Norwegian Air Shuttle Roadshow
Content
Norwegian Investor Presentation
December 2003
Disclaimer
● All statements contained in this presentation that are not statements of historical facts, including statements on projected operating results, financial position, business strategy and other plans and objectives for future results, constitute forward-looking statements and are prediction of, or indicate, future events and future trends which do not relate to historical matters. No person should rely on these forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in many cases, beyond Norwegian’s control and may cause its actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by the forward-looking statements and from past results, performance or achievements. These forward-looking statements are made as of the Date of this presentation and are not intended to give any assurance as to future results. None of Norwegian, its employees and representatives assumes any obligation to update these statements. This presentation includes historical and pro forma financial data. Your attention is directed to the notes to such data for a description of the accounting principles used to prepare historical data and the assumptions used to prepare the pro forma financial data. This presentation must be viewed only in connection with the separately distributed offering prospectus which include a number of risk factors investors must be aware of.
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19/12/2003
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
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19/12/2003
Transaction overview
● ● Norwegian Air Shuttle has applied for listing on the Oslo Stock Exchange New issue of NOK 200 - 250 million – Institutional Norwegian and international private placement – Norwegian retail offering – Subscription period: 9th - 17th December 2003 – Expected listing 18th December 2003 ● ● ● ● Indicative price range: NOK 27 - 33 per share Current shares outstanding: 10,272,730 Approx. pre-money equity value of NOK 277-339 million Joint lead managers: ABG Sundal Collier and Enskilda Securities
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Investment highlights
● Rapidly growing low-price airline carrier ● Strong market position and brand position established in first year of 737-operation ● Profitability on major routes ● Effective business model creates strong operational leverage
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Management introduction
Bjørn Kjos, CEO, founder
● ● ● Founded Norwegian Air Shuttle in 1993. Former managing partner of the law firm Vogt & Wiig. Aviation experience from RNOAF 334 squadron
Frode Foss, CFO
● ● Ex. Ernst & Young and Arthur Andersen experience Master in Business Administration
Ola Krohn-Fagervoll, EVP
● ● Ex. Concordia, A.T. Kearney, Saga Petroleum and British Petroleum Master in Business Administration
F. Carl Størmer, SVP, Marketing
● ● Ex. StudentUniverse, Inc. and IBM Consulting Group Master in Arts Management
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19/12/2003
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
7
19/12/2003
Norwegian is Norway's only low-fare carrier
Eight leased B737 planes From 4 to 17 point-to-point routes
Tromsø
Tromsø Alta
Evenes Bodø
Trondheim
Trondheim Molde Ålesund
Bergen
Bergen
Stavanger
Oslo Stockholm
Oslo Stavanger
London Far o Murcia
Malaga
10 years experience ● Started as an airline in 1993 ● Low-fare carrier since September 2002 ● Proven business and growth experience
Low-fare strategy ● Point-to-point only ● Targets Norwegian business and leisure customers ● 70% sales through own channels, 30% through travel agencies
Rapid growth in one year ● Achieved 20% market share in Norway on key routes ● Low-fare revenues from zero to approx. NOK 1 billion (annualized)
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Since September 2002, Norwegian has established a position for profitable growth*
Sept. 02 No of passengers Revenues (mnok) EBITDA 737-operation (mnok) No of airplanes Airborne hours (ABH) Avail. Seat Kilom. (ASK) (mill) No of man years Cabin factor (RPK/ASK) 65 879 33.7 (13.4) 6 769 57 254 51 % Sept. 03 129 298 88.4 7.0 8 1 311 119 300 64 %
96 % 162 %
n.a. n.a.
33 % 70 % 109 % 18 % 27 %
* Fokker 50 operation not included
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19/12/2003
Norwegian has developed a strong brand
● ● ● 58% of population associate brand with low price 1) A brand consisting of value for money, smart purchase, and a safe experience. Voted #2 after the Salvation Army as the most trusted brand in Norway in 2003
34% 21% 21% 7% 5% 8% 7%
Best in class on customer value and price
58%
A company that gives you value for the money Norwegian
1) Interrra market research
Has the lowest fares
SAS
Braathens
Widerøe
2003 Omdømmeprisen 2003 Omdømmeprisen
”Norwegian deserves recognition for rapidly building a good brand without ”Norwegian deserves recognition for rapidly building a good brand without bashing its competitors as part of its promotion and marketing. On the contrary, bashing its competitors as part of its promotion and marketing. On the contrary, the company has entered an industry in crisis, and has done so with the company has entered an industry in crisis, and has done so with enthusiasm and empathy. A corageous feat as the company has successfully enthusiasm and empathy. A corageous feat as the company has successfully communicated its desire to facilitate consumers in their quest for air-travel.” communicated its desire to facilitate consumers in their quest for air-travel.”
