Norse Atlantic ASA (9LG0.F) Earnings Call Transcript & Summary

Very good morning, everyone. Welcome to Norse Atlantic Q2 presentation 2025. My name is Bjørn Larsen. I'm the CEO and Founder of Norse, and I'm also joined with our CFO, Anders Jomaas. And following the presentation, we will have a Q&A session, and you can put your questions into the chat at this point or whenever you want, and then we are going to take them up as we get to the end of the presentation. There we go. all right. So starting with a few headlines. We have been through a massive transformation the last 6 months. Those of you who have followed us know that we, in November, announced that we are going to transform the business model. We're going to be a more opportunistic carrier that will fly our own network as well as more charter whenever the time is right for that, and we're going to redo our cost base by having people, our crew, great crew flying to and from -- or based at the locations where they are flying to and from. And on top of that, we have introduced a state-of-the-art in-house developed technology that helps us improve revenues and manage our flights in a very, very different way than we did in the past. So we are now halfway through the transformation, and you will see that we already see massive results of the efforts that we have done. Very quickly on numbers. The -- this is the first Q2 that we have ever presented a positive operational result of $4.4 million. So it's a good improvement from last year, an improvement of more than $26 million. We also have a good revenue uplift from $164 million to $202 million. So we're seeing that the revenue side is very much on the right move, and we still have a lot of potential for extra revenue as the total production capacity was not at its max in Q2 for a number of reasons, which I'll come back to. But you'll see a part of the numbers, which is isolated a great improvement. There is a lot of extra opportunity and potential for us in, call it, a normalized quarter. You'll also see that we had a cash [ ROB ] of $24 million. In addition to that, we have $20 million facility from a bank that is undrawn in June. We have successfully completed the ACMI negotiations. So we are now going to charter 6 aircraft to one of the world's leading carrier, wet lease, with our crew technical staff, et cetera. And we have renewed a contract with P&O Cruises. That is a very good contract for us in the winter months. So all in all, the commercial strategy has worked well, and we are very happy with what we have seen so far. And the forward bookings is also looking very good for the winter. It is quite a bit above where it was last time, or same time last year. I talked about load factors briefly. And this obviously is one of the areas where we have been able to achieve good performance. I think it's a world-class number that we are presenting, 97% for the quarter, and we see a consistent growth. We expect load factors to be above 90% every month going forward as far as we can see. And also, the passenger growth has been good, up 36% compared to same quarter last year, but you will also see that there is a potential for more passengers, and that is due to -- that we have extra production potential and capacity that we will roll out in the coming months. Revenue per passenger were fairly stable, slightly down. And the main reason for the reduction is a little bit softer fare in the transatlantic market. We still see that we are able to get slightly better ticket prices than last year, but the ancillary revenue is a little bit down. And the reason is that we have now included the carry-on luggage for all customers. Regardless of which class and how cheap ticket they buy, they are allowed to carry on a hand-carried luggage. And whilst the ancillary revenue has gone down per passenger a little bit, the total revenue has gone up, and we have done significant AB testing on it to ensure that we don't leave any revenue behind. There you go. This picture, and now we're starting to get into the interesting stuff. So we see looking 12 months in the mirror. Last 12 months, we see a great improvement from -- compared to last year. We see that the revenue went up by 24% to $673 million versus $543 million last year. We also see that the EBITDAR went up to $61 million versus a negative minus $12 million last year. And even more impressively, the cash flow from operations went up to a positive $110 million last 12 months versus minus $15 million a year ago. So we can see that the changes we have made and the transformation process we are in the middle of actually has a great effect. We are pursuing a more opportunistic strategy. Definitely, we are an airline. We have a network. We have a lot of customers more than 550,000 of them in Q2. And we will definitely take care of our customers in the future. But we also know that there is a strong demand right now for long-haul aircraft in the charter market. And the reason for that strong demand right now is that the aircraft manufacturers, Boeing and Airbus, they are not able to deliver long-haul aircraft. They are far behind on the delivery schedule. And many of the airlines that had planned more capacity into their production, they can't find it. So it has been a good time for us to make a long-term contract for a sizable portion of our fleet, about half the fleet, and we have done so with IndiGo. Again, it's a very reputable, strong airline and with an investment grade. We also made a deal with P&O Cruises. We have been flying cruise customers for them for 1 season and they have now, they were very happy with the product, and they have renewed the contract for an additional 2 years. So for us, it's a testament to the product we have and to the great crew and people we have to deliver it. So whilst we are pursuing an opportunistic approach doing both charter and own network, we are obviously keeping the most lucrative routes, the most profitable routes. And what you will see from this graph, which I think is one of the most exciting to you, is that we are actually making the cash contribution from each route or each aircraft is twice as high on the routes we are keeping as the routes we are letting go. It's a significant difference. And that will generate strong results for the own network portion of our fleet. And as I said, the charter business is profitable for us, and it is more profitable than the least -- sort of 50% least profitable routes we've been flying ourselves. So it's -- this slide, I think, it should be of particular interest to those of you who are looking into how we're going to do and why we're going to do charter and own network and why we do it in this proportion. And the last, but perhaps most exciting slide I have here, is the extra production capacity we have. So when we started the Q2 this year, we were actually planning in our long-term plans to have more aircraft on charter at that time. And for whatever reason, deliveries and negotiations took longer time, and it was a bit late for us to put aircraft into production and still make money on them. So we had idle capacity through the quarter but we still had the cost. We had all the aircraft. We had the crew, et cetera. And the difference there is that we could actually produce 24% more than we were able to do this year, and that is what we have planned to do next year. We are planning to fly all our aircraft about 16 hours a day, except when they are doing heavy maintenance, and that is a realistic target. In July, as an example, this year, we've been flying more than 16 hours a day per aircraft. So we know it is, again, close to a world-leading utilization, but we have great aircraft, great support from the aircraft manufacturer and from Rolls-Royce, who makes the engines, and we are very happy with the performance there. But as I said, we have a huge potential for more production, and that is what is being planned for Q2 next year, about 24% more production than we had this year. So in summary, we've been able to increase our revenues. We have been able to get our costs down. We are in the middle of the transformation program where we have said that we're going to reduce like-for-like the cost by about $40 million, and we are halfway through that. We started that program end of last year, and we have come a long way, both when it comes to SG&A and when it comes to other efficiencies. Where we still have a way to go is to ensure that we optimal crew bases because in order to be efficient, in order to have a competitive cost, we need to have crew base at the same places that we are flying to and from. And since we have been changing our network the last year, we have a job to do to ensure that the crew bases are more aligned with the network we are flying. But it's work in progress. And as I said, we have good results, both when it comes to generating more revenue and reducing costs. And then more to the Q2 numbers, Anders.

