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Edited Transcript of NAS.OL earnings conference call or presentation 13-Feb-20 7:30am GMT

Q4 2019 Norwegian Air Shuttle ASA Earnings Presentation

Oslo Feb 20, 2020 (Thomson StreetEvents) -- Edited Transcript of Norwegian Air Shuttle ASA earnings conference call or presentation Thursday, February 13, 2020 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Geir Magne Karlsen

Norwegian Air Shuttle ASA - Deputy CEO & CFO

* Jacob Schram

Norwegian Air Shuttle ASA - CEO

* Martine Undeli Bekkelund

Norwegian Air Shuttle ASA - IR Officer

* Tore Østby

Norwegian Air Shuttle ASA - EVP of Strategic Development

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Conference Call Participants

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* Daniel Roeska

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* Hans Jorgen Elnaes;WinAir;Founder

* Kenneth Sivertsen

Pareto Securities, Research Division - Research Analyst

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Presentation

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Tore Østby, Norwegian Air Shuttle ASA - EVP of Strategic Development [1]

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Good morning. And welcome to this presentation of the fourth quarter results and full-year 2019 results. The presentation will start with Geir Karlsen, CFO, that will take us through the Q4 results and the full year results plus outlook. Following that, Jacob Schram will take us through the way forward. After the presentation, we will have a Q&A session with both Jacob Schram and Geir Karlsen.

So with that, I'll leave the word to you, Geir.

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Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [2]

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Thank you, Tore. Welcome, everyone. Okay. Okay. Let's start with going through the highlights for the quarter as well as for the full year. The EBITDAR for the fourth quarter of 2019 turned out to be NOK 436 million compared to a loss of NOK 118 million in the same quarter the previous year. This shows that the change of strategy from growth to profitability starting to give effects, and we expect that to continue into 2020.

We continued during the fourth quarter to work on what I would call the balance sheet. And we also -- we raised capital both as a -- with equity and convertible bond during the quarter, as you know. We also finalized the sale of the domestic Argentinian business. And due to the fact that we didn't really get that to work over the year, and we decided then to exit that market as such.

If you look at the fourth quarter as a stand-alone, we ended it with NOK 6.5 billion in EBITDAR. We started to guide on EBITDAR during 2019, and we ended up in the higher portion of the guiding, the previous guiding, where we guided NOK 6.1 billion to NOK 6.5 billion for the full year. That is a doubling compared to the same -- to 2018.

On Focus '19, we ended that with also on target, NOK 2.3 billion in cost reductions, very happy about that. And we are seeing that the measures that we have taken through 2019 starting to give an effect on yields, profitability. And also, we are able to keep the load factors on an increasing pace.

And also on punctuality, which I will come back to, is also developing very positively over 2019, and we will do our absolutely best in order to try to make sure that, that happens also into 2020.

This is on full year. And if you look at the ASK in 2019, we had 1% growth coming from -- out of 2018 with 37% growth. So quite a massive change between the 2 years. We have a 7% increase in unit revenue in 2019 compared to a reduction in 2018. And as I said, the load factor is coming up.

And the graph here is showing the capacity in the gray area, and the bars is showing then the unit revenue compared to the same month, 12 months earlier or -- of the previous years. So what we are seeing now is that we have a growth on, let's say, I think it is on 10 consecutive months compared to the same month the previous year. So all in all, we are seeing -- really starting to see the effects. And looking into both February and March and April, I think we can say that, that trend is continuing.

Looking at Q4 and yield. I mean we have a 19% reduction in capacity in Q4 compared to Q4 2018 compared to 32% growth the year before. So you're seeing a quite dramatic reduction in capacity. But at the same time, we have an increase in load factor. We're also seeing increase in yields as we are seeing in the monthly traffic figures. And we saw a 10% increase in yield during the quarter compared to 2018. So all in all, good development.

Also on punctuality, 3.1% up in this quarter. And you're seeing that during the last 6 quarters, we have been doing better and better also on punctuality. And on-time performance, whilst it's a high focus area that we have been working on for quite a while, and we are now starting to see improvements there as well. Just as an information, I mean, the care and compensation is very much affected by on-time performance. In Q4 '19, we had NOK 135 million in cost on care and compensation compared to NOK 360 million the same quarter the previous years. So a reduction of close to or approximately 62% as such year-on-year.

We have done a massive review of the short-haul network through 2019. In total, we have taken out 70 routes during the year, 50 routes on short haul, 20 routes on long haul. And this is what we are now planning to produce during the coming summer.