(Association of Norwegian PR consultants, comment by the jury when casting its vote for Norwegian). (Association of Norwegian PR consultants, comment by the jury when casting its vote for Norwegian).
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19/12/2003
Norwegian's position is a result of experience, timing and strategy
Experience
Timing
Strategy
● Proven operational and business experience
● Good timing in an attractive market
● Disciplined execution of a focused low-fare strategy
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19/12/2003
The company has a solid base of necessary experience
Experience Experience Timing Strategy
In running an operational airline
Operational experience ● ● Started operation in 1993 with three F50 aircrafts, later expanded to six planes No major incidents
In running a profitable business
Business experience ● ● ● Showed profit every year as a supplier to Braathens Expanded in 2000 with Lufttransport acquisition Turned Lufttransport into Scandinavia's premier ambulance carrier later demerged in 2002
In adapting and growing
Growth experience ● ● ● Able to change course and start low-fare operation in September 2002 Rapid growth in passengers, planes, and airborne hours since 2002 Grew from virtually zero to close to almost NOK 1 billion in twelve months!
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19/12/2003
In 2002 an opportunity existed to establish a low-fare carrier in the domestic market
Experience Timing Timing Strategy
Scandinavia’s largest market
SAS monopolist but vulnerable ● Frequent flyer programs eliminated by government to level the playing field ● High fares, little competition Norway well suited for a low-fare player ● Norwegians fly more than other Scandinavians ● Majority of travel point-to-point ● High internet penetration Buyers market in the aviation industry Buyers market in the aviation industry ● Oversupply of capacity led to favorable leases and supplier agreements ● Surplus of skilled people with local aviation expertise
13
19/12/2003
Norwegian captured this opportunity with a feasible low-fare strategy by focusing on cost
Experience Timing Strategy Strategy Focus on core-competence
● Experienced staff to handle rapid growth ● Competitive outsourced agreements with key suppliers
Standardized fleet
● One type of aircraft to simplify maintenance, crew planning, revenue management and logistics
Simple product and processes
● Simple No-frills point-to-point product ● Ticketless travel, online distribution and real-time revenue management
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19/12/2003
The company selected Norway's four most attractive point-to-point markets
Started on the four major routes
Tromsø
Development in domestic passenger volume (1)
12 000 10 000 8 000 6 000 4 000 2 000 0 1998 1999 2000 2001 2002
(in 1000 pax)
Initial routes in September 2002
~ 50%
Trondheim
Oslo-Trondheim Oslo-Bergen Oslo-Stavanger Oslo-Tromsø Sum / Other
Among the Nordic’s top routes by volume (2)
Bergen Oslo Stavanger
Oslo-Trondheim Oslo-Bergen Stockholm-Gothenburg Stockholm-Malmö Oslo-Stavanger Stockholm-Luleå Oslo-Tromsø Bergen Stavanger Stockholm-Umeå Helsinki-Oulu Copehagen-Aalborg 590 700 700 640 790 870 1050 1190 1340 1330 1320
15
* Including Oslo-Trondheim, Oslo-Stavanger, Oslo-Tromsø and Oslo-Bergen (1) Source: Avinor / SSB (2) Source: Report from the Nordic competition authorities 1/2002
19/12/2003
During the year 13 more routes were added to fly more passengers and reduce unit-cost
New routes were added ...
Tromsø Alta Evenes Bodø
160 140 120 100 80 60 40 20 0 Feb 03 Mar 03 May 03 Jan 03 Jun 03 Jul 03 Sep 02 Nov 02 Dec 02 Sep 03
Aug 03
... to increase passengers and ...
