Valuation of Norwegian Air Shuttle Asa As of 31.12.2010

Valuation of

Norwegian Air Shuttle ASA

as of 31.12.2010

Copenhagen Business School, January 2012

Program: Accounting Strategy and Control

Number of pages: 80 Supervisor: Number of characters: 191 423 Jeppe Schoenfeld, external

Executive summary The aim of the thesis was to estimate the share price of Norwegian Air Shuttle ASA as of 31.12.10 from an investor’s point of view.

Strategic and financial analyses were conducted in order to forecast future financial statements and required rate of return to apply in a discounted cash flow model.

The Nordic market for air travel was analyzed under the concept of a perfect market. This analysis concluded that the market, and especially the leisure segment, was highly competitive because of limited differentiation opportunities, low switching costs and brand loyalty, and few entrance barriers on new routes for existing airlines. Airlines’ cost structure were characterized by a high degree of fixed and batch costs, which implied significant economic of scale benefits. This has contributed to high capacity in the market after the low cost carriers (LCCs) entrance and been a driver of the heavy unit price decrease seen the last ten years.

The strategic analysis also evaluated Norwegian’s future revenue growth potential in the Nordic market, partly based on historical development. Norwegian is positioned as the dominant actor in the Nordic leisure segment and challenges SAS in the business segment.

The major finding of the financial analyses was that Norwegian has generated an unstable EBITDAR-margin, which has been the major underlying factor to the volatile return on invested capital. This development was solely explained by variations in the jet fuel price. Norwegian hedges a relatively low amount of fuel consumption and is therefore more exposed to fuel price fluctuations than other airlines.

The risk analysis showed that Norwegian is highly levered compared to the chosen peers, and that this financial structure will remain as the aircraft acquisitions until 2016 primarily shall be financed by debt.

Norwegian’s required rate of return to all capital providers were estimated by use of the WACC concept. The WACC applied was 7,53%. Required rate of return on equity was estimated by use of the CAPM- model.

The discounted cash flow valuation gave an estimate of the share price at NOK 105,1 while the traded price as of 31.12.10 was NOK 117,50, which indicated that the share was overpriced in the market. The price estimate was primarily driven by the long-term growth rate in the overall economy and the long-term required rate of return.

Subsequently was the share price estimate supported by a multiple analysis. EV/EBITDAR and EV/Revenue resulted in prices of NOK -25,3 and 127,3 respectively. The EV/EBITDAR multiple was considered not appropriate to apply for a growth company with unstable margins currently. The EV/Revenue estimate indicates that there were several factors affecting the pricing in which the DCF-model not captured, and that the share in reality was underpriced as of 31.12.10.

Lastly, was the share price estimate’s sensitivity to changes in the underlying assumptions tested. The sensitivity analysis found that if a one percentage point change in long-term growth and/or long-term WACC is considered likely, will realistic share prices ranges from NOK 0 to NOK 186.

The conclusion was that the traded price as of 31.12.10 was too high under the assumption that the forecast derived is realistic, and “sell” is therefore would therefore been the recommended action.

Table of Contents

1. Introduction ...... 5 1.1 Problem formulation ...... 6 1.2 Delimitations ...... 7 2.0 Method ...... 9 2.1 Structure ...... 9 2.2 Methodology ...... 10 2.2.1 Choice of theory ...... 10 2.2.2 Critique of theories ...... 12 2.3 Data collection ...... 12 2.3.1 Choice of data ...... 12 2.3.2 Critique of data ...... 13 2.4 Reliability and validity ...... 13 3. Overview of Norwegian Air Shuttle ASA ...... 14 3.1 The share and the group’s organizational structure...... 14 3.2 The low- fare business model and Norwegian’s business strategy ...... 16 3.3 Market position and traffic development ...... 16 3.4 Key financials ...... 17 4. Strategic analysis ...... 18 4.1 The Nordic market for air travel ...... 18 4.1.1 The structure of the Nordic market ...... 18 4.1.2 The Nordic market’s price development ...... 24 4.1.3 The size and growth of the Nordic market ...... 25 4.2 Norwegian’s revenue growth potential ...... 30 4.2.1 Ticket revenue ...... 31 4.2.2 Ancillary revenue ...... 36 5. Financial Statement analysis ...... 37 5.1 Accounting data and its quality...... 38 5.1.1 Adjustments to the financial statements ...... 38 5.1.2 Operating leasing in valuation of airlines ...... 38 5.2 Analysis of Norwegian’s profitability ...... 39 5.2.1 EBITDAR ...... 40 5.2.2 Capital analysis ...... 45 5.2.3 Return On Invested Capital ...... 48 5.2.4 Summary of profitability analysis ...... 49 5.3 Risk analysis ...... 50 6. Valuation of Norwegian Air Shuttle ASA ...... 52 6.1 Choice of valuation methods ...... 52 6.1.1 Earnings- based models ...... 52 6.1.2 Choice of valuation model ...... 53 6.2 Discounted Cash Flow (DCF) analysis of Norwegian Air Shuttle ASA ...... 53 6.2.1 Introduction and methodology ...... 53 6.2.2 Required rate of return on Free Cash Flow ...... 55 6.2.3 Determination of explicit period and the terminal period ...... 62 6.2.4 Explicit period 1: 2011-2015 ...... 62 6.2.5 Explicit period 2: 2016-2025 ...... 72 6.2.6 Terminalperiod 2026 -> ...... 74

6.2.7 Estimation of Norwegian Air Shuttle ASA share price as of 31.12.10 ...... 75 6.3 Multiple analysis ...... 76 6.3.1 Choice of consistent multiples ...... 76 6.3.2 Choice of peer group ...... 77 6.3.3 Multiple analysis of Norwegian Air Shuttle ASA...... 77 6.4 Sensitivity analysis ...... 78 7. Conclusion ...... 79 8. References ...... 80 8.1 Books ...... 80 8.2 Articles ...... 80 8.3 Annual and quarter reports ...... 81 8.4 Investor and other analyst reports...... 81 8.5 Web pages ...... 81 9 Appendix ...... 83 9.1 Accounting data ...... 83 9.1.1 Reorganized P&L, Norwegian ...... 83 9.1.2 Reorganized balance sheet, Norwegian ...... 84 9.1.3 Reorganized P&L, easyJet...... 85 9.1.4 Reorganized balance sheet, easyJet ...... 86 9.1.5 Reorganized P&L, Ryanair ...... 87 9.1.6 Reorganized balance sheet, Ryanair ...... 88 9.1.7 Reorganized balance sheet, AirBerlin ...... 89 9.2 WACC calculations ...... 90 9.2.1 WACC ...... 90 9.2.2 Norwegian versus OSBX (beta regression)...... 91 9.2.3 Norwegian versus MSCI (beta regression) ...... 92 9.2.4 Beta regression, AirBerlin ...... 93 9.2.5 Beta regression, easyJet ...... 95 9.2.6 Beta regression, Ryanair ...... 97 9.2.7 Beta calculations ...... 99 9.3 Forecast ...... 100 9.3.1 P&L Norwegian explicit period 1 ...... 100 9.3.2 Balance sheet Norwegian explicit period 1 ...... 102 9.3.3 P&L Norwegian explicit period 2 and terminal period ...... 103 9.3.4 Balance sheet Norwegian explicit period 2 and terminal period ...... 105 9.3.5 Free Cash Flow Norwegian ...... 107 9.4 Share price estimate Norwegian ...... 109 9.5 Multiple analysis ...... 110 9.6 Sensitivity analysis ...... 111

1. Introduction The Nordic market for passenger transport by airlines has been subject to great changes the last ten years. Financial crisis, volatile oil price, increasing environmental awareness and entrance of low cost carriers (LCCs) with aggressive strategies have all contributed to changes in the competitive landscape and, from an external’s point of view, intense competition. However, the industry is not mature and it is of great interest how the future is likely to be and which factors that will drive the development.

In addition to the changes for the industry itself, they have been of great concern for the Nordic people and changed our travel habits considerably. Previously were tickets expensive and the network offered limited, while you as of today can go on weekend trips almost all around the Europe for less than NOK 1 500. This is solely a result of LCCs expansive route opening strategies and contribution to ticket price reductions.

Norwegian is a hot topic because it has been a major contributor to the industry changes. The company has grown from a market share in the Nordic region of zero percent in 2003 to 17% in 2010 and, hence, challenged SAS monopoly position. In addition has Norwegian, contrary to SAS managed to generate profit for several years. Can this be sustained and how does Norwegian intend to develop further? This, Norwegian’s heavy investment plan and Ryanair’s continuous hunt for expansion triggers an investigation of the market.

Frode Steen, professor at Norwegian School of Economics and specialist on aviation, used the case of Braathens, SAS and Color Air in several courses through my bachelor. I therefore got the interest for the industry, but also felt that we only touched on the surface. In addition did the fact that the industry development affects me personally and a fascination for a company that has managed to compete with a state subsidized company, that Norwegian was the ultimate choice to combine with interest for business valuation.

1.1 Problem formulation The overall objective of this thesis is to value the Norwegian Air Shuttle ASA share on a stand-alone basis. This leads to the problem formulation:

“What is the estimated fair value of Norwegian Air Shuttle ASA’s share price as of 31.12.2010?”

The traded price of a share will be affected by numerous macro- and microeconomic factors, ranging from those who can be estimated precisely to those who occurs both randomly and with unpredictable impact. The analytical chapters of this thesis will aim to analyze the most important factors affecting Norwegian’s future growth, profitability and risk. In order to ensure a high quality price estimate, several sub-questions supporting the problem formulation will be answered throughout the chapters.

The purpose of the strategic analysis is to analyze the market in which Norwegian operates in order to estimate future revenue growth potential. Actual questions will be:  Which competitive structure characterizes the market and how does that affect the drivers of revenue?  Which factors outside of Norwegian’s control affect potential growth and how?  Where do Norwegian position itself in the overall market, sub-markets and segments, and what is the effect of that?  What is Norwegian’s future revenue growth potential?

Analyses of past and current financial performance and risk will answer the following questions:  How does Norwegian perform relative to its closest competitors?  What are critical elements to Norwegian’s financial performance?  What would be normalized levels of net working capital and capital expenditure?  How do Norwegian finance its operations and what is the associated risk?