So what you are seeing is that we have taken out capacity from Sweden and Finland. And we are now starting, as a result of that, to see an increasing yield in both those markets. Denmark and Norway is stable, profitable and continue -- will continue to be profitable. Dublin and Edinburgh, we have closed down on short haul. That involves also the long-haul flights to the U.S. with the MAXs by obvious reasons. We have taken down some capacity in Gatwick. And we have closed down 2, 3 bases -- or 2 bases in Spain and also in Rome on short haul. So 5 bases has been closed through 2019. We have restructured the Canary Islands, and we feel now that we have the bases that we need with the number of aircraft. You would probably see some changes during 2020 as well but not in the same pace as you have seen in 2019.

On long haul, a little bit of the same picture, really, also done quite an extensive review of that program during the last 12 months. And so what you're seeing now is that we are consolidating the long-haul business, at least on the European side, into fewer hubs. So we are now focusing on the U.K., Gatwick. We have Paris and Italy and Spain.

And then we are in the process now of consolidating the Nordics long-haul hubs into Oslo. There was a fight between Denmark, I would say, and Oslo. We ended up in Oslo because the 3 as a stand-alone didn't really work profitability-wise. So we are now -- now think that we are taking it into Oslo, closing down Copenhagen and Arlanda. We should be in a much better place to generate cash flow going forward.

Looking at the different markets. I mean Norway is still dominating, but it's very nice to see that the U.S. is having the biggest growth. Also very nice to see that Italy and Spain is performing well, growing, at growing yields. Finland and Sweden, as I said, is coming down when it comes to the growth. But on the other side of that, the yields in both those markets are coming up. So I think the measures that we have taken there is starting to work.

Into the financials, if you look at the P&L for the quarter, we have a 70% reduction in revenues, as you can see. And -- but that is on a 19% reduction in capacity. On the cost side, the absolute cost is down by NOK 1.3 billion, representing 13%. Ideally, I would like the cost to go down by the same as the capacity, i.e., 19%, but that is a challenge when you are taking out the capacity that we have been taking out in a relatively short period. I'll come back to that.

But it takes us to an EBITDAR of NOK 436 million. That is up NOK 550 million from the same quarter last year. And we are ending then the quarter with NOK 2 billion loss, 8 point -- NOK 1.9 billion on the bottom line. IFRS is approximately NOK 114 million negative in this but also -- and that is compared to NOK 3.9 billion loss in 2018. But have in mind that we had a quite huge hedge loss in 2018 that is affecting that result.

We are not happy with NOK 2 billion in loss for the fourth quarter. But at the same time, I think we -- when we are seeing now the profitability increase coming back to us, I think we are pretty well situated in order to come into 2020. And I'll come back to how we look at 2020, also guiding-wise a little bit later.

If you look at the revenues, I mean we are 16% up on RASK compared to same quarter last year, 11% in constant currency. Ancillary revenue is slowly developing in the right direction, has been doing that for quite a while. And all in all, quite okay with the RASK development as per now.

Looking at the cost side. That is an area that we are, I would say, struggling a little bit in order to cope up with the capacity reduction that we have taken. But if you look at constant currency, you can say that we are 11% down on revenues, and we are only 4% up on cost with the currency constant comparing the 2 periods. I think what we are seeing is that when we are taking out that this capacity, 90% in the quarter, it is a challenge to be able to take out the same amount of cost in the same period.

We have made a small little graph on the top right-hand side there. That shows a monthly cost development in the blue bar. So you are seeing that it's peaking in November. It's starting to come down in December. We expect that to continue into the first quarter. And when I'm coming back to the guiding, you will see that we expect the cost now to come down through 2020. And this is a very high-focus area internally, and we have to make sure that we are able to take out the cost in line with the capacity reduction. But normally, you will have a lag, time lag in that area.

All in all here, yes, this is obviously a development. Even if the absolute cost is going down in the company, the unit cost is going up. Again, very nice to see that the handling costs are coming down mostly due to -- I mean we have done some quite good deals with our vendors. And I mean we have renegotiated many of the contracts. And the on-time performance is also coming up, helping to take the cost -- the care and compensation costs down to a level where it should be. I think we have still more room on that side, by the way.

Focus '19, this is the last time you will see anything about Focus '19. We guided the market a quarter ago and saying that we will -- we increased it from NOK 2 billion to NOK 2.3 billion. We almost got there. I think we are missing a few millions. So we ended up with NOK 2.292 billion. And we are quite happy with that project, I would say, over-delivering what we promised 1 year ago. This is not the end of the cost reductions in Norwegian, just to make that 100% clear. This is a process that will continue, and we will come back to that a little bit later.

Full year ended up at NOK 43.5 billion on the top line, 8% revenue growth on a 1% ASK growth for the full year. And then we have the 6 -- close to NOK 6.5 billion EBITDAR. And I would say with that, we are quite happy. It's a doubling compared to 2018. And we ended up then the year with NOK 1.688 billion loss for the full year on EBT compared to NOK 2.4 billion in 2018. But have in mind that we have a NOK 1.9 billion gain from the so-called impairment transaction on the bank shares to -- affecting the 2018 year.