(passengers in 1000)
+96%
Oct 02
Trondheim Molde Ålesund
Key domestic routes*
Other routes
... to reduce cost per ASK
Bergen Oslo Stavanger Stockholm
(NOK)
1.10 1.00 0.90 0.80
-17%
London Faro Murcia Malaga
0.70 0.60 0.50 Feb 03 Mar 03 May 03 Jan 03 Sep 02 Jun 03 Jul 03 Sep 03 Nov 02 Dec 02 Oct 02 Apr 03
* Including Oslo-Trondheim, Oslo-Stavanger, Oslo-Tromsø and Oslo-Bergen ASK: Available Seat Kilometers
16
Cost per ASK
Aug 03
Apr 03
Oct 03
19/12/2003
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
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19/12/2003
The low-fare operation is becoming profitable, led by the four major domestic routes
Revenues (MNOK) **
90 80 70 60 50 40 30 20 10 Feb 03 Mar 03 Jan 03 May 03 Sep 02 Jun 03 Jul 03 Sep 03 Nov 02 Dec 02 Oct 02 Aug 03 Apr 03
EBITDA (MNOK) **
15 10 5 (5) (10) (15) (20) Feb 03 Mar 03 Jan 03 May 03 Sep 02 Jun 03 Jul 03 Aug 03 Aug 03 Sep 03 Sep 03 Nov 02 Dec 02 Oct 02 Apr 03
Key domestic routes *
737 operation
90 80 70 60 50 40 30 20 10 Feb 03 Jul 03 Mar 03 Jan 03 May 03 Jun 03 Sep 02 Sep 03 Nov 02 Dec 02 Oct 02 Aug 03 Apr 03
15 10 5 (5) (10) (15) (20) Feb 03 Mar 03 Jan 03 May 03 Sep 02 Nov 02 Dec 02 Apr 03 Jun 03 Oct 02 Jul 03
* Including Oslo-Trondheim, Oslo-Stavanger, Oslo-Tromsø and Oslo-Bergen ** 3Q02 includes only one month of operation
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19/12/2003
Yield affected by seasonality and introduction of new and longer routes
1.80 1.60 1.40
(NOK)
Key domestic routes*
1.20 1.00 0.80 0.60 0.40 Feb 03 Mar 03 Jan 03 May 03 Sep 02 Jun 03 Jul 03 Aug 03 Sep 03 Nov 02 Dec 02 Oct 02 Apr 03
● Yield maintained in the domestic market, while cost per ASK has gradually been reduced
Yield 1.80 1.60 1.40
Cost per ASK
Revenues per ASK
(NOK)
737 operation
1.20 1.00 0.80 0.60 0.40 Mar 03 Feb 03 May 03 Jan 03 Nov 02 Dec 02 Sep 02 Jun 03 Jul 03 Aug 03 Sep 03 Oct 02 Apr 03
● Reduction in Yield and ASK from April due to new and longer routes
Yield
Cost per ASK
Revenues per ASK
19
* Including Oslo-Trondheim, Oslo-Stavanger, Oslo-Tromsø and Oslo-Bergen ASK: Available Seat Kilometers RPK: Revenue Passenger Kilometers Yield: Revenues / RPK
19/12/2003
Norwegian is performing well on critical performance indicators
Flying more seat kilometers
(Million ASK)
140 120 100 80 60 40 20 0 Mar 03 Feb 03 May 03 Nov 02 Dec 02 Sep 02 Jan 03 Jun 03 Jul 03 Sep 03 Oct 02 Aug 03 Apr 03
With higher load-factor (RPK/ASK)
(ASK and RPK in million)
160
(RPK/ASK)
80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0% Mar 03
+108 %
140 120 100 80 60 40 20 0 Feb 03 May 03 Jan 03 Nov 02 Dec 02 Sep 02 Jun 03 Jul 03 Sep 03 Oct 02 Aug 03 Apr 03 Oct 03
Key domestic routes*
Other routes
Cabin factor
ASK
RPK
Lower cost per production unit (ASK)
(NOK per ASK)
1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Sep 02 Jan-Sep 03 Sep 03 BU (13Q03) SK (13Q03)
And employee productivity high
(Pax per employee)
7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 SAS
-17%
2001
2002
(Trailing 12 months)
KLM
Easyjet
Ryanair
Var. Sales Costs Freq. Based Flying Costs Interval Fixed Costs
Var. Pass. Costs Time Based Flying Costs Overhead
20
Source: TRL, September 2003, SAS 3Q Interim Report
19/12/2003
Norwegian (3Q03)
Growing online sales: lower cost, customer ownership and new opportunities
Online distribution is strategic ● ● ● ● Gives Norwegian customer ownership Facilitates ticketless travel – the customer does the work! Creates potential upsell opportunities Rapid access to real-time demand data Internet is the fastest growing channel
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% May 03 Nov 02 Dec 02 Oct 02 Jul 03 Feb 03 Mar 03 Sep 02 Aug 03 Sep 03 Apr 03 Oct 03 Jan 03 Jun 03
WEB
CC
TA
Reduced distribution costs per PAX
NOK 100 80 60 40 20 0 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03
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19/12/2003
Ticketless travel: saving 50M NOK and gaining real-time business intelligence
A fully digitized value-chain with real-time control
Customer Customer completes completes transaction transaction Brings receipt to Brings receipt to airport airport Scan bar-code or Scan bar-code or Bizzi-card Bizzi-card
Customer
Board plane Board plane
Norwegian
Issue receipt with Issue receipt with barcode via email barcode via email
Automated Automated accounting and accounting and auditing auditing
No physical ticket – reduced cost and added convenience
Improves customer experience and reduce processing cost
Reduced processingcost, and real-time business intelligence to improve sense-andrespond capability
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Prices are adjusted daily in order to maximize revenue per flight
Observe
Low sales in week 50?
