Norwegian shares plunge 12 per cent as airline cancels 3,000 flights
Shares in low-cost carrier Norwegian plunged 12 per cent today after the airline said it would cancel around 3,000 flights between now and mid-June to tackle the slump in demand caused by coronavirus.
The cancellations, which extend existing measures, represent approximately 15 per cent of the carrier’s total capacity for the period.
They are part of a package of measures the airline, which has been widely tipped as likely to follow Flybe into administration, has introduced to try to tackle the change in demand.
In a statement, the firm said that the measures would include “temporary lay-offs of a significant share of its workforce”.
It added that more details of the cancellations, which will affect Norwegian’s entire network, will be shared as soon as they are ready to be implemented.
Norwegian’s chief executive Jacob Schram said: “This is a critical time for the aviation industry, including us at Norwegian. We encourage the authorities to immediately implement measures to imminently reduce the financial burden on the airlines in order to protect crucial infrastructure and jobs.
“Unfortunately, cancellations will affect a significant share of our colleagues at Norwegian. We have initiated formal consultations with our unions regarding temporary layoffs for flying crew members as well as employees on the ground and in the offices”.
The cancellations come just days after a number of hedge funds increased short positions against the airline amid fears it could be the next carrier to fall into bankruptcy.
Analysts also cut their ratings for the stock, largely over fears that the airline is particularly exposed due to the size of its debt pile.
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British Airways owner IAG expressed interest in buying the airline last year, but analysts said the current situation made it unlikely that any airline would revive its interest in buying the carrier.
Michael Hewson, chief market analyst at CMC Markets, said short of a bail-out, “you have to ask whether Norwegian will avoid the same fate as Flybe.
“In any other business environment, we would be in acquisition territory now, but the business case for buying has been thrown out of the window.
“When this is over, we may have to rethink the conventional wisdom of expanding global capacity, which may not be good for prices.
“Ultimately, those airlines with strong balance sheets will survive, while those without will not”.
Norwegian has been among the airlines worst hit by the coronavirus outbreak, with shares losing over two-thirds of their value since the outbreak worsened in the last two weeks.
On Friday the firm said it had sold over two thirds of its available seats for March, and added that it would waive flight change fees in a bit to encourage bookings.
The cuts came as Korean Air warned its employees that the outbreak could threaten its survival.
In a memo seen by Reuters, the airlines said that “if the situation continues for a longer period, we may reach the threshold where we cannot guarantee the company’s survival”.