Obviously a year we're not happy with, but we are on the right -- definitely on the right direction in the company. I think it's very important as well that you all know that into the 2019 figures, we have booked a loss of close to NOK 1 billion due to the MAX situation. We have also booked a loss on the 787 engine issues during the year at approximately NOK 750 million. So NOK 1.7 billion is taken into the P&L as a net loss from the issues that we are having on this -- on the aircraft that we are flying.

IFRS effect is also a negative of NOK 750 million for the full year. Have that in mind when you are looking at the loss of NOK 1.6 billion for the year, as you can see here.

Balance sheet, not many comments. I mean one comment is that you can see that asset side is going down from NOK 71.9 million to NOK 66.3 billion, so a reduction from last quarter. We have also a few aircraft now classified as assets held for sale. That is the 737-800s that is sold, 5 of them. That will be delivered through the current quarter, meaning the first quarter. We also have a change in currency affecting the asset side with NOK 2.4 billion. And we have also sold -- I mean we have sold 9 -- 10 aircraft now, where all these will be delivered through first quarter. And that is also then included here in the balance sheet.

Cash is NOK 3 billion. Receivables is NOK 10 billion. I think we will have to say that we have -- on this credit card acquirers, we have onboarded credit card acquirers. We have some delays in kind of them getting online and to start the process, but we are these days onboarding one of our biggest credit card acquirers, which will give liquidity effect immediately and towards the end of Q1 and into the second quarter.

On current debt, NOK 8.7 million. NOK 1.8 billion of that is related to the aircraft that is already sold but not delivered. But here, it's classified as short-term debt. That is 10 aircraft, which will give us close to NOK 1 billion of free liquidity at delivery of these aircraft during the current quarter.

Cash flow. I'm not going to go through all the details on the cash flow. I just want to mention that on net cash from investing activities, NOK 8.3 billion, that includes 12 sales of aircraft. And the same applies to the principal repayments, where we are paying down the debt on the same aircraft as such. Have in mind also that IFRS 16 is also coming in here. For example, on financing costs paid, NOK 1.7 billion of that is related to the interest portion of the lease payments that we are paying to the leasing companies.

Just to summarize a little bit what we did in 2019. I mean Focus '19, we have been through. We have been deferring deliveries both on the Airbus side and on the Boeing side, where we have taken out NOK 22 billion of CapEx split on 2019 and 2020. We sold Bank Norwegian shares, freeing up a lot of liquidity last year. We refinanced the 2 bonds for approximately 2 years. We have sold 24 aircraft, 22 Boeings, 2 Airbuses, net liquidity of NOK 2.2 billion.

Finally, we were able to deliver that joint venture. That takes care of all deliveries from Airbus until the end of 2023, reduces the CapEx with NOK 13.7 billion, and we do expect to see a liquidity effect of that joint venture during 2020 as well. We did the private placement and the convertible bond, as you all know, and we sold off the Argentinian business. And we are now in the process of getting those aircraft back from Argentina. The last one is coming back in May, June this year.

Outlook, I have to admit that this is a difficult slide to go through because it involves so much uncertainty, especially on the MAX side. But as you can see, in 2019, we ended with 156 aircraft in operation. That is 37 Dreamliners. It's 18 MAXs. They're all grounded. And then you have the NGs split on 61 leased and 40 owned.

So looking into 2020. We do expect to take delivery of 4 Dreamliners. We have included 16 MAXs there for delivery in 2020. I'm afraid -- and I think that's completely unrealistic, but that is what Boeing is contracted to deliver to Norwegian. We are now not planning the summer program with MAXs flying. We are -- we estimate the MAXs back in the air at the earliest in September. And so we would just have to see later this year what happens with this MAX situation.

So during the year, we have sold already 10 NGs. That takes us from 40 to 30, as you can see, and we are redelivering 8 of the leased aircraft. That's aircraft that we leased back in the years, and we're also delivering 12 of them in 2021. So there is -- that's why we are guiding on 13% to 14% -- or 13% to 15% reduction in ASK this year. And -- but it's highly uncertain depending on when these MAXs are back in the air.

So on the MAX situation, I mean, we have 18 grounded. We have 13, 14 produced and parked in Seattle. So we are more than 30 aircraft short compared to what we were planning for 1 year ago. We have estimated a loss on this situation. That is a net loss of NOK 1 billion. We have -- we had hoped that we could enter into an agreement with Boeing at this time, but the timeline is changing all the time. Now we have to start discussing the whole summer program, and we will have to bring the discussions with Boeing now also involving the next 6 months really. We were all hoping that these aircraft will be back in the air prior to the summer. That will not happen as we see it today. And now the kind of discussions, negotiations would also have to involve at least 6 months going forward from now. That's why this is dragging out a little bit. But we are still in a good dialogue with them.