The strategic and financial analyses will identify the most important value drivers and make it possible to forecast their future development. In order to make realistic forecasts the following questions must be answered:  When will Norwegian reach steady state and, as a result, what is the appropriate time horizon of the forecast?  What is the appropriate level of detail of the forecast?

The more technical part of the share price estimation follows the forecasting. That part will include discussions around these questions:  What will be the appropriate valuation method?  What will be a realistic estimated level of the required rate of return?  What is the estimated value of Norwegian’s share price as of 31.12.10 by use of the valuation method previous decided to be most appropriate?

The estimated price is based on heavy assumptions and simplifications and will, thus, be very sensitive to changes in the underlying value drivers. It is therefore necessary to test the estimate and broaden the range of through answering the following questions:  Which estimated price would a relative peer group valuation give and how does this result comply with the previous result?  How sensitive is the price estimate to changes in the key input factors used?

1.2 Delimitations In order to answer the problem formulation in a properly and precise manner, and to avoid that the thesis will escalate out of its scope, I will make some delimitations. In the following section will the general delimitations that apply through the paper be taken. In addition will assumptions and simplifications be taken throughout the thesis where I see it as relevant.

This thesis is written from an investor’s point of view, which means that only public information is used. The information is either released before 31.12.2010 or based on information before 31.12.101.

The valuation is conducted on a stand-alone basis, which means that possible synergies from acquisitions or entrance into strategic alliances not are taken into account.

The valuation is theory-based and the estimated value will not be 100% correct. Because there are numerous of factors that affect the pricing in real and not only those taken into account in the analyses and models.

I assume that the readers of this thesis will have a general knowledge of the field of valuation, and theories and models will therefore not be deeply explained.

1 For example annual reports 2010 and investor reports for 4th quarter 2010

I have considered use of five years of historical accounting data as sufficient when assessing past financial performance. The years 2002 to 2005 are start-up years and will therefore contribute to the analyses with more noise than future relevance.

Norwegian Air Shuttle ASA is the mother company in the Norwegian Group. In the following will the denomination Norwegian be used when referring to the airline operations, Call Norwegian for the mobile and telecommunication services and Bank Norwegian for the bank services, which also includes the loyalty program Norwegian Reward.

The analyses will focus on the core operation, passenger transport by airplanes, and associated services, as this account for approximately 98% of the Group’s revenue.

The forecast will be stated at current prices, i.e. inflation is taken into consideration.

2.0 Method This chapter intends to describe how the thesis will be conducted in order to give the reader a better overview of the structure and the connection between theories, analyses and findings. I will start by introducing the structure of the paper before I continue with a presentation of the theories, models and data to be applied. The chapter ends with a critical and an assessment of the reliability and validity of the analyses conducted and data used.

2.1 Structure The thesis is structured into six intertwined Figure 2-1: Structure of the Thesis chapters leading to a conclusion in chapter 1. Problemfield Delimitations seven. The analyses and findings in all the chapters are extracted and adapted in following chapters. 2. Method

In chapter one I identified the problem field 3. Norwegian Air Shuttle at hand and relevant sub-questions. In addition were the delimitations in regard of the problem formulation discussed. 4. Strategic 5. Financial analysis analysis In this chapter will the method of the thesis be assessed. I start with a brief overview of the structure of the paper and the different 6. Forecast, WACC and methodologies. Then will the data collection DCF-valuation process be described before the chapter ends with a discussion of the reliability and 6. Multiple and sensitivity analysis validity of the analyses and data to be used.

Chapter three aims to give a general overview 7. Conclusion of Norwegian. The presentation is purely descriptive and intends to give the reader an Appendix introduction to the company in order better Source: Own creation understand the following analyses.

In order to estimate future revenue growth and the drivers it is necessary to conduct an in-depth strategic analysis of Norwegian and the market in which it operates. Chapter four will consist of an analysis of the market’s structure and its competitive situation, hereby with focus on how this affects the major revenue drivers: price and volume.

The financial analysis in chapter five aims to analyze past and current financial performance. The chapter starts with an assessment of the quality of financial statements leading to a reformulation into analytical statements. Subsequently relevant key ratios of performance and risk will be analyzed, both isolated and with peers.

Chapter six starts with a brief introduction to the valuation models and its parts, hereby with calculation of WACC and its components, before the forecast and final valuation is undertaken. The outcomes from the strategic and financial analyses will give the answers necessary to estimate future level of growth, profitability and risk and, hence, the ability to make realistic forecasts of future cash flows. In addition will a valuation by use of multiples be conducted in order to test the share price estimate, and I will test its sensitivity to changes in the underlying assumptions.

In chapter seven the main conclusions from the analyses will be drawn and discussed in regard to the problem formulation and its sub-questions.

2.2 Methodology In the following part I will give a brief introduction to the theories chosen, in addition to a discussion of their shortcomings.

2.2.1 Choice of theory The strategic and financial analyses will be conducted by use of an overall framework from the book “Economies of strategy” (Besanko et al., 2000).

Figure 2-2: Strategic and financial framework

Cost position relative to competitors Value created relative to competitors Economic Revenue position relative to profitability competitors Market economics

Source: Besanko, D., Dranove D. & Shanley M. (2000), Economic of strategy, 2nd edition, John Wiley & Sons Inc, page 389

Unlike more commonly used models and theories as for example Porter’s Five Forces, this framework focus more directly on the company’s ability to minimize costs and maximize revenues as the market’s characteristics and changes are taken into consideration. The latter is crucial as the airline companies have experienced great changes in their competitive landscapes the recent years, while the first cover the increased requirements to operate cost efficiently and take market shares. Based on this framework will a company’s performance depend both on the economic value created by the firm compared to its competitors, and the development in the market in general. I will use the concept of a perfect market2 in order to analyze the market in which Norwegian operates because the underlying assumptions of this model are of highly relevance for the airline market. Norwegian’s cost position will be analyzed by use of relevant profitability ratios explained when used in chapter five.

The price of the Norwegian Air Shuttle ASA share will be estimated by use of the Discounted Cash Flow-model (DCF-model)3 and Gordon’s constant growth model4. Further will the estimate be tested by use of the multiples EV/EBITDAR5 and EV/sales revenue. The concept of WACC6 will determine the discount factor used in the DCF- model, which incorporates both cost of debt and investors’ required rate of return on their invested capital.

2 Pindyck, Rubinfeld (2005): p. 8 3 Copeland, Koller, Murrin (2000): p. 132 4 Brealey, Myers, Allen (2008): p. 92 [Gordon’s constant growth formula: EV = FCFFt+1 / (WACC – g)] 5 EV/EBITDAR = Enterprise Value/Earnings Before Interest Taxes Depreciation Amortization and Rentals 6 Brealey, Myers, Allen (2008): p. 488

2.2.2 Critique of theories Besanko’s framework does not take macro environmental factors into consideration explicitly, but these will affect the industry’s performance considerably. In addition focuses the framework only on the current situation, while future profitability will depend on Norwegian’s ability to sustain their competitive advantages.

The model of a free market rests on the assumptions that market players are price takers, produce homogeneous products and that there exists no entrance or exist barriers7. These are heavy to fulfil and few real markets are perfectly competitive8.

The outcome from analyses based on defined profitability ratios will depend on the numbers put into the ratios. As companies have different definitions and classifications of parameters can this give potential noise to analyses.

The DCF-model is based on several simplifying assumptions. It focuses on cash distribution ability instead of actual wealth distribution to its owners. Further, will yearly cash flows not necessarily reflect actual performance and, hence, the value created9. Gordon’s constant growth model assumes constant growth and cost of capital to infinity, while these parameters normally will vary from year to year10. The WACC-model assumes a constant capital structure and rate of return. This will not be the reality in the long-run because a firm’s financing will vary and as a consequence will the respective capital providers’ required rate of return change as their risk changes accordingly.

2.3 Data collection

2.3.1 Choice of data The thesis is written from an investor’s point of view, i.e. only public available information is used. This information is collected from the company and other secondary sources, and is in its form annual, quarterly and monthly reports, scientific articles, statistics, investor reports and newspapers. The accounting reports used are from the years 2006 to 2010.

7 Pindyck, Rubinfeld (2005): p. 262 8 Pindyck, Rubinfeld (2005): p. 263 9 Copeland, Koller, Murrin (2000): p. 116 10 Brealey, Myers, Allen (2008):p. 95

2.3.2 Critique of data Norwegian and the chosen peers must report according to the IFRS-standard. Based on this and the fact that all annual reports used are approved by auditors without remarks, the accounting numbers and disclosures are considered to be reliable. It is, however, important to be aware that subjectivity may exist in the qualitative parts of the reports. The same awareness also applies for other sources of information. It is therefore important to stay neutral and critical towards the sources, which have been in my mind through the whole process.

2.4 Reliability and validity Reliability relates to the fact that all researchers should come to the same conclusion if the studies contain the same purpose and method11. Validity is concerned with the relationship between what one has researched and what one intended to research12. In order to secure accuracy of the thesis’ conclusions it is important that these two factors are taken into account during the work with the thesis.

11 Olsen, Pedersen (2003): p. 321 12 Olsen, Pedersen (2003): p. 195

3. Overview of Norwegian Air Shuttle ASA Norwegian Air Shuttle ASA was founded in 1993. Until 2002 the company’s core business was operating of regional routes along the coast of Norway on behalf of Braathens S.A.F.E. In September 2002 Norwegian changed its focus to the LCC business model and started to operate low-fare flights in the Norwegian domestic market. Through its business idea; “give everybody the opportunity to travel by air13”, Norwegian has challenged SAS’ monopoly and been a success story on how to grow and operate profitable in an extremely competitive and challenging market. As of 31.12.10 Norwegian operated 249 routes to 97 destinations, and transported 13 million passengers in 201014. The company had a turnover of NOK 8.598 million in 201015 and employed 1.845 FTE’s16, which makes Norwegian the second largest airline in Scandinavia and the fourth largest LCC in Europe17 measured in revenue.

