Norwegian Air's margins drop less than feared in July

OSLO Thu Aug 7, 2014 5:13am EDT

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OSLO Aug 7 (Reuters) - Norwegian Air, Europe's third-biggest budget carrier, reported a smaller-than-expected drop in margins in July, a relief to investors who had feared worse numbers as the airline competes aggressively to gain market share.

Norwegian is expanding rapidly, opening bases around Europe with a focus on popular holiday destinations, and moving into long-haul operations with the first seven of its 17 Boeing 787 Dreamliners.

Norwegian's shares were up 2.3 percent at 0827 GMT after gaining as much as 4.2 percent in earlier trade.

The carrier's yield, or revenue per passenger per kilometre flown, dropped to 0.47 Norwegian crown in July from 0.53 a year earlier, but rose from 0.46 in June, supporting some analysts' view that margin pressures could be easing after a steady decline over the past year.

"The continued drop in yield is on the back of the intense competition in the Nordics ..., Norwegian stimulating prices in the rest of Europe in order to capture market share on new routes, increased share of long-haul operations with inherently lower yields," Danske Bank said.

The bank said that an unusually warm summer in the Nordics also weighed on the yield as more travellers chose to stay at home, reducing lucrative late bookings.

Norwegian's main competitors include Ryanair, EasyJet and Nordic flag carrier SAS.

Its load factor, which shows how successful the airline is in filling its seats, rose to 88.2 percent from 85.0 percent a year earlier.

"The yield recovery is somewhat slower than I had hoped for, but there is some improvement, and a very good load factor," Preben Rasch-Olsen an analyst at brokerage Carnegie said. "This shows that long haul had been good this summer."

With more than 200 planes still on order, Norwegian is set to grow rapidly for years to come and expects to operate 270 aircraft by 2022, nearly triple its current 95.

"The yield trend is encouraging despite the warm weather in July, and we expect further improvements as we enter the second half of 2014. We expect a strengthened yield trend to support positive consensus estimate revisions going forward," Pareto Securities said. (Reporting by Balazs Koranyi and Camilla Knudsen; Editing by Susan Fenton)

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