On the Dreamliner side, these engine issues hasn't really stopped. We still have the same issues. We will have them through 2020. We have, as you know, taken delivery of 37 Dreamliners as per today. We are flying today between 25 and 26, meaning that is 12 aircraft on the ground, parked, maintenance, change of engines, et cetera. And this is -- the plan forward is to now start the summer program with 32 aircraft in the air.

And then we have -- we have had and have a really good relationship to Rolls-Royce, and we have found a solution with them with regards to compensation. It's not a fantastic solution, but it's a solution that we can live with and now at least plan for going forward.

Guiding. Due to what I just said, I mean, we are guiding now a reduction on 13% to 15% on capacity. The last guidance we gave was 10%. We are guiding unit costs inclusive of depreciation actually of NOK 0.33 to NOK 0.34 and then with fuel is NOK 0.44 and NOK 0.45. We are guiding now net profit for Norwegian for the full year, but that is on the assumption that we will have the MAXs back in September.

The fuel prices as we are listing here, we have used the situation now when -- where the jet fuel has come from 660 -- 650 down to now, I would say, low 500s. So we've used that reduction in order to start hedging. So we hedged 35% now in the first half at 578, and for the full year, 25% at 571. That means that we are, compared to our competitors, now seeing hedging in the area $80 to $100 a tonne, lower than our competitors. I think you will see us during the next weeks also increasing that hedge at what I would say very comfortable levels in general and also compared to our competitors. It also assumes that we will find a good agreement and a beneficial agreement for Norwegian with both Rolls-Royce and Boeing on the asset side and then the issues that we have with the aircraft.

I think that was it, Jacob.

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Jacob Schram, Norwegian Air Shuttle ASA - CEO [3]

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Thank you, Geir, and good morning, everyone. I am now approximately 6 weeks into the job. In those 6 weeks, I've been traveling a lot around to see the business. As I see it, so far, if I should kind of come up with a plan in 6 weeks, I would say there are 3 things that will have my attention going forward now.

It is to steer the employee engagement in the same direction in the company. And it's also to unlock the full potential in the organization through clear and visible leadership. So that's the first thing.

The second thing is to strengthen and stabilize the profitability through program NEXT.

The third thing that will have a lot of my attention is really to build and position Norwegian into the future of mobility through 8 building blocks that I will come back to.

The aviation industry is new to me. However, especially now after being 6 weeks into the job and traveled that much around, I have to say that it has a lot of similarities to retail: pricing optimization, a huge topic within retail, and sophisticated topic; constant product and concept development; optimizing the customer experience; building a sales culture; safety and security culture, huge topic where I came from; building operational excellence and lean operation culture; and last but not least, focusing on getting great employee engagement. We have over 11,000 employees.

And especially the last 2, operational excellence and employee engagement, is extremely hard to compare for a competitor. That's really where we build a competitive edge in my experience. Therefore, one of my top priorities was to see operation and meet our people. That's why I use so much time on that now.

I have been -- I have approximately handshaked 1,000 people in this 6 weeks. I have visited our bases in Dublin, Barcelona, London, Fornebu, of course, and also spent a full day at Oslo Airport. I have used a lot of time on one-to-one meetings with over 50 managers from 0.5 hour to 2 hours from more than 30 departments.

And what I see is really engaged employees, and I see people that are extremely proud of working for Norwegian. And I think that's one of the best basis you can have to further build this company. And I also see huge competence within the company. I also see a lot of unlocked potential from structure, systems, leadership, accountability, collaboration, et cetera.

So what I've done here will not be a onetime stunt. I will continue this from the middle of the March. And my aim is to visit all the bases, all the Norwegian people before summer. This is who I am as a leader, and I want to underline that. I'm used to it. During the year when I was in Circle K, it was quite common for me to visit at least 200 stations during the year. That's how I perform my leadership. And I can also assure you that the executive team and myself will be around in all corners of the business going forward. So that's kind of the first element that will take a lot of my attention.

Another top priority is the NEXT program. That is a continuation from Focus '19 that we just heard Geir talking about that delivered NOK 2.3 billion. And I think 2020 is all about operational improvement on revenue and costs and also to ensure the right speed into 2021. So the program NEXT will not only be for 2020. It will also continue into 2021. So this is really our short-term 2-year plan.

NEXT, as it is, as I'm speaking, consists of 277 initiatives. 40 of them are completed. It's 6 work streams: network, which means where and how to fly; people, which means the best use of crew; product pricing and revenue management, which really means customer optimizations in all the elements; operational performance, which means smart operation, efficient operations and lean operation; cost reduction, procurement, which means striking the balance of being really fit and being too skinny; and last but not least, value proposition, where to compete in the future.

The program consists of a program management office. It's organized on the guide and the finance. It has dedicated people, 100% people working just to organize this. It has a tracker system, listing all the activities, listing the deadlines, the responsibilities, listing the effects and what will be also the effect on the P&L.

