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Norwegian Air Drops as Costs Increase on Krone, Fuel: Oslo Mover

July 9 (Bloomberg) -- Norwegian Air Shuttle AS, western Europe’s fourth-largest low-cost airline, fell to a three-month low in Oslo amid rising fuel prices and a weaker krone.

Shares in the Fornebu, Norway-based company declined as much as 4.8 percent to 240.50 kroner, the lowest intraday level since April 18. The stock traded at 240.60 kroner as of 12:35 p.m., making it the biggest faller on the Oslo stock exchange’s OBX index of 25 most-traded stocks today.

Norwegian’s earnings are “set for a rough decline” due to developments in the kroner exchange rate and rising fuel prices, Arctic Securities ASA analyst Kenneth Sivertsen said in a note dated yesterday. Almost 40 percent of the carrier’s operating expenditure is in dollars and 20 percent in euros, meaning, “a weakening krone is very unfavourable,” he said. The company’s aircraft orders are also quoted in dollars as is most of its debt, Sivertsen said.

Norwegian, which last year ordered 222 Boeing Co. and Airbus SAS airliners valued at 127 billion kroner ($20.7 billion), is flying new routes and opening bases outside the Nordic region as it steps up competition with state-backed SAS Group AB. The company, founded in 1993, switched to a discount model in 2001, emulating Ryanair Holdings Plc and EasyJet Plc.

Worst Performer

The dollar is “currently trading 7 percent above our previous assumption, based on current spot we need to increase our cost level by approximately 450 million kroner on an annual basis, or close to 10 kroner per share,” Arctic’s Sivertsen wrote. In addition, the company’s yield is suffering due to “introduction prices on new routes, which have taken their toll on earnings.”

The krone is the worst performing of 31 major currencies versus the dollar since June 18, the day before the Federal Reserve signaled it may reduce stimulus measures. It tumbled the most in four years on June 20, after Norges Bank lowered its outlook for Norway’s borrowing costs, indicating interest rates may move in the opposite direction to the U.S.

Arctic downgraded its recommendation on Norwegian to hold from buy and cut its price target to 240 kroner from 350 kroner.

Norwegian is western Europe’s fourth-largest low-cost airline, after Easyjet, Ryanair and Air Berlin Plc, according to data compiled by Bloomberg.

To contact the reporter on this story: Alastair Reed in Oslo at areed12@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net

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