Home Airlines Norwegian Is On The Brink - No More Government Support

Norwegian Is On The Brink – No More Government Support

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We may be about to see the first major airline casualty of the current crisis and it’s a casualty that quite a few people have been expecting for some time. Today, the government of Norway has announced that, as far as Norwegian is concerned, the wells have dried up and that it will not be offering the airline any further financial support.

Norwegian is a hugely popular but hugely dysfunctional airline that has been on the brink of oblivion on multiple occasions over the past few years. Back in May, the airline completed a restructuring which then qualified it for up to $300m of state aid. Unfortunately for Norwegian, $300m is a drop in the ocean to an airline that hemorrhages cash at the rate that it does, and with all of its long-haul routes essentially closed until next year and with very few people flying on what short-haul routes it can currently offer, the airline has been looking in worse and worse shape as the year has gone on.

According to Norwegian’s own numbers, the airline flew just 319,370 passengers in September and just 319,477 passengers in October (that’s just 10% of the passengers that it carried in September and October last year) and for an airline that relies on high passenger volumes to keep its head above water, those are dismal figures.

In recent weeks the airline has been making it very clear to the Norwegian government that it will not be able to continue operating without further state funding but, unsurprisingly, it would now seem as if the Norwegian government has decided that enough is enough and that it’s cutting Norwegian off.

This is what Norwegian’s CEO Jacob Schram has had to say:

“First of all, I would like to thank [all] of our customers, colleagues, the Norwegian Parliament, shareholders, leasing companies, creditors, bondholders, the travel industry and all others who have been supporting Norwegian in these challenging times. The fact that our government has decided to refrain from providing Norwegian with further financial support is very disappointing and feels like a slap in the face for everybody at Norwegian who is fighting for the company when our competitors are receiving billions in funding from their respective governments”

As evidence that government aid should be forthcoming, Stram also makes the argument that the airline offers travelers a number of key routes within Norway and that, by its calculations, it sustains up to 24,000 jobs in Norway and helps to boost the Norwegian Economy by NOK18bn ($2bn) every year through the visitors that it brings into the country. This time, however, it doesn’t look like these arguments will get the airline very far.

I’ve always maintained that having an airline like Norwegian operating on transatlantic routes is a very good thing. It helps to keep airfares down and prevents the larger airlines from setting prices at a much higher level than we’ve been seeing over the past few years. Unfortunately, however, this may well be the end of Norwegian.

The travel industry as a whole isn’t going to recover for some time, and while flights between Europe and the United States are operating mostly empty, while European countries are operating lockdowns and quarantines (or preventing visitors from entering at all), there no scope for an airline like Norwegian to bring in any much-needed money.

Bottom Line

Norwegian burns through cash at an incredible rate and, as things stand, it has no way of replacing that cash through its business. That just leaves the Norwegian government and its investors as the last two hopes that the airline has to bail it out of trouble (again) but, with the government now indicating that it’s stepping away, I cannot see the airline’s existing investors jumping in to save the day – at this stage they would just be throwing good money after bad.

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