Figure 3-1: Historical overview of Norwegian Air Shuttle ASA

1993 Dec 2003 2006 2007 2008 2009 Founded Listed on Oslo Subsidiary and base Bank Norwegian Call Norwegian First B737-800 Stock Exchange established in Poland Norwegian Reward delivered

1993 2002 2003 2004 2005 2006 2007 2008 2009 2010

Sept 2002 2007 2008 2010 Business model Acquires FlyNordic Bases at Rygge and B737-800 order changed to LCC Base in Stockholm in Copenhagen increased w/15

Source: Own creation based on information at www.norwegian.no

3.1 The share and the group’s organizational structure The Norwegian Air Shuttle ASA share got listed on Oslo Stock Exchange 18. December 2003. As of 31.12.10 were 34.573.332 shares outstanding and they traded at NOK 117, 50, resulting in a market capitalization of the company at NOK 4.062 millions18. The share price has been very volatile (figure 3.2) because of the price war initiated by SAS in 2003 and the finance crisis in 2008 and 2009.

13 Norwegian Air Shuttle ASA annual report 2010: This is Norwegian 14 Norwegian Air Shuttle ASA annual report 2010: The year in brief 15 Norwegian Air Shuttle ASA annual report 2010 16 FTE = Full Time Equivalent 17http://content.ebscohost.com.escweb.lib.cbs.dk/pdf25_26/pdf/2010/1XXP/01Oct10/55117468.pdf?T=P&P=AN&K=55117468&S=R&D=bth&EbscoContent=dGJyMNLr40 SeprY4y9fwOLCmr0meprNSrqu4TbKWxWXS&ContentCustomer=dGJyMPGvrkivqK9NuePfgeyx44Dt6fIA (08.03.2011) 18 Norwegian Air Shuttle ASA annual report 2010: Share and ownership structure

Figure 3-2: Share price development Norwegian Air Shuttle ASA

Source: http://www.hegnar.no/tickersok/?ticker=nas (03.03.2011

Figure 3-3: Ownership structure 31.12.10 As of 31.12.10 were 80% of the owners registered in Norway,

Hbk Invest AS 6% in United Kingdom, 5% in Finland and the United States (27,48%) respectively, 4% in Sweden and 1% in other countries19. The

Skagen Kon-Tiki Verdipapirfond (4,81%) major shareholders are shown in figure 3-3. Hbk Invest ASA is owned 76,50% directly by Norwegian’s CEO and founder,

Finnair Plc Norwegian Air Shuttle (4,77%) ASA Bjørn Kjos, and 7,63% indirectly through his fully owned company Bøgaset AS. The Chairman, Bjørn H. Kise, owns Vital Forsikring ASA 20 (4,34 %) 8,23% of Hbk Invest AS’ shares . The Norwegian share was not among the 30 most traded shares Oslo Stock Exchange in Others (58,6%) 201021.

Source: Own creation based on Proff.no

The corporate structure of the Norwegian Group is presented in figure 3-4. Norwegian Air Shuttle ASA, the parent company, is in charge of all flight operations, while the daughter companies in Sweden and Poland supplies crew, technical assistance and administrative services to the flight operations in these countries. Approximately 98%22 of the Group’s revenues in 2010 stemmed from the core activity, transportation of people by airlines. Call Norwegian AS provides mobile services, mobile broadband and airport WIFI to the mass market. Norwegian Finans Holding AS owns 20% of Bank Norwegian AS in which Norwegians loyalty programme, Norwegian Reward, is run in cooperation with.

19 Norwegian Air Shuttle ASA annual report 2010: Share and ownership structure 20 www.proff.no (company search) 21 http://oslobors.no/Oslo-Boers/Statistikk/AArsstatistikk (29.10.11) 22 Norwegian Air Shuttle ASA annual report 2010, note 4: ((7.210.161 + 1.034.006)/8.406.339 )*100% = 98,1%

Figure 3-4: Corporate structure of the Norwegian Group

Norwegian Air Shuttle ASA (Norway)

NAS Asset Norwegian Air Shuttle Norwegian Air Shuttle Norwegian Finans Call Norwegian AS Management Sweden AB Polska SP.zo.o Holding ASA (100%) Norway AS (100%) (100%) (20%) (100%) 99,9% 0,1%

Bank NAS Asset Norwegian AS Management (100%) (Ireland) Source: Own creation based on Norwegian Air Shuttle ASA annual report 2010

3.2 The low- fare business model and Norwegian’s business strategy “Norwegian intends to become the preferred supplier of air travel in its selected markets and to generate excellent profitability and return to its shareholders23”. Figure 3-5: Historical operational drivers

Norwegian intends to serve both the business and 0,60 80 % the leisure segments through offering a 0,50 75 %

comprehensive network and high-quality travel 0,40

0,30 70 %

experiences at low-fare tickets. The slogan NOK

0,20 factor Load “freedom of choice24” addresses service requesting 65 % 0,10 business people and price sensitive leisure 0,00 60 % 2006 2007 2008 2009 2010 travellers. LCCs compete on ticket price as their RASK CASK LOAD FACTOR flights are stripped for extra services. Source: Own creation based on annual reports Norwegian Air Shuttle ASA (2006-2010) 3.3 Market position and traffic development The Nordic market has approximately 25 million inhabitants and is valued to SEK 91 billion as of 201025. The biggest Nordic airlines: SAS, Norwegian and Finnair, transported 21,5, 13 and 6,3 million passengers respectively in 201026. Norwegian has had a yearly growth in passengers over the period 2005 to 2010 at 31,6%27, and achieved passenger growth every month compared to the year before. The company is subject to heavy seasonal fluctuations.

23 Norwegian ASA annual report 2010: This is Norwegian 24 Norwegian Air Shuttle ASA annual report 2010: This is Norwegian 25 SAS AB annual report 2010: page 24 26 SAS AB annual report 2010: page. 34 27 Own calculation based on annual reports

Figure 3-6: Monthly traffic numbers Figure 3-7: Market shares Nordic region 2010 Jul 10: 1 400 1 323 SAS Group 29 % 1 200 Jul 09: Scandinavian Airlines 25 % 1 049 Norwegian 17 % 1 000 Finnair 10 % Jul 08: Ryanair 9 % 800 Okt 07: 732 Air France - KLM 3 % Aug 06: 617' airBaltic 3 % 600 516' British Airways 2 % 400 Blue1 2 % Widerøe 2 % Passenger number (000) numberPassenger 200 Air Berlin 1 % 0 easyJet 1 %

0 % 10 % 20 % 30 %

apr/03 apr/04 apr/05 apr/06

apr/02

des/01 des/02 des/03 des/04 des/05

aug/03 aug/04 aug/05 aug/06 aug/02 Source: Own creation based on monthly reports Source: SAS AB annual report 2010: page 26

3.4 Key financials Norwegian has grown substantially the last five years, but not managed to generate stable margins on its operations. Approximately 68% of Norwegian’s assets are fixed assets, and they comprise mainly, aircrafts, installations on leased aircrafts and prepayments to Boeing. The sum of current assets and cash is lower than current liabilities but 37% are air traffic settlement liabilities28. Norwegian has a debt/equity ratio of 2,7 before capitalized leasing.

Figure 3-8: Key financials

9 000 60,0 % 7 000 3,0 D/E = 2,7 8 000 50,0 % 6 000 Equity 2,5 7 000 40,0 % 5 000 6 000 Fixed 2,0 5 000 30,0 % assets 4 000 Long-term 4 000 debt 1,5

20,0 % (%) growth margin & NOKm - 3 000 Revenue(NOKm) 3 000 10,0 % 1,0 2 000 EBITDA 2 000 Current 0,0 % 1 000 assets Current 0,5 1 000 liability 0 -10,0 % Cash 2006 2007 2008 2009 2010 0 0,0 Total revenue EBITDA-margin Revenue growth Assets Equity & Liability

Source: Own creation based on annual reports Norwegian Air Shuttle ASA (2006-2010)

28 Air Traffic Settlement liabilities = Flights sold, but not operated

4. Strategic analysis In order to predict future growth and profitability it is crucial to understand the competitive landscape in which Norwegian operates, how it has affected the company in the past and how the future is likely to be. An airline’s revenue growth will mainly be determined by two underlying factors: ticket price and passenger volume. Section 4.1 aims to explain how the competitive structure of the Nordic market, the price development and the potential market size will impact on airlines’ future revenue growth potential. Despite equal competitive landscape will companies’ growth differ and Norwegian’s future growth potential in the Nordic market will therefore be assessed in section 4.2.

4.1 The Nordic market for air travel Norwegian’s market, “the Nordic market”, is defined as passenger transport by airplanes domestic, between and international from the Nordic countries Norway, Sweden, Denmark and Finland. I will divide the market into two segments; business and leisure, because of different characteristics of these two. First will the market’s structure be assessed in light of the concept of perfect competition in section 4.1.1, secondly will this be seen together with past price development in section 4.1.2, and finally, in section 4.1.3, will the outlook for the market’s size and capacity growth be analyzed.

4.1.1 The structure of the Nordic market A perfect market is “a market with many buyers and sellers, so that no single buyer or seller has a significant impact on price” (Pindyck & Rubinfeld 2005: page 8). Whether the market is perfectly competitive or not rests on three conditions (Pindyck & Rubinfeld 2005):  Price taking  Product homogeneity  Free entry and exit

Price taking A seller is a price taker when his proportion of sale out of total sale is so small that it will not affect the prices and that he must take prices as granted when making production decisions29.

Historically have national flag carriers had market power in their home market and an opportunity to charge high prices without losing travellers. The deregulations the last 20 years (see regulations) have, however, liberalized the market and given LCCs the opportunity to establish and gain market shares. This change has caused a competitive

29 Pindyck & Rubinfeld (2005): p.262

18 market in form of many actors, increasing available seats and destinations, and a convergence in market shares, which was underlined by figure 3-6. However, there are normally not more than two airlines present on the different routes in the Nordic market. But as long as Norwegian and SAS are present on mostly major intra-Scandinavian routes and because of their convergence in market shares (see 4.1.3), the competition will be high and the possibilities to act as price setters will continue to be limited. In addition will Ryanair’s growing market share in the Nordic market and its constant hunt for profitable routes act as a pricing constraint.

Product homogeneity Product homogeneity are present when “the products of all the firms in a market are perfectly substitutable with one another” (Pindyck & Rubinfeld, 2005), i.e. an airline cannot raise the ticket price on a route without losing potential sale to other operators on the same route.

LCCs’ strategies are to provide the flight itself at a low fare, but give travellers the option to buy extra services at additional costs. This indicates that flights are moving towards a commodity. Especially on short- and medium haul flights are prices the single most important decision variable30 and the differentiation opportunities are therefore limited. However, to which extent flights are commoditized will differ between the segments.

