen: Thank you.
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