Orient
Why is demand low? Review historic and competitive data
Decide
Change price, and/or increase promotion to fill seat or do nothing.
BONO – Back-office Norwegian
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19/12/2003
Price adjustments are implemented on short notice via appropriate channels and in-flight
Observe Orient Decide Act
• Update revenue management database • Publish and promote new fares via web, call-centre and other appropriate channels
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19/12/2003
The loop is completed by observing the daily market effect of the implemented price change
Observe Orient Decide Act Observe
How did market respond to previous price changes? Further changes required?
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19/12/2003
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
26
19/12/2003
Income statement reveals a positive EBITDA development for the low-fare operation
MNOK Total Revenues EBITDA
4Q02
1Q03
2Q03
3Q03
LTM
197.3 (34.3)
238.7 18.0
214.9 (12.1)
230.0 (19.6)
881.0 (48.0)
737-operation Revenues EBITDA 146.8 (35.9) 152.5 (34.0) 196.2 (8.7) 212.3 (13.1) 707.7 (91.6)
● ●
EBITDA of NOK -19.6 million in 3Q03, mainly caused by lack of historical data which led to excess capacity during July and August. In 1Q03, Norwegian received a compensation from Braathens related to the termination of the Braathens agreement (NOK 37.7 million included in total revenues) In 3Q03, Norwegian made a write-down of NOK 19.6 million related to its Fokker 50 operation (not included in EBITDA)
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Balance sheet
Figures in NOK 1000 Intangible assets Fixed assets Long-term financial assets Long-term assets Inventory Receivables Cash and bank deposits Sum current assets Total assets Equity Provisions Other long-term liabilities Sum Interest bearing short-term debt Other short-term liabilities Sum Total equity and liabilities
28
19/12/2003
30.09.03 51 279 48 503 14 166 113 948 1 042 143 708 58 389 203 140 317 087 42 783 33 280 22 785 56 066 218 238 218 238 317 087
31.12.02 32 418 56 383 14 354 103 155 8 823 45 159 63 237 117 219 220 374 71 157 9 729 32 050 41 778 107 438 107 438 220 374
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
29
Confidential Draft
19/12/2003
Next: Expand share in Norway by relentless focus on cost, utilization and optimized network
Sep 2002 Sep 2003 Mar 2004 May 2004
4 routes
17 routes
25 routes
~35 routes
Subject to change
Routes selection criteria
Attractive volume? Low competition?
30
Synergy with overall network?
19/12/2003
Expanding the network leads to better utilisation, lower cost and more passengers
Further reduction in cost per ASK
(NOK)
1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 Q4 2002 (A) Q3 2003 (A) Apr 2004 (F) Q3 2004 (F)
● Route expansion and plane additions in 2004 will nearly double production capacity compared to current level ● Longer flights and scale benefits will reduce cost per ASK significantly during 2004
Further growth in PAX per employee
8000 7000 6000 5000 4000 3000 2000 1000 0 Q4 2002 (A) Q3 2003 (A) Apr 2004 (F) Q3 2004 (F)
(Last 12 months)
● Passenger volume already reached 1 million (annualized 3Q figures) ● New routes and increased frequency will contribute to further increase going forward ● Except for crew and cabin personnel, limited need for new manpower due to extensive outsourcing
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19/12/2003
Norwegian has captured the position as Norway’s low-fare carrier
● Strong presence on all major domestic routes ● Prices on domestic routes have been reduced leaving the domestic market less attractive for new low-fare players ● Aggressive expansion of network to increase utilization and optimize contribution to fixed costs ● Extreme focus on low cost and high utilization to create permanent cost advantage
32
19/12/2003
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
34
19/12/2003
Shareholder structure
Shareholder
Bjørn Kjos Lufttransport Torghatten Trafikkselskap Ankerløkken Holding AS Choice Hotels Nor-Norsk Finans AS OJADA AS Svein Klev NAS Hodling AS Arne Eggan Svein Eskedal Bjørn Kise Jacobsen & Sønner AS Skagen Vekst Øivind Hovengen Nobuss Eiendommer AS T.K. Brødvig AS Westco AS AS Kvale & Co Arne Ribe Sum top 20 Other shareholders Total Shares
Shares
2 860 000 1 345 630 653 250 520 000 435 500 435 500 435 500 390 000 324 090 273 000 260 000 260 000 217 750 217 750 156 000 130 650 130 650 130 650 130 000 130 000 9 435 920 836 810 10 272 730
%
28 % 13 % 6% 5% 4% 4% 4% 4% 3% 3% 3% 3% 2% 2% 2% 1% 1% 1% 1% 1% 92 % 8% 100 %
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19/12/2003
December 2003
Disclaimer
● All statements contained in this presentation that are not statements of historical facts, including statements on projected operating results, financial position, business strategy and other plans and objectives for future results, constitute forward-looking statements and are prediction of, or indicate, future events and future trends which do not relate to historical matters. No person should rely on these forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in many cases, beyond Norwegian’s control and may cause its actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by the forward-looking statements and from past results, performance or achievements. These forward-looking statements are made as of the Date of this presentation and are not intended to give any assurance as to future results. None of Norwegian, its employees and representatives assumes any obligation to update these statements. This presentation includes historical and pro forma financial data. Your attention is directed to the notes to such data for a description of the accounting principles used to prepare historical data and the assumptions used to prepare the pro forma financial data. This presentation must be viewed only in connection with the separately distributed offering prospectus which include a number of risk factors investors must be aware of.