Leisure Leisure travellers are overall considered highly price sensitive31. Their high flexibility regarding departure time and travel distance to airports, and propensity book the early cheap tickets and use time to search among the numerous searching monitors on Internet have reduced the airlines opportunities to differentiate themselves and its services in this segment.

Business Business travellers are more considered about the departure time, frequency, extra services and travel time to and from airports. Airlines can therefore to a greater extent differentiate the offered services in this segment and, hence, be able to charge a higher price. These requested services explain why SAS still have a significant position in the Nordic market and aim to compete with Norwegian’s cheaper tickets. The importance of frequency in this segment is, among others, illustrated by Norwegian’s acquisition of FlyNordic in 200732. This gave Norwegian attractive slots at Arlanda and the opportunity to increase its frequency at favourable slots at the important business route Oslo- Stockholm.

30http://content.ebscohost.com.escweb.lib.cbs.dk/pdf25_26/pdf/2010/1XXP/01Oct10/55117468.pdf?T=P&P=AN&K=55117468&S=R&D=b th&EbscoContent=dGJyMNLr40SeprY4y9fwOLCmr0meprNSrqu4TbKWxWXS&ContentCustomer=dGJyMPGvrkivqK9NuePfgeyx44Dt6f IA (08.03.11) 31http://content.ebscohost.com.escweb.lib.cbs.dk/pdf25_26/pdf/2010/1XXP/01Oct10/55117468.pdf?T=P&P=AN&K=55117468&S=R&D=b th&EbscoContent=dGJyMNLr40SeprY4y9fwOLCmr0meprNSrqu4TbKWxWXS&ContentCustomer=dGJyMPGvrkivqK9NuePfgeyx44Dt6f IA (08.03.11) 32 Norwegian Air Shuttle ASA Annual report 2007: page 4.

Free entry and exit A market without entry and exit barriers is present if the costs associated with entering and leaving the market is close to zero. Jones & Hill (2010) mention five barriers of entry: Cost benefits, economies of scale, brand loyalty, switching costs and regulations. The cost benefit discussion will be covered through peer analyses in chapter five.

Economies of scale As a price taker will cost leadership be of great importance in order to be profitable. An airline’s cost structure consist to a high degree of fixed and batch cost, for example leasing of airplanes, staff and back office services, which imply great economic of scale opportunities as the unit cost will decrease with increased activity33. The airline industry measures unit cost in cost per available seat kilometre (CASK). It is therefore important to maximize the utilization of airplanes and workforce in order to produce as many ASK34 as possible per input factor. This challenge can easier be handled with an extensive network and through a combination of typical business flights in peak-hours and leisure flights during off times. Norwegian prioritizes high-RASK35 business routes during peak hours, while low-RASK leisure routes are operated during mid- day and other off-times36. For a brand new entrant will it take time before an extensive and frequently network can be operated at a CASK competitive to the already established actors. However, an existing airline will overcome these challenges easily and can open new routes faster. To conclude are there significant economic of scale benefits in the industry, but that do not prevent existing airlines from opening routes in a new market.

Regulations The discussion of airports fees will be covered in chapter five as they not impact directly on growth opportunities, but rather the ability to operate profitable. Despite considerable deregulation of the airline industry the last 20-30 years is still one important condition remaining: the slot time allocation practice. A slot time is “the permission to operate an air service at a coordinated airport on a specific date and time for the purpose of landing or take-off37”. They are allocated to airlines based on the “grandfather principle”, i.e. that the airline who already uses the slot can claim it for future use as long as it uses it 80% of the time38. Because there is lack of capacity at many of the major airports in Europe, this principle reduces the access to the big and strategically important airports.

33 Pindyck, Rubinfeld (2005): p. 237 34 ASK = Available Seat Kilomentres 35 Revenue per Available Seat Kilometre (RASK) = Average revenue per ASK 36 Norwegian Air Shuttle ASA Annual report 2010: “Operations and market development” 37 http://ec.europa.eu/transport/air/airports/slots_en.htm (24.05.11) 38 http://ec.europa.eu/transport/air/airports/slots_en.htm (24.05.11)

OSL is as of today able to handle 23 million passengers a year39. It is estimated that this capacity will be exceeded in 2016, but the expansion of the airport to handle 28 million passengers shall finish in 201740. This and the fact that other airports in the Oslo area (Rygge and Torp) have excess capacity, indicates that access to slots not will be a constraint in the leisure segment. The same situation is also current at Kastrup and Arlanda, and in addition does the presence of Skavsta and Västerås and newly opened CphGo represent good alternatives growth in the leisure segment. In the business segment is the situation somewhat different because the travellers have higher requirements to frequency and departure and arrival times. The grandfather principle therefore favours SAS and Norwegian.

Brand loyalty Internet has become the main booking and distribution Figure 4-1: Media sources used when booking travels channel and contributed to weakened brand loyalty. 100 % Other Because web pages as finn.no, momondo.com and 80 % cheapflights.com have made it easy and fast to search 60 % Airline for the cheapest flights among all airlines41. Figure 4-1 website 40 % underlines the prevalence in use of such websites as it Internet 20 % shows that more than 1/3 of all travellers use this booking channel. 0 % Business Leisure

Source:http://finance.wharton.upenn.edu/~wessels/courses/ valuation/Sample%20Solution%20-%20Marketing.pdf

Figure 4-2: Number of Airlines Considered on However, a survey performed by Wharton University Last Ticket Purchased by Survey Respondents of Pennsylvania on consumer loyalty in the airline 50 % 44 % 45 % industry in the USA, shows that a great proportion of 39 % 40 % potential travellers still search for tickets only among 35 % 33 % 31 % Business 30 % 26 % the airlines where they have a loyalty membership or 25 % Leisure 19 % they know from previous travels. This result is also 20 % 15 % underlined by figure 4-1 and 4-2, which showed that Percent of Respondentsof Percent 10 % more than 40% of tickets were booked through a 4 % 4 % 5 % company website and that up to 65% only considered 0 % 1 2-3 4-5 No Limit one to three airlines when booking. It is likely to

Source:http://finance.wharton.upenn.edu/~wessels/courses/valuation/Sam assume the same booking patterns to be present in the ple%20Solution%20-%20Marketing.pdf

39 http://www.osl.no/osl/micro/T2/153240 (01.08.11) 40http://www.osl.no/osl/omoss/_presse/_nyhetsarkiv?SAMFERDSELSDEPARTEMENTET_GIR_KLARSIGNAL_FOR_UTVIDELSE_AV _OSLO_LUFTHAVN&id=181-124663 (01.08.11) 41 http://finance.wharton.upenn.edu/~wessels/courses/valuation/Sample%20Solution%20-%20Marketing.pdf (23.05.11), page 2.

Nordic market too and SAS’ membership in StarAlliance42 is therefore of high value in regard to attract travellers. Norwegian has, however, through its low-fare calendar43 combined travellers price sensitivity with this fact that only a few alternatives are searched among and, thus, made it easy to find the cheapest destinations at the preferred travel time, or opposite.

Norwegian has in addition gained a position as the “cheapest” airline, but still avoided the negative “Ryanair stamp”44 in form of a perceived feeling of inconvenience and fees for everything. Norwegian has also experienced goodwill, as many Scandinavians do not accept that tax-payers’ money are used to operate an inefficient airline (i.e. SAS). A new entrant should therefore not see loyalty as a heavy constraint in the Nordic market, but it must offer cheap tickets and manage to get potential customers’ attention.

Switching costs Switching costs occurs when changing supplier of a service is associated with a perceived or absolute cost45. Homogenization of flights and easy access to price comparisons has made it easy and fast to switch between airlines. The market is therefore going towards a situation where the supply and demand mechanism determines the prices. Despite few pure monetary switching costs many travellers will perceive inflexibility, no extra services and long transfer time as switching costs. SAS’ membership in Star Alliance makes the company preferable on international business travels because this network is both more extensive and flexible than others. In the leisure segment, which is most important for Norwegian is these factors not of higher value than the prices itself and the perceived switching costs are, thus, low.

Exit barriers Substantial exit barriers, either economical, strategically or emotional, will cause that non-profitable companies continue its operations in the market. LCCs have relatively small and lean organizations, operate few and specified services and outsource more of its services than the more complex flag-carriers do. As a result are there lower exit barriers associated with leaving the market for LCCs than flag-carriers. This explains some of the consolidations we have seen the last years in the industry and that is expected to continue in the future.

42 Star Alliance: “leading global airline network” (http://www.staralliance.com/en/about/) 43 Low-fare calendar = Lavpriskalenderen 44 http://www.dn.no/forsiden/naringsliv/article1931305.ece (07.03.11) 45 Johnson, Scholes, Whittington (2006): p. 256

Summary of the Nordic market’s structure The airlines operating in the Nordic market are not perfectly price takers according to the definition, but several airlines of equal and converging size are operating in this market and the possibilities to impact are, hence, low. This situation is strengthened by the homogeneous product that is offered and the fact that, especially in the leisure segment, is price the most important decision variable in addition to low switching costs and brand loyalty. However, it is possible to differentiate on departure time, frequency and airport use in the business segment. Because of the grandfather principle are the established airlines favored in this segment. Summarized are the airlines close to price takers, the service offered are not differentiated, there are relatively low entry barriers on new routes for existing airlines and the exit barriers are somewhat high for flag carriers. This indicates a highly competitive market with intense competition and, thus, reduced profit opportunities. It will therefore be crucial to achieve substantial economic of scale benefits, measured in decreasing CASK.

4.1.2 The Nordic market’s price development The Association of European Airlines’ (AEA) yield46 index for intra- European flights (figure 4-3) shows that ticket prices have decreased by 2,8% yearly from 2001 to 2007. Figure 4-3: Yield Index Geographical Europe (Year 2001 = 100) LCCs have impacted remarkable on the European air travel 125 Currency market after 2000 through introducing a new business 120 adjusted 115 Current model enabling for lower prices. The result has been 110 decreasing yield, in which LCCs have answered by adding 105 100 capacity in order to achieve economic of scale benefits. 95 With the market structure developed in section 4.1.1 and 90 85 the fact that the Nordic market not is an expanding market, 80 75 the increasing capacity have caused stronger competition 2001 2002 2003 2004 2005 2006 2007 and a corresponding similar reduction in the Nordic prices

Source: Operating Economy of AEA airlines 2007, p 12 too47. For example has Norwegian’s aggressive route opening strategy contributed to a fare reduction of 23% on international routes from Norway in the period 2003 to 200948. Prices are therefore on a historical low level currently. This situation is likely to continue the next years because Norwegian plan to increase its capacity by 20% in 2011 and SAS will strive to sustain its current market share49. This competitive situation is equal to a Bertrand-solution50 as the price moves towards the marginal cost and there is excess capacity.