And I've seen many of these programs through my 30 years of business. I also constructed several of them. But I have to say this program is one of the best I've seen. It's really best practice on how to run a program like this. We follow it up closely.

We have a weekly cycle, which means that on Thursday, the PMO, the people that leads this program, sits together with Geir, that is the project leader of this, goes through it, see the bottlenecks, decide on how to move forward. Then on Friday, we have a status together with me, Geir and the team. And on Monday, we discuss it in the executive team.

We also have there what we call a strategic agenda, where we have all the big elements of NEXT prepared, discussed and decided and also allocated resources, whether it's people or money. And then on a monthly basis, we have a steer co, including several people from the Board. So I think it has a lot of attention. That will be the cycles moving on. And it's really hands-on.

So I would characterize NEXT as the power engine within the company, where all qualified activities will be seeded into the program. So that number will change as we go forward and also, of course, the numbers on the bottom. But all the qualified activities are rolled in. And they will get 2 things. And I want to underline this because working in big companies, you see often very -- a lot of activities that don't kind of end in nothing.

But the 2 most important thing to make things happen in a big company is that it has top management attention and its allocated resources. And that's what this program do. If you have an activity, that qualified to go into here, it gets top management attention and it gets resources.

The financial impact of NEXT in 2020 is estimated to NOK 1.5 billion on the P&L. Revenue costs, we also measure the cash flow, the liquidity in this program. Just to give a couple of short comments on the content, 180 of these initiatives that you saw on the previous page is tied to the bucket called cost out/procurement, lot of medium, small initiatives but super important.

Several activities are focused on getting us from a manual position into more an automated position like, for instance, on people, on crew optimization, a system called Jeppesen that help us optimize the crew in a better way; also within pricing optimization with a system called Farelogix; and a third element on operational performance, which is called tail optimization. Things that we absolutely need.

Also a number of big initiatives like, for instance, on crew optimizations that we can work across the AOCs and not being limited to certain AOCs; fare ladders, which means how you're going to build the pricing compared from when we put out the tickets until you depart with the airplane, how do we build that pricing curve. Those fare ladders is out for approximately 30% of our routes and will be, in a short time, on 70% of our routes. So there is a lot of individual activities in this program. And that will have huge attention going forward.

The third topic that will really take a lot of my attention and my team's attention will build -- will be to build Norwegian into the future of mobility. And what do I mean about that? I see 3 phases of us moving forward.

The first phase is really the shortest one. That's from now until summer or maybe fall. And that's really taking the company from the phase that we have now, which has been growth, and into the profitability. A lot of the concrete activities started last fall that Geir has talked about. But it's also taking the whole organization into that mode. It is different being a company that has been growing extremely, almost like it's super big entrepreneurial company, and then going to have more stabilized profit, to be solid, to be even more professional and to be more major company.

And that's what we want to build in Phase 2. And I've done this before. And it takes at least 3 years to build and 5 years to achieve the culture you want for that phase of a company. And the reason why we want to do that is that we need to position ourselves to be present when the big discussions come about future mobility. We are not there today. We need to strengthen the company to be present when that battle starts. And I believe that battle starts after 2025. We need to understand what is future mobility within aviation. I'm not saying it's going to happen in 2025, but that's at least when you need to be positioned to talking about it, to have opinions about it and to prepare for that.

I'm absolutely sure that we will not have electric planes now within the next 5 to 10 years, but maybe in 15. And I can assure you, in the previous industry that I was in, it happened much earlier than everyone thought. 7 years ago, nobody thought electric cars will have the presence that they have today. Nobody. All of us was thinking about 2040, 2050. Now the business plans is 2025. So this happens -- tends to happen much earlier.

And I want this company to be positioned for that discussion. And I believe to take us there, we need to focus on 8 building blocks that will gradually get a lot of content. We have to have a strategy on how to compete, where to compete, which I will call the value proposition. And then when you know that, then you have to have a strategic platform, which I will come back to.

Secondly, you need to have a structure of the organization that fits the phase you're going into. We don't have that structure today. That will be developed. And I'm especially talking about level 1 to 3 leaders. My experience is that if you have the 1 to 3 leaders, with the right structure and the right people, you can move the company kind of in whatever direction you want.

The right leaders is the third element. And when I say that, it's really competence and behavior. And again, I want to underline, it's tremendous amount of competence already within Norwegian.

Leadership principals. Really about how do we develop the leadership principals for the leaders we have, being a role model for values, setting strategic direction at all levels, follow up on performance standards, develop people in the company. Super important examples of leadership principals.

To have a governance model means how do you really work together. One thing is having an organizational chart, but how does this organization work together is big. And we need to define that on a strategic level, on an execution level and on the people level.