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2
19/12/2003
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
3
19/12/2003
Transaction overview
● ● Norwegian Air Shuttle has applied for listing on the Oslo Stock Exchange New issue of NOK 200 - 250 million – Institutional Norwegian and international private placement – Norwegian retail offering – Subscription period: 9th - 17th December 2003 – Expected listing 18th December 2003 ● ● ● ● Indicative price range: NOK 27 - 33 per share Current shares outstanding: 10,272,730 Approx. pre-money equity value of NOK 277-339 million Joint lead managers: ABG Sundal Collier and Enskilda Securities
4
19/12/2003
Investment highlights
● Rapidly growing low-price airline carrier ● Strong market position and brand position established in first year of 737-operation ● Profitability on major routes ● Effective business model creates strong operational leverage
5
19/12/2003
Management introduction
Bjørn Kjos, CEO, founder
● ● ● Founded Norwegian Air Shuttle in 1993. Former managing partner of the law firm Vogt & Wiig. Aviation experience from RNOAF 334 squadron
Frode Foss, CFO
● ● Ex. Ernst & Young and Arthur Andersen experience Master in Business Administration
Ola Krohn-Fagervoll, EVP
● ● Ex. Concordia, A.T. Kearney, Saga Petroleum and British Petroleum Master in Business Administration
F. Carl Størmer, SVP, Marketing
● ● Ex. StudentUniverse, Inc. and IBM Consulting Group Master in Arts Management
6
19/12/2003
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
7
19/12/2003
Norwegian is Norway's only low-fare carrier
Eight leased B737 planes From 4 to 17 point-to-point routes
Tromsø
Tromsø Alta
Evenes Bodø
Trondheim
Trondheim Molde Ålesund
Bergen
Bergen
Stavanger
Oslo Stockholm
Oslo Stavanger
London Far o Murcia
Malaga
10 years experience ● Started as an airline in 1993 ● Low-fare carrier since September 2002 ● Proven business and growth experience
Low-fare strategy ● Point-to-point only ● Targets Norwegian business and leisure customers ● 70% sales through own channels, 30% through travel agencies
Rapid growth in one year ● Achieved 20% market share in Norway on key routes ● Low-fare revenues from zero to approx. NOK 1 billion (annualized)
8
19/12/2003
Since September 2002, Norwegian has established a position for profitable growth*
Sept. 02 No of passengers Revenues (mnok) EBITDA 737-operation (mnok) No of airplanes Airborne hours (ABH) Avail. Seat Kilom. (ASK) (mill) No of man years Cabin factor (RPK/ASK) 65 879 33.7 (13.4) 6 769 57 254 51 % Sept. 03 129 298 88.4 7.0 8 1 311 119 300 64 %
96 % 162 %
n.a. n.a.
33 % 70 % 109 % 18 % 27 %
* Fokker 50 operation not included
9
19/12/2003
Norwegian has developed a strong brand
● ● ● 58% of population associate brand with low price 1) A brand consisting of value for money, smart purchase, and a safe experience. Voted #2 after the Salvation Army as the most trusted brand in Norway in 2003
34% 21% 21% 7% 5% 8% 7%
Best in class on customer value and price
58%
A company that gives you value for the money Norwegian
1) Interrra market research
Has the lowest fares
SAS
Braathens
Widerøe
2003 Omdømmeprisen 2003 Omdømmeprisen
”Norwegian deserves recognition for rapidly building a good brand without ”Norwegian deserves recognition for rapidly building a good brand without bashing its competitors as part of its promotion and marketing. On the contrary, bashing its competitors as part of its promotion and marketing. On the contrary, the company has entered an industry in crisis, and has done so with the company has entered an industry in crisis, and has done so with enthusiasm and empathy. A corageous feat as the company has successfully enthusiasm and empathy. A corageous feat as the company has successfully communicated its desire to facilitate consumers in their quest for air-travel.” communicated its desire to facilitate consumers in their quest for air-travel.”