Figure 4-4: Historical RASK By looking at RASK instead of yield, the effect of load 51 Norwegian easyJet Ryanair factor is also included in the numerator. Figure 4-4 shows a 0,60 general tendency of falling RASK for the major LCCs in the

0,50 Nordic market. Norwegian’s RASK has decreased by 6,2%

0,40 yearly from 2006 to 2010, which is more than the others. An

0,30 explanation, in addition to the previous described price

0,20 pressure and capacity increase, is that Norwegian’s average sector length52 has increased. The amount of flights abroad 0,10 2006 2007 2008 2009 2010 to holiday destinations around the Mediterranean and cities

Source: Own creation based on the companies annual reports

46 Yield = Average ticket revenue per Revenue Passenger Kilometer (RPK) 47 First Securities 4th quarter 2010 report: p.2 48http://www.avinor.no/avinor/presse/_nyhetsarkiv?STADIG_BILLIGERE_%C3%85_FLY&id=181-115195 (20.05.11) 49 http://borsen.dk/arkiv/artikel/3136215/ (07.03.11) 50 Pindyck, Rubinfeld (2005): p.449 51 Load Factor: = RPK/ASK, describes the utilization of the available seats 52 Sector Length = Distance from one destination to another

24 in Europe has increased relative to shorter domestic and intra-Scandinavian flights. Increasing sector length affects RASK negatively as the ticket prices not increase proportionally with the distance flown. As will be shown later, is domestic and intra-Scandinavian traffic expected to grow less than international traffic in the future, which implies increased average sector length and further decline in RASK. However, Norwegian also operated with prices above other European LCCs in the beginning because the only competitor was SAS. Current prices are therefore more pure LCC and likely to decrease less than the previous five year period.

4.1.3 The size and growth of the Nordic market Chapter four has so far concluded that airlines must take prices as granted and that they will continue to decrease slightly. This implies that future revenue growth primarily will be determined by growth in passenger numbers, which this section aims to analyze further.

The world market for passenger transport by airplane has historically been a growing market because of increasing globalization and the fact that decreasing prices have made travelling by airlines an alternative for more and more people. Despite an overall positive trend after 2008/2009 there are huge regional and intra-regional differences in expected future growth. Because of this and the fact that the Norwegian market accounted for 37,2%53 of Norwegian’s revenue in 2010, I have chosen to analyze the Norwegian and the Nordic markets separately.

The Nordic market The overall Swedish market grew slowly in 2007 and 2008, and the financial crisis affected the country relatively hard (figure 4-6). However, the traffic numbers has recovered back to pre-crisis level and the Swedish economy is expected to develop positively in the future. The growth has primarily been from increased international traffic and with an increasing presence of low fare tickets it is likely that this trend will continue. Figure 4-6 and 4-7 clearly states that Arlanda is the biggest airport in Sweden as approximately 60%54 of all Swedish traffic was from this airport and 76%55 of international traffic. It is therefore important to gain a strong position in the Stockholm area in order to achieve future growth.

53 Norwegian Air Shuttle ASA annual report 2010 note 4: 3 124 196/8 406 339 = 37,2% 54 60% = (16 962’ / 27 890’) x 100% 55 76% = (12 943’ / 17 025’) x 100%

Figure 4-5: Number of passengers Figure 4-6: Number of passengers and growth Swedish market and growth Stockholm-Arlanda

35 000 10 % 20 000 10 %

30 000 5 % 5 % 15 000 25 000 0 % 0 % 20 000 -5 % 10 000 -5 %

15 000 Growth(%)

PAX (million)PAX Growth(%) PAX (million) PAX -10 % -10 % 10 000 5 000 -15 % 5 000 -15 % 0 -20 % 0 -20 % 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Domestic International Domestic Domestic International Domestic International Total International Total

Source: Own creation based on traffic data from Swedavia.se (owner of Swedish airports)

The total Danish market has showed the same development as the Swedish market the last five years (figure 4-8), but compared to the Swedish market is the dominance of international traffic even more present. In 2010 were 83%56 of all travels international travels and the strong domestic growth in 2010 impacted, thus, not on total growth rate. Kastrup stands for 81%57 of all traffic from Denmark and has historically also had a strong position within the overall Nordic market.

Figure 4-7: Number of passengers Figure 4-8: Number of passengers and growth Danish market and growth Copenhagen-Kastrup

30 000 25 % 30 000 25 %

20 % 20 % 25 000 25 000 15 % 15 % 20 000 20 000 10 % 10 %

15 000 5 % 15 000 5 %

Growth(%) PAX (million) PAX

0 % Growth(%) 10 000 0 % PAX (million) PAX 10 000 -5 % -5 % 5 000 5 000 -10 % -10 % 0 -15 % 0 -15 % 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Domestic International Domestic Domestic International Domestic International Total International Total

Source: Own cration based on traffic data from Trafikstyrelsen (Danish Transport Authority)

56 83% = (21 497’ / 26 546’) x 100% 57 81% = (21 483’ / 26 546’) x 100%

Norwegian operates as of 31.12.10 only routes to the other Nordic capitals from Helsinki, but has announced opening of a base in Helsinki during spring 2011 and opening of several routes, both domestically and international58. Currently dominates Finnair, SAS and SAS owned Blue1 the Finnish market, but the pricing and network structure is equal to the situation in the other Nordic countries before LCCs entered the market.

Norwegian has announced future focus on intercontinental routes from Nordic cities59. By use of Norway as an estimate on the situation in the overall Nordic market, intercontinental traffic amounts to 15% of all international traffic60. Of this are 29% business travellers, while the equivalent in Europe is 36%. This implies opportunities for companies that have a strong position in the leisure segment and offers low fare tickets. The traffic to Asia and North America grew by 10,3% and 4,3% respectively between 2007 and 2009, and the leisure destinations Bangkok and New York accounted for a significant part of the growth.

These analyses have showed that the Nordic countries had low growth before the financial crisis, but recovered back to pre-crisis level in 2010. It is therefore difficult to draw any predictions about the future based on the history other than that it is likely that growth primarily will be in leisure traffic. This favours companies that are strong in this segment. However, this segment is more sensitive to world Figure 4-9: Expected growth 2010-2029 economic development and people’s personal wealth. SAS 9 % 8 % presents in its annual report for 2010 a yearly growth 7 % estimate of 4% for the next 20 years in the European 6 % 5 % market (figure 4-10). The Nordic countries are in general 4 %

expected to develop stronger financially the next years 3 % Expectedgrowth than middle and southern Europe, which will impact 2 % 1 % positively on travel private wealth. It is therefore likely to 0 % expect that the Nordic market, which amounted to 90 million passengers in 201061, will grow at a rate above 4% the next ten years.

Source: SAS AB annual report 2010, page 23

58 http://www.dn.no/forsiden/naringsliv/article1989724.ece (07.03.11) 59 http://www.dn.no/forsiden/naringsliv/article1935851.ece (07.03.11) 60 Transportøkonomisk Institutt, Reisevaner på fly 2009: p. 52 61 SAS AB annual report 2010, page 23

In the long run is it likely that the Nordic market will culminate towards a steady state growth rate. The Nordic economies are mature as of today and their growth rates can be used as estimates on the steady state growth rate in the Nordic airline market. For 2011 are the expected growth rates in GDPs 2,9% in Norway, 2% in Denmark, 3,8% in Sweden and 3,1% in Finland62. These are at the same level as U.S. Energy Information Administration’s (EIA) estimate of a 2,7% annual GDP growth in the USA for the period 2009-203563. It is therefore likely that the long-term growth rate will be between 2% and 3% in the Nordic airline market.

The Norwegian market The Norwegian market had a yearly growth in traffic of 9%64 in the period from 2005 to 2009 and 6,8%65 in 2010. The strong growth in the Norwegian market compared to the other Nordic countries is, among others, explained by relatively higher capacity at low prices. It is therefore likely to expect future growth in the other Nordic countries when LCCs gain a stronger position there also.

Figure 4-10: Traffic development Norway Compared to the other Nordic countries is the domestic market relatively much more important in Norway as it stands for almost half of total traffic66. The blue line in figure 4-12 shows, however, that the domestic traffic growth has been relatively low the last ten years. The overall growth has been driven by booming international traffic, which grew by 66 % from 2003 to 200967. This growth matches Norwegian’s entrance in the market in 2002 and show that additional destinations at affordable fares have resulted in increasing traffic. Based on the

Source: Reisevaner på fly 2009 side 6 recent years it is likely that future growth will continue to be in international traffic. There are limited how many profitable routes and departures it is possible to operate in a country with only 4,5 million inhabitants. Anticipated volume CAGR for the overall Norwegian market is therefore

62 GDP data (country reports): www.gfmag.com 63 EIA annual energy outlook 2011: http://www.eia.gov/forecasts/aeo/pdf/0383(2011).pdf (01.08.11) 64 http://content.ebscohost.com.escweb.lib.cbs.dk/pdf25_26/pdf/2010/1XXP/01Oct10/55117468.pdf?T=P&P=AN&K=55117468&S=R&D=bth&EbscoContent=dGJyMNLr40 SeprY4y9fwOLCmr0meprNSrqu4TbKWxWXS&ContentCustomer=dGJyMPGvrkivqK9NuePfgeyx44Dt6fIA (08.03.11) 65 Avinor’s traffic statistic for 2010: http://www.avinor.no/avinor/trafikk/10_Trafikkstatistikk 66 Reisevaner på fly 2009, page 4:http://www.toi.no/getfile.php/Publikasjoner/T%D8I%20rapporter/2010/1073-2010/1073- hele%20rapporten%20nett.pdf (07.03.11) 67 Reisevaner på fly 2009, page 10:http://www.toi.no/getfile.php/Publikasjoner/T%D8I%20rapporter/2010/1073-2010/1073- hele%20rapporten%20nett.pdf (07.03.11)

28 expected to be as low as 3,6 % for the period 2009 to 201468, but the international growth will in reality be the twice as the domestic will experience zero growth.

