Norwegian Declines as HSBC Cuts on Fuel, Currencies: Oslo Mover

Norwegian Air Shuttle ASA, western Europe’s fourth-largest discount airline, fell in Oslo after HSBC Holdings Plc cut its rating on the stock and said increased fuel and currency costs will curb the carrier’s earnings.

Shares in the Fornebu, Norway-based airline dropped as much 2.4 percent to 223.30 kroner and traded 1.9 percent lower as of 12:05 p.m. in the Norwegian capital. That makes Norwegian today’s biggest decliner on Oslo Stock Exchange’s OBX index of 25 most-traded stocks.

“The weakness of the krone against the dollar and the spiking fuel costs will have burdened Norwegian’s largely unhedged fuel bill,” HSBC analysts led by Andrew Lobbenberg said in a note today. The investment bank cut its estimate for full-year earnings before interest and tax by a third and downgraded its rating on Norwegian to neutral from overweight.

Norwegian, which last year ordered 222 Boeing Co. and Airbus SAS airliners valued at 127 billion kroner ($21.6 billion), is flying new routes and opening bases outside the Nordic region as it steps up competition with state-backed SAS Group AB. Shares in Norwegian fell the most in almost three months on Sept. 4 after Ryanair Holdings Plc, Europe’s biggest discount airline, said profit may miss its target on weaker demand and as rising competition depresses ticket prices.

Faster Erosion

Norwegian’s third-quarter profit will also be hurt by higher start-up costs for its long-haul operations, after it was forced to sign wet leases for Airbus-340 aircraft amid start-up problems with its second 787 Dreamliner, HSBC said. A wet-lease is when airlines rent jets and crews from other carriers for short periods of time.

“Execution of the long-haul launch has been challenging and system yields have eroded faster than the company expected,” HSBC said. The bank’s revised numbers “represent a 6.7 percent Ebit margin, which would be impressive for many airlines around the world,” HSBC said. “This is not a level of profitability that calls into doubt the company’s business plan or growth aspirations.”

Norwegian, founded in 1993, switched to a discount model in 2001, emulating Ryanair and EasyJet Plc. The Norwegian airline is western Europe’s largest low-cost airline after EasyJet, Ryanair and Air Berlin Plc based on passenger numbers.