(Association of Norwegian PR consultants, comment by the jury when casting its vote for Norwegian). (Association of Norwegian PR consultants, comment by the jury when casting its vote for Norwegian).
10
19/12/2003
Norwegian's position is a result of experience, timing and strategy
Experience
Timing
Strategy
● Proven operational and business experience
● Good timing in an attractive market
● Disciplined execution of a focused low-fare strategy
11
19/12/2003
The company has a solid base of necessary experience
Experience Experience Timing Strategy
In running an operational airline
Operational experience ● ● Started operation in 1993 with three F50 aircrafts, later expanded to six planes No major incidents
In running a profitable business
Business experience ● ● ● Showed profit every year as a supplier to Braathens Expanded in 2000 with Lufttransport acquisition Turned Lufttransport into Scandinavia's premier ambulance carrier later demerged in 2002
In adapting and growing
Growth experience ● ● ● Able to change course and start low-fare operation in September 2002 Rapid growth in passengers, planes, and airborne hours since 2002 Grew from virtually zero to close to almost NOK 1 billion in twelve months!
12
19/12/2003
In 2002 an opportunity existed to establish a low-fare carrier in the domestic market
Experience Timing Timing Strategy
Scandinavia’s largest market
SAS monopolist but vulnerable ● Frequent flyer programs eliminated by government to level the playing field ● High fares, little competition Norway well suited for a low-fare player ● Norwegians fly more than other Scandinavians ● Majority of travel point-to-point ● High internet penetration Buyers market in the aviation industry Buyers market in the aviation industry ● Oversupply of capacity led to favorable leases and supplier agreements ● Surplus of skilled people with local aviation expertise
13
19/12/2003
Norwegian captured this opportunity with a feasible low-fare strategy by focusing on cost
Experience Timing Strategy Strategy Focus on core-competence
● Experienced staff to handle rapid growth ● Competitive outsourced agreements with key suppliers
Standardized fleet
● One type of aircraft to simplify maintenance, crew planning, revenue management and logistics
Simple product and processes
● Simple No-frills point-to-point product ● Ticketless travel, online distribution and real-time revenue management
14
19/12/2003
The company selected Norway's four most attractive point-to-point markets
Started on the four major routes
Tromsø
Development in domestic passenger volume (1)
12 000 10 000 8 000 6 000 4 000 2 000 0 1998 1999 2000 2001 2002
(in 1000 pax)
Initial routes in September 2002
~ 50%
Trondheim
Oslo-Trondheim Oslo-Bergen Oslo-Stavanger Oslo-Tromsø Sum / Other
Among the Nordic’s top routes by volume (2)
Bergen Oslo Stavanger
Oslo-Trondheim Oslo-Bergen Stockholm-Gothenburg Stockholm-Malmö Oslo-Stavanger Stockholm-Luleå Oslo-Tromsø Bergen Stavanger Stockholm-Umeå Helsinki-Oulu Copehagen-Aalborg 590 700 700 640 790 870 1050 1190 1340 1330 1320
15
* Including Oslo-Trondheim, Oslo-Stavanger, Oslo-Tromsø and Oslo-Bergen (1) Source: Avinor / SSB (2) Source: Report from the Nordic competition authorities 1/2002
19/12/2003
During the year 13 more routes were added to fly more passengers and reduce unit-cost
New routes were added ...
Tromsø Alta Evenes Bodø
160 140 120 100 80 60 40 20 0 Feb 03 Mar 03 May 03 Jan 03 Jun 03 Jul 03 Sep 02 Nov 02 Dec 02 Sep 03
Aug 03
... to increase passengers and ...