Substitutes An analysis of a market’s future growth potential must include an analysis of the possibilities for changed competition from substitutes. Especially will train, the only alternative that can compete with airlines on longer distances, be a threat. The society’s increasing environmental awareness and the development of high-speed train networks have caused that train has become a more popular and faster alternative than planes in many situations. However, in the Nordic countries is the development of a high-speed train networks behind the rest of Europe and there are no existing plans for a change. Currently are trains slowly, does not run frequently, operates mainly between the biggest cities and the connections Figure 4-11: Top 10 busiest routes within Europe between both domestic and international routes are bad. The national railway company has monopoly, which cause that travelling by train is not competitive on price compared to travelling plane. Despite the fact that trains go from city centre to city centre and you, hence, avoid wasted time on shuttle and airport stay, and that it is normally more convenient to work on a train, they are still not a real threat on mostly routes in the Nordic countries. The fact that two of Europe’s busiest air routes

(figure 4-13) are between relatively scarcely Source:http://www.oag.com/oag/website/com/en/popups/print/press+releases/oag+re veals+latest+industry+intelligence+on+the+busiest+routes+2109072 populated Norwegian cities, were train actually is an option, underlines the train’s weak position.

68 http://content.ebscohost.com.escweb.lib.cbs.dk/pdf25_26/pdf/2010/1XXP/01Oct10/55117468.pdf?T=P&P=AN&K=55117468&S=R&D=bth&EbscoContent=dGJyMNLr40 SeprY4y9fwOLCmr0meprNSrqu4TbKWxWXS&ContentCustomer=dGJyMPGvrkivqK9NuePfgeyx44Dt6fIA (08.03.11)

Summary of the size and growth of the Nordic market The air traffic in the Nordic countries, except of Norway, grew at a low rate before the financial crisis and has recovered back to pre-crisis level in 2010. The Norwegian market, however, has grown by 9% annually the last five years, which primarily is due to increased international traffic. This indicates that increased presence of low fare tickets and a more extensive network have driven growth, and that this part of this growth also can be seen in the other Nordic countries the next years when Ryanair and Norwegian expends further. SAS predicts an overall growth rate of 4%, but it is likely that the growth Yearly passenger growth 2005 - 2010 2011 -> will vary among segments and LCCs and Total: 9% Norway flag carriers. Future growth will, Domestic: 0% Total :-10,3% to 6,1% however, be heavily dependent on several Sweeden Domestic: 0% Total: -8% to 9% factors outside of the airlines’ control in Denmark Domestic: > 0%, but addition to the regulations mentioned in insignificant impact Nordic market 4.1.1. Especially will personal wealth Total: 4% + 2011 - 2030 and, thus, travel propensity impact on the Nordic market Country GDP's: 2% - 3% (steady state) leisure segment, while substitutes will EIA: 2,7% impact on the growth more in general.

4.2 Norwegian’s revenue growth potential In order to predict Norwegian’s future revenues it is necessary to take a deeper look at the company’s position the Nordic market and its growth opportunities. Figure 4-14 shows Norwegian and the peers’, easyJet and Ryanair, revenue growth over the last five years. The extraordinary growth Norwegian has generated can on an overall level be explained by that the company is the youngest of the three, Figure 4-12: Revenue growth 2007 – 2010 50 % that its core market previous were characterized by low capacity and high prices, and that no other LCC so far has

40 %

gained a dominant position in the Nordic market. At the end 30 % of the analyzed period Norwegian and the peers converged 20 %

towards a growth level of 15% to 20%. This is still substantial Revenue(%)growth 10 % higher than the previous anticipated future growth level of

0 % 4%. A more in-depth analysis of Norwegian’s growth 2007 2008 2009 2010 Norwegian easyJet Ryanair potential is therefore necessary. Hereby, will ancillary revenue

Source: Own creation based on the also be discussed in section 4.2.2. companies’ annual reports

4.2.1 Ticket revenue The market analysis in section 4.1.1 indicated that Norwegian in general must take ticket prices as granted, and the price discussion in section 4.1.2 concluded that RASK will continue to decrease slightly. Future ticket revenue growth will therefore be determined by passenger growth. Norwegian’s passenger numbers grew by 31% annually from 2006 to 201069, which was substantial higher than the Norwegian- and Nordic markets. The company’s passenger growth has therefore not only been organic, but also a result of taking customers from competitors. With an announced capacity growth of 20% to 25%70 in 2011 this situation must continue if Norwegian shall manage to sustain its load factor. I will therefore discuss revenue growth in light of both capacity and market share opportunities.

Capacity

Figure 4-13: Yearly growth in ASK Available Seat Kilometres (ASK) are total capacity

Norwegian easyJet Ryanair SAS produced and growth in ASK will be an underlying

60 % factor to an airline’s growth in passenger volume. 50 % Norwegian’s growth in ASK have been very high in the

40 % 30 % analyzed period (figure 4-15) because of an expansive 20 % route opening strategy in a market that previously had

10 % few leisure routes. Figure 4-15 also highlights that the Growth in ASK (%)ASKin Growth 0 % -10 % company has been able to expand during the recession, -20 % while the comparable companies Ryanair and easyJet -30 % 2007 2008 2009 2010 had a substantial lower growth. SAS, however, reduced

produced ASK during this period, which partly can be Source: Own creation based on the companies’ annual reports attributed to the increased competition.

Growth in ASK can be a result of increasing frequency on existing routes and/or opening of new routes. Norwegian expects an increase in ASK of 20% to 25% in 201171, mainly due to the announced increasing focus on the Finnish market and replacement of more 737-300 with 737-800. The increasing focus on the Finnish market will result in growing ASK for several years, while the replacement is planned to be finished in 201472. In addition will Norwegian continue its current focus on opening international routes from Swedish and Danish airports. For example is the company still only a minor actor at Sweden’s second largest airport; Landvetter. There also exist plans of opening intercontinental low fare routes, but the opening date is currently not decided. All of these known actions will

69 Norwegian Air Shuttle ASA annual report 2010: The year in brief 70 Norwegian Air Shuttle ASA 4th quarter report 2010, p. 19 71 Norwegian Air Shuttle ASA 4th quarter 2010 report: p. 19 72 Norwegian Air Shuttle ASA 4th quarter 2010 report

31 contribute to a growth above 4% the next 10 to 15 years. The fact that only 20-30% of all tickets sold in the Nordic market are low-fare tickets, contrary to a 60% share in the UK73, underlines Norwegian’s future potential. This opportunity is also seen by Ryanair who has announced further expansions in the Nordics74 and, hence, might be an even stronger competitor to Norwegian.

Market shares The previous section showed that Norwegian’s capacity growth has been substantial higher than the market’s last years and part of the growth has therefore been a result of taking market shares from competitors. If Norwegian shall continue to grow above the market the next years, the company must continue to take market shares.

Norwegian domestic market Norwegian increased its market share from 11,5%75 in 2003 to 34,9%76 in 2009 on domestic routes, while SAS’ market share has decreased from 72,7%77 to 49,5%78. Norwegian has, thus, challenged SAS’ previous monopoly position on the domestic market. In 2007 was it more than one operator on only 9 out of 29 regular routes (“stamrutenettet”), while it was 16 and 30 in 200979. Figure 4-14: Airlines’ domestic passenger numbers Figure 4-16 explains how Norwegian’s passenger

14 0,27 0,23 growth has changed in nature. In the period 2003 to 12 1,59 1,73 0,21 2007 Norwegian’s grew organically as SAS and the 10 1,42 3,11 4,39 others maintained their passenger numbers, while the 8 1,19 6 growth from 2007 to 2009 came through taking market 4 7,50 7,78 shares from SAS. This growth pattern is in accordance 6,22 2 with previous hypothesizes and it must be expected (millions) numbers passenger Domestic 0 2003 2007 2009 that future opportunities is in taking market shares. SAS DY WF Andre

Source: Reisevaner på fly 2009 side 20

Transportøkonmisk Insitutt (TØI) travel habit survey from 2009 shows, however, significant differences in the market share distribution when disaggregating the domestic market into business and leisure segments. Norwegian’s market shares vary between 45% and 63% in the leisure segment, while they are between 29% and 46%80 in the business segment. If this continues will Norwegian’s future traffic growth will be more sensitive to changes in the leisure segment than in the business segment. After the deregulations in the nineties, the opening of OSL and

73 http://borsen.dk/arkiv/artikel/3116474/ (07.03.11) 74 http://www.dn.no/forsiden/naringsliv/article1717272.ece (07.03.11) 75 1,19/10,32 = 11,5 % 76 4,39/12,57 = 34,9 % 77 7,5/10,32 = 72,7 % 78 6,22/12,57 = 49,5 % 79 TØI, Reisevaner på fly 2009: page 20 80 TØI, Reisevaner på fly 2009: page 22

Norwegian’s entrance the share of leisure travels increased from 39% to 48%81. However, this share has been stable the last five years and it is therefore not likely to expect the domestic leisure market to grow more in number of passengers than the overall domestic market in the future, which is expected to be low.

To summarize will Norwegian’s growth in the domestic market most likely converges towards the overall domestic growth the next years. Mainly because the “boost” Norwegian created with its cheap tickets has come to a saturation point. Future growth will therefore be dependent on the ability to steal customers from SAS. In 2013 will all of Norwegian’s airplanes have installed Wi-Fi, and this will attract more business customers. The economic distress in other parts of Europe causes probably that both business and leisure travellers will be even more cost conscious, which is positive for Norwegian in the competition with SAS. It is therefore not unlikely that Norwegian’s market share in the domestic market will be above 40% within the next five years.

International routes from Norway Norwegian’s growth pattern domestically has also been Figure 4-15: Airlines’ at Norwegian airports present internationally, underlined by figure 4-17 who 5 000 shows that until 2007 was the growth organic. There is 4 500 4 000 previously mentioned that international traffic grew by 3 500 66% from 2003 to 2009. This, together with figure 4-17, 3 000 indicates that the increased traffic was a result of the 2 500 2 000 substantial amount of cheap tickets Norwegian added to #of passengers (000) 1 500 the market. However, from 2007 has Norwegian grown 1 000 500 through taking travellers from SAS and other airlines. 0 SAS had in 2003 a market share on international routes 2003 2005 2007 2009 SAS Norwegian KLM of 50% while it was reduced to 30% in 200982. Ryanair Lufthansa Øvrige

Norwegian increased its market share from 1% to 27% in Source: TØI,Reisevaner på fly 2009: p. 43 this period.