Very Good. Thank you, Bjørn Tore. So looking more specifically at the Q2 numbers. This is almost the same graph as Bjørn Tore presented, but this is then related to Q2 this year alone. So we see exactly the same trend. PRASK, which means passenger revenue per available seat kilometer, is increasing. It's increasing by 8%, and this is mainly driven by the load factor as we have seen. We're carrying more passengers per craft than we did same quarter last year. Also, we have increased production. And the CASK, meaning the cost per available seat kilometer, has reduced by 9% this quarter compared to last. So again, these are the important key metrics for us to keep improving PRASK, keep reducing CASK. That's our challenge. In the income statement, we're happy to say that we have crossed also now in Q2, the $200 million mark, very important. So this is up $37.8 million compared to same quarter last year or as much as 23%. EBITDAR has increased by $20 million, up to $23.1 million. The cost mostly follow the volume. We fly more, we carry more passengers, but it's also worth noting that we have reduced the SG&A by $4.2 million. And if you analyze that, you will see that we are already on a good way to materialize the $40 million Bjørn Tore just mentioned. So we're not there yet, but we have come a long way, and you will see that gradually also being realized. Operational profit is positive $4.4 million, also an improvement of $26.7 million. And that when it comes to net profit, negative $5.5 million, but we're getting there. In the cash flow -- have a look at the working capital. It's positive to see that we have a neutral working capital movements this quarter. And the improved performance that we saw of approximately $26 million, $27 million, that flows this quarter directly into the operating cash flow. That's always a good sign, and that's worth noting. Available liquidity is $44 million. This is then constituted by $24 million in the bank and $20 million of undrawn overdraft facility with a good bank. In the balance sheet, funds held by the credit card companies end of this quarter were $141 million. We have a good cooperation with these companies. We work closely with them. And as we expect our financial results to improve, as we expect the balance sheet to improve, we can also work together with this. And hopefully, we'll, down the road, see improved terms also with the credit card companies. Many of you have probably seen also this morning that we have launched a convertible bond of $30 million. That is fully underwritten. And the main purpose of that is to refinance existing shareholder loans by -- and by doing so, we will reduce the -- it will be issued at significantly lower interest than what the shareholder loan is currently carrying. We will invite investors in and who see the possible upside in our company while at the same time limiting the dilution by having a strike price, which is quite well above the current share price. So for those of you interested in learning more about that, we have issued a press release at 5 minutes past 7 this morning. So all details are in there. So please follow that release and the links therein if you are interested to learn more about that. So for that, Bjørn Tore, some concluding remarks.