(passengers in 1000)
+96%
Oct 02
Trondheim Molde Ålesund
Key domestic routes*
Other routes
... to reduce cost per ASK
Bergen Oslo Stavanger Stockholm
(NOK)
1.10 1.00 0.90 0.80
-17%
London Faro Murcia Malaga
0.70 0.60 0.50 Feb 03 Mar 03 May 03 Jan 03 Sep 02 Jun 03 Jul 03 Sep 03 Nov 02 Dec 02 Oct 02 Apr 03
* Including Oslo-Trondheim, Oslo-Stavanger, Oslo-Tromsø and Oslo-Bergen ASK: Available Seat Kilometers
16
Cost per ASK
Aug 03
Apr 03
Oct 03
19/12/2003
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
17
19/12/2003
The low-fare operation is becoming profitable, led by the four major domestic routes
Revenues (MNOK) **
90 80 70 60 50 40 30 20 10 Feb 03 Mar 03 Jan 03 May 03 Sep 02 Jun 03 Jul 03 Sep 03 Nov 02 Dec 02 Oct 02 Aug 03 Apr 03
EBITDA (MNOK) **
15 10 5 (5) (10) (15) (20) Feb 03 Mar 03 Jan 03 May 03 Sep 02 Jun 03 Jul 03 Aug 03 Aug 03 Sep 03 Sep 03 Nov 02 Dec 02 Oct 02 Apr 03
Key domestic routes *
737 operation
90 80 70 60 50 40 30 20 10 Feb 03 Jul 03 Mar 03 Jan 03 May 03 Jun 03 Sep 02 Sep 03 Nov 02 Dec 02 Oct 02 Aug 03 Apr 03
15 10 5 (5) (10) (15) (20) Feb 03 Mar 03 Jan 03 May 03 Sep 02 Nov 02 Dec 02 Apr 03 Jun 03 Oct 02 Jul 03
* Including Oslo-Trondheim, Oslo-Stavanger, Oslo-Tromsø and Oslo-Bergen ** 3Q02 includes only one month of operation
18
19/12/2003
Yield affected by seasonality and introduction of new and longer routes
1.80 1.60 1.40
(NOK)
Key domestic routes*
1.20 1.00 0.80 0.60 0.40 Feb 03 Mar 03 Jan 03 May 03 Sep 02 Jun 03 Jul 03 Aug 03 Sep 03 Nov 02 Dec 02 Oct 02 Apr 03
● Yield maintained in the domestic market, while cost per ASK has gradually been reduced
Yield 1.80 1.60 1.40
Cost per ASK
Revenues per ASK
(NOK)
737 operation
1.20 1.00 0.80 0.60 0.40 Mar 03 Feb 03 May 03 Jan 03 Nov 02 Dec 02 Sep 02 Jun 03 Jul 03 Aug 03 Sep 03 Oct 02 Apr 03
● Reduction in Yield and ASK from April due to new and longer routes
Yield
Cost per ASK
Revenues per ASK
19
* Including Oslo-Trondheim, Oslo-Stavanger, Oslo-Tromsø and Oslo-Bergen ASK: Available Seat Kilometers RPK: Revenue Passenger Kilometers Yield: Revenues / RPK
19/12/2003
Norwegian is performing well on critical performance indicators
Flying more seat kilometers
(Million ASK)
140 120 100 80 60 40 20 0 Mar 03 Feb 03 May 03 Nov 02 Dec 02 Sep 02 Jan 03 Jun 03 Jul 03 Sep 03 Oct 02 Aug 03 Apr 03
With higher load-factor (RPK/ASK)
(ASK and RPK in million)
160
(RPK/ASK)
80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0% Mar 03
+108 %
140 120 100 80 60 40 20 0 Feb 03 May 03 Jan 03 Nov 02 Dec 02 Sep 02 Jun 03 Jul 03 Sep 03 Oct 02 Aug 03 Apr 03 Oct 03
Key domestic routes*
Other routes
Cabin factor
ASK
RPK
Lower cost per production unit (ASK)
(NOK per ASK)
1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Sep 02 Jan-Sep 03 Sep 03 BU (13Q03) SK (13Q03)
And employee productivity high
(Pax per employee)
7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 SAS
-17%
2001
2002
(Trailing 12 months)
KLM
Easyjet
Ryanair
Var. Sales Costs Freq. Based Flying Costs Interval Fixed Costs
Var. Pass. Costs Time Based Flying Costs Overhead
20
Source: TRL, September 2003, SAS 3Q Interim Report
19/12/2003
Norwegian (3Q03)
Growing online sales: lower cost, customer ownership and new opportunities
Online distribution is strategic ● ● ● ● Gives Norwegian customer ownership Facilitates ticketless travel – the customer does the work! Creates potential upsell opportunities Rapid access to real-time demand data Internet is the fastest growing channel
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% May 03 Nov 02 Dec 02 Oct 02 Jul 03 Feb 03 Mar 03 Sep 02 Aug 03 Sep 03 Apr 03 Oct 03 Jan 03 Jun 03
WEB
CC
TA
Reduced distribution costs per PAX
NOK 100 80 60 40 20 0 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03
21
19/12/2003
Ticketless travel: saving 50M NOK and gaining real-time business intelligence
A fully digitized value-chain with real-time control
Customer Customer completes completes transaction transaction Brings receipt to Brings receipt to airport airport Scan bar-code or Scan bar-code or Bizzi-card Bizzi-card
Customer
Board plane Board plane
Norwegian
Issue receipt with Issue receipt with barcode via email barcode via email
Automated Automated accounting and accounting and auditing auditing
No physical ticket – reduced cost and added convenience
Improves customer experience and reduce processing cost
Reduced processingcost, and real-time business intelligence to improve sense-andrespond capability
22
19/12/2003
Prices are adjusted daily in order to maximize revenue per flight
Observe
Low sales in week 50?