Norwegian’s dependence on the leisure segment is stronger for the company’s international operations as the share of business travellers is only 22% on the international routes83. As of 2009 operated Norwegian 100 routes between Norwegian airports and international destinations, where a substantial amount was volume routes84, i.e. typical leisure routes with only a few departures a week. The company’s heavy dependence on the leisure segment makes it

81 TØI, Reisevaner på fly 2009: page 23 82 TØI, Reisevaner på fly 2009, page 43 83 Reisevaner på fly 2009: page 44 84 TØI, Reisevaner på fly 2009: page 44

33 extremely exposed to seasonal fluctuations and dependant on private consume propensity, which has a high inherent risk.

To summarize has a substantial part of Norwegian’s growth been organic, as new destinations at low prices have made travelling more common. However, it is not likely that this high organic growth in international leisure traffic will continue, because factors as personal wealth and spare time restricts how many holiday trips it is possible to make during a year. Future growth must therefore to a greater extent come through taking travellers from other airlines. However, the next 10 to 15 years will the amount of yearly retirements increase substantially in Norway. This group of people is wealthy, healthy and, opposite of the same group ten years ago, interested in using a substantial amount of their time and money on travelling. This represents an opportunity for Norwegian in the leisure segment. In the business segment must Norwegian be ready for an even harder fight with SAS. Even though an uncertain outlook for the European economies is it likely that Norwegian companies will be further internationally oriented and, thus, travel more by airlines.

The Nordic market The capacity analysis argued that most of Norwegian’s future growth will be outside of Norway and that it is expected to be higher than the market’s growth. The majority of the new capacity must therefore be filled through taking market shares. SAS had a market share of 40% in the Nordic market as late as in 2006 while Norwegian’s share was less than 5%85.

Figure 4-16: Market share Nordic region 2010 Figure 4-19 shows that the situation has changed the last

Based on production data, ASK five years and resulted in a more fragmented market. For

SAS Group 29 % example has Norwegian increased its market shares from 25 % Scandinavian Airlines zero percent in 2006 to 16% on domestic routes from Norwegian 17 % Finnair 10 % Arlanda and 21% from Kastrup in 2010, while the 9 % Ryanair international equivalents were 12% and 9% respectively86. Air France - KLM 3 % airBaltic 3 % This shows that Norwegian still is only a small player in British Airways 2 % these markets. However, there are no other LCC who has Blue1 2 % Widerøe 2 % gained a stronger position neither. This and the low Air Berlin 1 % presence of low-fare tickets imply that Norwegian has easyJet 1 % 0 % 10 % 20 % 30 % great opportunities in taking market shares from SAS and

Source: SAS AB annual report 2010, page 26 Finnair. It is also uncertain how long Sterling will survive.

85 SAS AB annual report 2005: page 13 86 Norwegian Air Shuttle ASA annual report: Operations and market development

Summary of ticket revenue Norwegian has positioned itself as a major player in the leisure market where it outer performs SAS on prices, and as an adequate alternative to cost conscious business travellers. The company has grown both organically and through taking travellers from other airlines. This shows that adding tickets at a low fare drives traffic growth. Despite strong competition from Ryanair, will Norwegian manage to attract travellers also in the future because of use of more convenient airports and less extra fees.

Based on the previous analyses is Norwegian’s future revenue growth potential summarized in the table below.

Norwegian's growth potential

2005 - 2010 2011 -> CAGR: 34,9% 2011 - 2013: 20% - 25% - new market - Finland - few LCC competitors - From 737-300 to 737-800 - established direct on SAS routes - More international routes from Sweedish and

Capacity Danish airports - Opening of intercontinenetal routes 45% possible Domestic Norway: 11,5% - 34,9% - increase in business because of WIFI and more cost consciouness 35% possible International Norway: 1% - 27% - SAS down - Leisure share increase Arlanda: 0% - 12% 20% possible

Kastrup: 0% - 9% Market shares Market Nordic: 0% - 17% Overall Nordic: 25% (SAS: 40% - 29%) - SAS and Finnair down - Sterling bankruptcy

4.2.2 Ancillary revenue Ancillary revenue consists of fees charged for extra Figure 4-17: Ancillary revenue growth services, for example sale of food and beverages 250 % 242 % onboard, checked-in luggage and odd-sized luggage. For 200 % LCCs this represents an increasing share of total revenue 150 % and 12% of Norwegian’s total revenue in 2010 came 119 %

from ancillary services87. Figure 4-20 shows that the 100 % 70 % Growth (%) Growth growth in ancillary revenue has been substantially the last 50 % 31 % years. However, there will be saturation in how many 0 % 2007 2008 2009 2010 ancillary services the passengers will requests and are Norwegian easyJet Ryanair willing to pay for, and Norwegian targets that 15% of 88 Source: own creation based on the total revenue shall be ancillary revenue . companies’ annual reports

By looking at Ryanair’s development it is likely to expect a decreasing growth rate for Norwegian as the company is fare from Ryanair’s extensive use of all types of creative fees. Norwegian does not intend to reach the same level, but it is likely that the company will increase the charged Figure 4-18: Ancillary revenue development fees somewhat. As of today is the luggage fee the single 2,500 100 most important ancillary revenue source. The 2,000 80

introduction in 2007 caused a sharp increase in ancillary

1,500 60 revenue per passenger (figure 4-21), which currently NOK NOKm averages to 80 NOK. By 2012 shall all planes have 1,000 40 installed Wi-Fi onboard89 and it Norwegian has 0,500 20 announced that this will be a source of ancillary revenue

0,000 0 in the future. It is therefore likely that the growth rate 2004 2006 2008 2010 2012e 2014e Ancillary Ancillary/PAX will be above 10% the next five years.

Source: Arctic Securities 4th quarter 2010 report: p.5

87 Norwegian Air Shuttle ASA 4th quarter 2010 report: p.16 88 Norwegian Air Shuttle ASA 4th quarter 2010 report: p.16 89 Norwegian Air Shuttle ASA 4th quarter 2010 report: p.18

5. Financial Statement analysis Chapter four aimed to analyze revenue. In this chapter I will extend the analyses to the other components of free cash flow; costs, net working capital and capital expenditure.

FCF = NOPAT90 + Depreciations +/- ∆NWC91 - Capex92

Norwegian’s future free cash flow will form the basis for the DCF-valuation in chapter six. It is therefore crucial that the major drivers of the cash flow is assessed and thereafter forecasted adequately. Figure 5-2 shows how the three major categories have impacted on Norwegian’s free cash flow the last five years. The cash flow has generally been volatile and there has not been one major driver. However, the three drivers differ in to which extent Norwegian can control them. EBITDAR depend heavily on the oil price, net working capital has fluctuated heavily, but it is likely that Norwegian will manage to stabilize it as the company matures, while the level of capex depends solely on company decisions. Hence, my hypothesis is that the main risk regarding future free cash flow is the company’s ability to generate margins.

Figure 5-1: Simplified historical free cash flow and its drivers (Norwegian Air Shuttle ASA)

529 (494) 700 220 (142) 393 (138) 500 304 300 108 12 100 -100

NOKm -300 (337) 384 -500 (719) (570) (415) -700 -900 (389) (853) 925

-1 100

∆ NWC ∆ NWC ∆ NWC ∆ NWC ∆

∆ Capex ∆ Capex ∆ Capex ∆ Capex ∆

FY06 FCFF FY06 FCFF FY07 FCFF FY08 FCFF FY09 FCFF FY10

∆ EBITDAR ∆ EBITDAR ∆ EBITDAR ∆ ∆ EBITDAR ∆

Source: Own creation based on the company’s annual reports

First will the accounting data be assessed and the necessary adjustments taken with focus on operating leasing. The financial analyses will be conducted in section 5.2 and the risk analysis in section 5.3.

90 NOPAT = Net Operating Profit After Taxes (≈ EBIT) 91 NWC = Net Working Capital = Current operational assets – current operational liabilities 92 Capex = Capital Expenditure = Net acquisition of fixed operational assets

5.1 Accounting data and its quality Before analyses of the financial statements can be conducted their quality must be assessed. The data used are from Norwegian and the peers’ annual and management reports from 2006 to 2010. The annual reports are prepared according to the IFRS legislation and the data they provide are therefore considered as comparable over the time and between the companies. All of the annual reports are approved without remarks from auditors and I therefore assume these data to be reliable and that the level of information is sufficient. The management and quarterly reports have not been audited and may, thus, be incomplete.

5.1.1 Adjustments to the financial statements The annual reports shows accounting performance instead of operational performance, and combine operational and financial activities. They are therefore not suited for conducting analyses of companies’ operational performance and it is necessary to separate operating items from non-operating and financing items in order to obtain measures that are independent of leverage, financial decisions and transitory items. This is the reasoning behind capitalization of operational leasing, which will be explained in the next section. I have also adjusted the financial statements for operational transitory items, which are items that are non-recurring. Norwegian, for example, received NOK 191 millions from SAS for unlawful espionage in 201093, a revenue that is considered to be non-recurring in nature.

5.1.2 Operating leasing in valuation of airlines94 Leasing can be classified as either operational or financial. In an operational leasing agreement the ownership of the asset resides by the lessor because the lessee bears little or no risk for the asset becoming obsolete. Financial leasing agreements are the opposite because they last for approximately the whole life of the asset and the present value of the payments is close to the market price of the asset. Operational leasing payments are recognized as operational expenses in the financial statements despite they contain interest elements, which in reality represent financing. As a result is operational leasing often seen as an opportunity to reduce financial leverage because it is off-balance sheet financing. Contrary, financial leasing agreements are recognized as assets and debt on the balance sheet while the effect on the income statement is divided into depreciation and interest expenses. The different recognizing causes that EBIT will differ, depending on the classification applied95.