And then having a distinct operating model, which really means how do you steer the company in terms of all the plannings, especially within this business, how to allocate planes, how to plan routes and network, how to optimize crew, et cetera, et cetera, from kind of 5 years ahead to 3 years to 1 year to actually the actual flight is going. That certainly needs to be very clearly defined.

Mandate structure. It go without saying, cost is a big element in the company. That, of course, needs to be very clear, who has what mandates, et cetera. And it is clear today. I have to underline that. But it's always changing when you move to a new phase.

And then, of course, one performance management system, meaning how do you develop people in the company, how do you split the goals from Norwegian down to each and every people. And we can be better on a lot of these building blocks, and we have to be better if we are going to move this company from the first phase to the second phase to the third phase. And that's not unnatural. It's quite natural.

One word about the value proposition. That work started before Christmas, before I entered the company. It was stopped waiting for me to enter. I kicked it off again last week, and it will be finalized and delivered early April. And the value proposition, again, is where do we compete compared to the others. And when you define that, it's really about defining then what I call the strategic platform, which means what is our dream, what is our business idea, what is our DNA in the company and what should we be famous for in the customer experience.

This is important because it guides you on designing the right organization. It guides you on how we develop the brand platform. It guides you on what kind of specific business strategies you have in the company.

I believe sustainability will be an important element of this. I can't say today exactly how, but I believe sustainability will be important in this work. And I believe sustainability is good business. It has to be both. I believe in sustainability from a climate perspective, but I also believe in it from a business perspective.

One day, we will also see the airline business with 0 emission. But in the meantime, because that will take some years, we have to take responsibility as other industries. And I think we have a very good starting point in Norwegian. I think the low-cost model we have is a brilliant starting point because we have a modern fleet.

If you compare from 2009 to 2019, we have 33% less CO2 emissions done with the old fleet. And if you add the new planes, when they start to fly, it's another 20%. The low-cost model has direct flights. The low-cost model has low price on tickets, which also means very often higher load factor. So all of this together and a lot of other things, I think we have a very good starting point compared to a lot of others.

So my last point will be, fundamentally, I believe, in bringing people together. Then magic happens. Then we develop. And that's the business we are in. We are in the business of bringing people together. And I don't believe in a world where we stop transporting people. We bring people together, and we will continue doing that, but we will also continue doing that in a smarter way. And that's what also consumers should think about, fly smarter. Thank you.

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Questions and Answers

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Martine Undeli Bekkelund, Norwegian Air Shuttle ASA - IR Officer [1]

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We will now open up for questions from the audience. Due to our online audience, please wait until you get the microphone.

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Kenneth Sivertsen, Pareto Securities, Research Division - Research Analyst [2]

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Kenneth Sivertsen from Pareto. Two questions, if I may. One, if the MAX is grounded during 2020, how will the cost develop compared to '19? That's one.

And second, prebooking into '19 -- into '20. How's that year-on-year on volume and also on pricing?

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Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [3]

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Well, I think on the cost, when we are guiding -- when we have guiding as we have seen, that includes the fact that we are not expecting the MAXs to be back in the air until September. But at the same time, we are planning to fly the whole summer program. That means that we would have to take in wet leases or dry leases during the summer, as it looks now.

So you can say that if the MAXs are not coming in prior to the summer, we don't really need that many of them into the winter either. So the problem is getting less as you go into -- closer to the winter as such.

When it comes to the guiding, and I think I would just have to refer to the traffic figures. As we have seen, the last 10 months, we have beaten the previous year on RASK. The load factors are coming up. And the yield is coming up, 10% in '19. And if I look very short term into, let's say, February, March, April, it seems like that trend is continuing. As I said, a little bit -- maybe March is a little bit slower than February but still a little bit early. But all in all, we are seeing that the trend we have seen during the last 6 months is continuing.

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Kenneth Sivertsen, Pareto Securities, Research Division - Research Analyst [4]

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And one last, if I may. And CEO, yes, welcome to Norwegian. On all the initiatives you see you had launched now and you've gone through, what do you think actually will -- you mentioned, I guess, most of the important. But on ancillary side, do you have a target there? I think the old target was around 15%, but then you see a potential here that it's not taken out.

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Jacob Schram, Norwegian Air Shuttle ASA - CEO [5]

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Yes. On ancillary, I don't want to guide on a specific percentage, but I definitely see more potential. This is actually an area that I will compare very much to retail, really creating or improving the sales culture. And I think there is a lot of opportunities, both when you are flying to kind of bringing retail into the air to say it that way. But also in terms of -- before you are flying, in terms of how you put together your ticket, et cetera. I think one example of that is how we handle the baggage, the new hand luggage, et cetera.

So I definitely see more potential there. I don't want to commit to any number yet at all. But yes, there is more potential. And yes, I think we can also improve on the sales culture. We have a very good fundament, but I think we can improve.