Orient
Why is demand low? Review historic and competitive data
Decide
Change price, and/or increase promotion to fill seat or do nothing.
BONO – Back-office Norwegian
23
19/12/2003
Price adjustments are implemented on short notice via appropriate channels and in-flight
Observe Orient Decide Act
• Update revenue management database • Publish and promote new fares via web, call-centre and other appropriate channels
24
19/12/2003
The loop is completed by observing the daily market effect of the implemented price change
Observe Orient Decide Act Observe
How did market respond to previous price changes? Further changes required?
25
19/12/2003
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
26
19/12/2003
Income statement reveals a positive EBITDA development for the low-fare operation
MNOK Total Revenues EBITDA
4Q02
1Q03
2Q03
3Q03
LTM
197.3 (34.3)
238.7 18.0
214.9 (12.1)
230.0 (19.6)
881.0 (48.0)
737-operation Revenues EBITDA 146.8 (35.9) 152.5 (34.0) 196.2 (8.7) 212.3 (13.1) 707.7 (91.6)
● ●
EBITDA of NOK -19.6 million in 3Q03, mainly caused by lack of historical data which led to excess capacity during July and August. In 1Q03, Norwegian received a compensation from Braathens related to the termination of the Braathens agreement (NOK 37.7 million included in total revenues) In 3Q03, Norwegian made a write-down of NOK 19.6 million related to its Fokker 50 operation (not included in EBITDA)
●
27
19/12/2003
Balance sheet
Figures in NOK 1000 Intangible assets Fixed assets Long-term financial assets Long-term assets Inventory Receivables Cash and bank deposits Sum current assets Total assets Equity Provisions Other long-term liabilities Sum Interest bearing short-term debt Other short-term liabilities Sum Total equity and liabilities
28
19/12/2003
30.09.03 51 279 48 503 14 166 113 948 1 042 143 708 58 389 203 140 317 087 42 783 33 280 22 785 56 066 218 238 218 238 317 087
31.12.02 32 418 56 383 14 354 103 155 8 823 45 159 63 237 117 219 220 374 71 157 9 729 32 050 41 778 107 438 107 438 220 374
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
29
Confidential Draft
19/12/2003
Next: Expand share in Norway by relentless focus on cost, utilization and optimized network
Sep 2002 Sep 2003 Mar 2004 May 2004
4 routes
17 routes
25 routes
~35 routes
Subject to change
Routes selection criteria
Attractive volume? Low competition?
30
Synergy with overall network?
19/12/2003
Expanding the network leads to better utilisation, lower cost and more passengers
Further reduction in cost per ASK
(NOK)
1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 Q4 2002 (A) Q3 2003 (A) Apr 2004 (F) Q3 2004 (F)
● Route expansion and plane additions in 2004 will nearly double production capacity compared to current level ● Longer flights and scale benefits will reduce cost per ASK significantly during 2004
Further growth in PAX per employee
8000 7000 6000 5000 4000 3000 2000 1000 0 Q4 2002 (A) Q3 2003 (A) Apr 2004 (F) Q3 2004 (F)
(Last 12 months)
● Passenger volume already reached 1 million (annualized 3Q figures) ● New routes and increased frequency will contribute to further increase going forward ● Except for crew and cabin personnel, limited need for new manpower due to extensive outsourcing
31
19/12/2003
Norwegian has captured the position as Norway’s low-fare carrier
● Strong presence on all major domestic routes ● Prices on domestic routes have been reduced leaving the domestic market less attractive for new low-fare players ● Aggressive expansion of network to increase utilization and optimize contribution to fixed costs ● Extreme focus on low cost and high utilization to create permanent cost advantage
32
19/12/2003
Agenda
● Introduction ● Company background ● First year of 737 operation ● Financial highlights ● Next steps ● Appendix
34
19/12/2003
Shareholder structure
Shareholder
Bjørn Kjos Lufttransport Torghatten Trafikkselskap Ankerløkken Holding AS Choice Hotels Nor-Norsk Finans AS OJADA AS Svein Klev NAS Hodling AS Arne Eggan Svein Eskedal Bjørn Kise Jacobsen & Sønner AS Skagen Vekst Øivind Hovengen Nobuss Eiendommer AS T.K. Brødvig AS Westco AS AS Kvale & Co Arne Ribe Sum top 20 Other shareholders Total Shares
Shares
2 860 000 1 345 630 653 250 520 000 435 500 435 500 435 500 390 000 324 090 273 000 260 000 260 000 217 750 217 750 156 000 130 650 130 650 130 650 130 000 130 000 9 435 920 836 810 10 272 730
%
28 % 13 % 6% 5% 4% 4% 4% 4% 3% 3% 3% 3% 2% 2% 2% 1% 1% 1% 1% 1% 92 % 8% 100 %
35
19/12/2003