Thank you, Anders. Again, we are happy with the quarter. We are definitely on the right track and arrows are pointing in the right direction. You never know about tomorrow, and we are subject to a changing world. But what we see in the crystal ball right now is, we think, quite positive. Also, we had a good technical and operational performance in the quarter, which is important to mention. A lot of people working very hard to make successful, exciting product for our customers every single day. And we've been able to execute on our strategy, which we have communicated in the past. So we sort of ticked the boxes, but we have a lot of work to do, and we are working very hard to ensure that we will deliver a profitable company, and we are aiming for a full year profit of 2025. So with that, I'll open up for any questions that might have come in here, and we have our moderator board here. Thanks.

Thanks, Bjørn Tore. We had a few questions. The first one is with continuous old factor of high 90s, how will Norse Atlantic continue to improve profitability going forward?

It's a good question. Well, load factor is very important. We are a great value carrier. In other words, we have low cost. We want to pass that on to the customer, but at the margin and make money on it. And we do make money on all the routes we are flying, but in Q2, for example -- and that is for quarter 2, but in Q2, for example, we are seeing that we are not utilizing the entire production capacity we have. And again, the reason is that we were planning to have more aircraft into charter. And for whatever is, it took longer time than expected. So on a normalized quarter, if we had the same average fares at the target production capacity, it would have been a profitable quarter with a good margin.

As a follow-up question, someone is asking, would you consider taking on a few more aircraft and expand your successful formula?

To buy more aircraft? That's a very good question. And the answer is no. I mean it's way too expensive right now to buy or charter aircraft. So we are only going to manage them not only. We have 12 long-haul wide-body aircraft. That's the biggest long-haul player in Scandinavia. So it's a -- it's not insignificant, but we think it is much more important to make money with the aircraft we have then to plan any expansion whatsoever. Of course, if we can make money and the formula continue to work and the market is there, there might be a time when there will be cheap aircraft again, but there is nothing in the near horizon, we think that will happen. It's a very strong market for aircraft, or I should say, owners or manufacturers right now. There is a long line of customers who are waiting for their aircraft, long haul and short haul. And we think prices are going to stay high for quite a while.

Then kind of a relevant question is with some geopolitical issues and trade tariffs, do you expect Norse Atlantic to reduce the route focus on U.S.? And what is your view on the transatlantic market in general?