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Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [6]

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I think just to add on what Jacob was saying, I think also when we are -- we are often being criticized because our percentage-wise ancillary is lower than the peers. I think it's a little bit of a number play in my opinion. I think you -- what you have to look at. I mean there's no doubt that we have more room to increase the ancillaries, but I think you should also look at the revenue per passenger as a total when you compare between airlines.

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Daniel Roeska, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [7]

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Danny from Bernstein. Two, if I may. One, Jacob, welcome. How did you prepare kind of before you started kind of last year for your new role at Norwegian?

Secondly, kind of also in your early observations, maybe even before you joined the business, right, with what hypothesis did you go into the business? If I may be so frank, what do you think was going wrong? Because we heard a lot about what is going right, right? What are the things where you thought, well, that's really something I need to challenge the team on?

And then more broadly, while I understand the longer-term strategy here, positioning the company for future mobility, kind of there are 2 elephants in the room. And #1 is how do you actually do turn this long-haul concept profitable to exceptional levels? And secondly, you're still planning to take 30 or more planes from 2022 onwards. It's time to talk to Boeing about that, too. So what are you doing about the fleet delivery plan beyond '21?

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Jacob Schram, Norwegian Air Shuttle ASA - CEO [8]

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I'll try to remember your questions. If not, help me again.

How did I plan before I came? I, of course, tried to read a lot about the industry. I previously worked in McKinsey, so I have a pretty good network there. So I talked a lot with previous colleagues experts within aviation. I had several one-to-one meetings with external people, both people that has not been in the aviation industry but more from leading, big companies, and especially kind of the first months, what were your priorities going into kind of a company where there is a lot of things, you have to kind of see through it and prioritize. So I got some experience there.

And I really prioritized meeting the team, the team that I knew I was going to work with, the people that were going to report to me. So before I officially started, I had 2 to 3 hours with each of them. And last but not least, we are also using some external people internally to also help us moving forward. So I used several workshops together with them.

What did I tell them to come in, et cetera? I think my agenda was not about telling them what to do. My agenda was having big ears. I really want to listen to people, talk to as many people as possible to see issues from different angles and learn the business.

So I would rather kind of rephrase your question on what brought me into this company. And I think what really brought me into this company was I think it is a fantastic story. I've been seeing it from the outside being a consumer, seeing kind of -- for me, it's a Norwegian fairytale. Seeing this company growing from actually being almost a bankrupt previous company, Busy Bee, and then growing the way it has done. I just said to myself that must be an interesting company.

Secondly, I think the brand is fantastic. The branding resonates with me, but I have to resonate with a company with a great brand. I think Norwegian is a great brand. And I'm saying -- I also said that before I joined the company because I think it is a brand where you are allowed to surprise, where you are allowed to play rather than a lot of the other airlines, which are more boxed in. If somebody should expect new things, it should really come from Norwegian. That's kind of my perception when I got into the company.

Thirdly, I think it had a fantastic asset base. It was not kind of a super small company with big ambitions. It already had a lot of planes. It had a lot of routes. It's done some interesting new things. I think that was interesting.

Fourth, I think I'm attracted to businesses where people make a difference, and this is that kind of a business. I mean you have to have great pilots. You have to have great crew. You definitely have to have great ground operations, now being around. If we fully understand how much it takes to get the plane in the air and how that hangs together, great people make a difference and also the people working to plan the company in what I call the service office. We are not the head office. We are a service office. So -- because then leadership matters, and I care about leadership.

And last, which also dragged me in to this, is future mobility. I think the biggest trend that -- trend that is facing us as humans is really mobility. I think mobility will change. What is happening in mobility? The next 10, 15 years will change society. It will change business, and it will change our personal life.

And I saw that within the car industry. I'm also sitting in the Board of Moller Group, which imports Volkswagen, Audi, Skoda and SEAT. I've been there for almost 15 years. So I have seen the inside of the car producers, and the revolution that's happened there is fantastic. And I say to myself, this also has to happen within the airlines. And I want to take part of that. And I think the moment is now. So that really dragged me into it.

And then you had a couple of other questions as well.

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Daniel Roeska, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [9]

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I'll let you go. What turns long-haul profitable? And two, what about the key orders past '21?

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Jacob Schram, Norwegian Air Shuttle ASA - CEO [10]

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Yes, that was the 2 difficult questions. So no, I don't have the answer on what turns long-haul profitable. I just see that what Norwegian has done is interesting. Trying to get low-cost succeeding on long haul, nobody kind of proven that business model yet. But I see a lot of opportunities that we can do on short term. But then we also need, of course, to think long term what kind of strategy will bring this to profitability, as you say, and fuel the company. That is too early to say anything about.

But yes, I want to come back to that when we have more clear answers on it. But I definitely don't want to just throw it out. I really think we have potential that we should try to go after. And then I have to come back later to say if it's viable or not.

And the last question was about the airplanes. Yes. Then I have to lean on you, Geir.

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Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [11]

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Just a comment on the long haul as well. I mean as you saw here, we have been doing quite some steps during 2019, where we are consolidating into the 4 bases, consolidating the Nordics into Oslo. But have also in mind that we have lost NOK 750 million due to engine issues.

I mean think about it, guys, we have taken 37 deliveries. We are flying 25, 26 aircraft. The rest is part due to engine issues. Where we are sitting there paying capital costs and these problems, these problems will continue into 2020 at least. So have that in mind. And I can go on with loss of revenues, with more fuel burn on the wet lease and et cetera. So it's -- have that in mind when you're doing your numbers.

When it comes to the order book, I mean, as we all know, we are in dialogue with Boeing. And that dialogue also involves a new delivery schedule because it's quite obvious that these guys are not able to deliver the aircraft when they were supposed to do so. And we are very soon coming into the 12-month mark, meaning that you have the right to cancel. And I think Boeing is sitting there today expecting that at least some of the customers will cancel. So it's a huge cancel for Boeing as well. That's one point.

Another point is that have in mind that the plan in Norwegian has been to replace the 737NGs, 800NGs with MAXs. So right now, we have approximately 100 NGs and we have 92 MAXs at order not delivered. So this plan has been to do this fleet renewal program. So in case the MAXs are not coming back or delayed, well, then we will just -- which we have done really, is to stop selling NGs. So that's the plan. So if something even worse happen with the MAX as compared to what we know today, well, then we will just keep on flying these NGs. So I don't really see that as a major task as such. And on the 320s, as you know, we have -- they are taken care of for the next 3 to 4 years at least.

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Hans Jorgen Elnaes;WinAir;Founder, [12]

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Hans Jorgen Elnaes, WinAir. Two questions from me. The traffic passenger decline in Sweden is escalating also in 2020. Can you give some light on how this can impact Norwegian operations in Sweden going forward?

And second is some airlines in Europe are now going from reporting monthly traffic figures to consolidate those into the quarterly reports. Will Norwegian continue to deliver monthly traffic figures going forward?

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Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [13]

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We don't have any other plans. I mean -- so we expect to continue to do the monthly, the regular one we are sending out, yes.

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Hans Jorgen Elnaes;WinAir;Founder, [14]

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And on Sweden?

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Jacob Schram, Norwegian Air Shuttle ASA - CEO [15]

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How about Sweden?

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Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [16]

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Well, Sweden, as you saw -- as you saw when I went through the short haul, we have taken down capacity both in Finland and in Sweden. And yes, the Swedish market is not as strong as Norway and Denmark. And -- but when we have taken out these asset, yes, we are also seeing that yields are starting to come up at a lower capacity. So we will have to -- we will have to just do that, adjust when we see a market that is not developing the way we would like it to be. And it is the fact that the Swedish market is not performing in line with especially Norway and Denmark in the Nordics. So we are adjusting, and then if we have to do, we will adjust more than what we have already done.

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Martine Undeli Bekkelund, Norwegian Air Shuttle ASA - IR Officer [17]

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So a few questions from the online audience. So from Ole Westgaard in DNB Markets. How much credit card capacity do you currently have? And what do you expect in terms of capacity going forward?

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Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [18]

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Well, we are not really guiding on capacity on credit card acquirers. But it's quite obvious that we don't have the capacity that we need as per today. As we said late last year, we have -- we are in -- we were then in the process of onboarding new credit card capacity, and we still are. We have some delays, which is also reflected in the liquidity, but we are now on the process -- in the process of getting live with one big one. And we are also, due to all the measures that we did last year, seeing that the credit card acquirers that has been with us for a while is now starting to open up again and give us additional credit.

But as I've said earlier, now we have taken down the capacity. But you can say that the need for capacity is, I would say, in today's production, it's 700 million, 800 million ideally during the winter. And then it's less than half during the summer due to the seasonality in the company. And we are on our way now to increasing those capacities, and you will see the effect of that going forward now during the next months.

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Martine Undeli Bekkelund, Norwegian Air Shuttle ASA - IR Officer [19]

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And I think lastly, due to time running out, is the interline partnership with JetBlue evolving into anything bigger? Will you cooperate with JetBlue on their transatlantic services? From Andrew Lobbenberg in HSBC.

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Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [20]

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Well, I think at the Phase 1, I mean, that relationship with will turn into an interline but a real interlining agreement where you have the seamless move of luggage, et cetera, which we don't have at easyJet by the way. So it will, first of all, be an interlining project and with the major kind of connecting point in Boston, New York and Fort Lauderdale. And that -- we are planning that to come live during the next months. And then we will see how it goes, and then we will take it from there really. But that's the plan for the next 4 to 5 months.

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Tore Østby, Norwegian Air Shuttle ASA - EVP of Strategic Development [21]

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I think with that, we have to end the call up now. Thank you all for joining.