Airlines often lease parts of its fleet and especially LCCs have a high degree of operational leasing because it increases the flexibility and reduce risk. However, the share leased and the share owned will differ and a reclassification of operational leasing to financial leasing is therefore necessary in order to remove the effect of different financing strategies and make Norwegian and the peers comparable. The theoretical correct is to capitalize

93 Norwegian Air Shuttle annual report 2010: Board of directors report 94The theory presentation of leasing is based on Damodaran (1999), Dealing with operational leases in valuation 95 Damodaran (1999): table 2, p.8

38 operational leasing through treating future leasing payments as debt and discounting them to present value by the pre- tax cost of leasing. I have, for simplicity reasons, used the industry practice of multiplying current year’s leasing payment with seven. Unless must yearly payments be forecasted for an infinity numbers of years. This method is, for example, used when leasing obligations shall be accounted for in covenants. The yearly interest expenses are estimated to 7% (see 6.2.2) of capitalized leasing debt the year before and depreciations are operating leasing payments less interest expenses that year, which is common practise96.

5.2 Analysis of Norwegian’s profitability The strategic analysis concluded that the Nordic market for passenger transport by airplane has elements of perfect competition and that Figure 5-2: Unit cost development Norwegian airlines must take prices for granted. In this competitive situation will cost leadership be crucial in order to achieve a unit cost (CASK) that is marginal lower than the unit revenue (RASK). The focus of this section will be analyses of Norwegian’s past cost development and future reduction opportunities in order to indentify the company’s relative cost benefits. Norwegian has reduced its CASK from approximately NOK 0,7597 in 2003 to NOK 0,4698 in 2010. Analysts’ have, however, stated that reducing the unit cost 99 further will be a key for future profitability . Source: Arctic Securities 4th quarter 2010 report: p. 3 Currently targets Norwegian a long-term CASK of NOK 0,40100, which will be the second lowest in Europe together with easyJet, only behind Ryanair. This can be achieved through improving the utilization of the company’s current resources, i.e. produce more ASK per unit of input, reduce the cost of resources’ or reduce the resources used per ASK. The following will show that Norwegian has the opportunity o achieve all these to different extents. On a general basis is it, however, most likely to expect a reduction in CASK when production (ASK) increases, because overheads primarily are fixed or batch costs.

96 Damodaran (1999): p.11 97 Norwegian Air Shuttle annual report 2003: page 6 98 Norwegian Air Shuttle ASA annual report 2010: The year in brief 99 Arctic Securities 4th quarter 2010 report: p. 3 100 Arctic Securities 4th quarter 2010 report: p. 3

Figure 5-3: Unit cost comparison competitors Figure 5-3 presents CASK for Norwegian and its major

Ryanair 0,23 competitors in the Nordic market as of 2010. This

easyJet 0,40 highlight the fact that great differences and, hence

Norwegian 0,46 competiveness, exist between pure LCCs and other

Finnair 0,46 airlines. Because there are other factors than economic

Cimber Sterling 0,67 of scale and average sector length that explain the gap

SAS 0,81 between LCC’s and SAS. Norwegian’s organization,

0,00 0,20 0,40 0,60 0,80 1,00 product and way of doing business is build to be cost CASK (NOK) effective and easy to align with new directions and th Source: Own creation based on Arctic Securities’ 4 quar- 101 ter 2010 report and Cimber Sterling AS annual report 2010 trends in the market . Further has Norwegian a substantial younger and more fuel-efficient fleet than SAS and this difference will increase the coming years because of the fleet renewal program102. Finnair’s low CASK is mainly explained by high average sector length because of stronger intercontinental focus.

5.2.1 EBITDAR103 More specific: CASK includes sales and distribution expenses, airport charges, handling expenses, maintenance, personnel expenses, aviation, leasing and other operational expenses exclusive depreciation and amortization and an analysis of CASK is, hence, indirectly an EBITDA Figure 5-4: EBITDAR-margins 2006-2010 analysis. Because including financing decisions will 35 % distort the analyses of operational performance will 30 %

leasing be analyzed under capital expenditure (capex) in 25 % section 5.3.3, as it is relevant for the valuation model to 20 %

be derived. 15 % EBITDAR (%) EBITDAR 10 % Historical EBITDAR-margins for Norwegian and the 5 % 0 % peers are shown in figure 5-4. The peers reduced its 2006 2007 2008 2009 2010 margins in 2008 and 2009, partly attributable to the easyJet Norwegian Ryanair economic downturn. Norwegian has generally had a Source: Own creation based on the lower margin because of higher CASK, but also a more companies’ annual report 2006-2010 volatile margin. In order to understand the latter must a

101 Norwegian Air Shuttle annual report 2010: “This is Norwegian” 102 Arctic Securities 4th quarter 2010 report: p.3 103 EBITDAR = Earnings Before Interest Taxes Depreciation Amortization and Rentals

40 disaggregation of EBITDAR be undertaken. Figure 5-5 explains on an overall level Norwegian’s historical cost development in % of revenue. Because the cost categories primarily vary with revenue will it be appropriate to analyse past development in relation to revenue and base the forecast on these outcomes.

Figure 5-5: Breakdown of Norwegian’s EBITDAR-margin 2006-2010 100 % 6,8 % 5,9 % EBITDAR- margin 11,9 % 11,4 % 17,7 % 90 % 10,1 % 16,1 % 9,6 % Other expenses 80 % 13,2 % 9,9 %

70 % 32,2 % Aviation fuel 23,9 % 24,9 % 23,4 % 19,5 %

60 %

Wages, salaries and other 50 % personell 14,0 % 18,2 %

% of revenueof % 14,7 % 17,8 % 17,3 % Technical maintenance 40 % 10,4 % 9,8 % 8,3 % 30 % 9,2 % 9,0 % Handling expenses 10,4 % 9,6 % 10,3 % 20 % 9,9 % 9,9 % Airport charges 15,1 % 10 % 15,1 % 13,5 % 14,2 % 15,4 %

0 % Sales and distribution 2006 2007 2008 2009 2010 Source: Own creation based on Norwegian Air Shuttle ASA annual report 2006-2010

Sale and distribution The main sale and distribution channel is Internet, especially Norwegian.no and Norwegian.com, which generated 87%104 of all sales in 2010. The cost level related to operating the webpage and the associated databases is already low.

Airport charges Airport charges are fees paid to the owners of the airports per arrival and departure for the use of the airport’s services. These expenses incur partly per arrival/departure and partly per passenger in the plane and will therefore vary with revenues. Except of the fact that there are huge differences in the fee level among airports, Norwegian has few other tools in reducing these costs. Contrary to easyJet and, especially, Ryanair has Norwegian chosen to use central and more expensive airports. Norwegian, for example, changed from Ciampino, a typical LCC airport, to the more central and convenient Fiumicino on its Rome routes. This is part of the company’s strategy towards business travellers and service requesting leisure travellers.

104 Norwegian Air Shuttle ASA annual report 2010: The year in brief

Due to different specifications in the annual reports is it not possible to compare Norwegian’s share of airport charges and handling fees to revenue with Ryanair and easyJet’s shares. In 2010 airport charges amounted to 15,4% of Norwegian’s revenue compared to 14,2% in 2009. This increase is explained by rising charges at many European airports in 2010105. The charges are also to an increasing extent based on the airline’s emissions. It is therefore likely that Norwegian will incur relative lower charges in the future, as its fleet becomes more emission efficient. There are also not unlikely that the private airports will reduce its fee levels due to increased competition. This situation is among others driven by European Governments who want to privatize airports in order to save costs. However, the effects discussed will only to a small extent affect Norwegian’s charges to revenue ratio in the future.

Handling charges Handling charges incurs through de-icing, airplane cleaning, luggage-handling and other ground services. These expenses are driven by the number of flights and/or passengers and will therefore vary indirectly with revenue. Norwegian outsources as of today most of these services to local operators, which makes the company more flexible and it avoids a big and complex organization. Currently are there many providers of handling services and they are heavily dependent on a few big airlines. As Norwegian has grown in size it has gained stronger bargaining power and is able to negotiate more favourable agreements. The last five years have Norwegian’s handling charges accounted to 9,5%-10,5% of revenue. With stronger bargaining power in addition to ongoing improvements regard luggage handling at Kastrup and the development of OSL it is likely to expect a slightly decline in this ratio. The two latter explains the increase in 2010.

Technical maintenance The level of maintenance costs correlates with the distance flown and, thus, indirectly with revenue. The change towards a younger and more uniform fleet will reduce maintenance costs substantially as less maintenance will be needed. In addition will a fleet that consist of only one or Figure 5-6: Maintenance in % of revenue 2006-2010 two types of planes makes the process less complex and 12,0 %

costs can, thus, be saved. Norwegian’s growing size will 10,0 %

8,0 % also increase the company’s bargaining power with

6,0 % maintenance suppliers. To summarize it is likely to expect

4,0 % that the decrease from 10,4% of revenue in 2006 to 8,3%

Maintenance in & of revenueof&in Maintenance 2,0 % in 2010 will continue further. Figure 5-6 shows that

0,0 % Norwegian still has a relatively higher maintenance costs 2006 2007 2008 2009 2010 level than its peers. This underlines the expected and easyJet Norwegian Ryanair future reduction opportunities. Source: Own creation based on the companies’ annual reports 2006-210

105 http://www.iata.org/whatwedo/Documents/economics/Industry-Outlook-Dec-10.pdf (08.03.11)

Personnel expenses Personnel expenses comprise mainly wages to crew and Figure 5-7: Passengers per employee a year will vary somewhat with revenue. Figure 5-5 showed 12 000 that personnel expenses increased from 14% of revenue 10 000 in 2006 to 18,2% in 2010. Especially the last two years 8 000 have the share increased, which to an extent can be 6 000 explained by what is seen in figure 5-7: a reduction in

4 000 the number of passengers per employee. This can partly

2 000 be explained by a longer average sector length as that results in fewer flights and, thus, passengers a day for 0 2006 2007 2008 2009 2010 the crew. In addition decreases RASK when sector

Norwegian Ryanair length increases. Another explanation is the extra

training hours needed in 2009 and 2010 because of the Source: Norwegian Air Shuttle ASA and 106 Ryanair PLC annual Reports 2006 - 2010 change to 737-800s . It is therefore likely to expect that the trend will reverse from 2011.

However, the Scandinavian countries have salary-levels than the UK and Ireland. Because mostly employees are members of labor unions, Norwegian has few opportunities to reduce the salaries. Ryanair and easyJet incurred only 10,5% and 11,3% respectively of revenue on personnel expenses in 2010, which are substantial lower than Norwegian’s share of 18,2%107. Optimized utilization of staff through heavy crew- and route-planning will, however, contribute positively. It should therefore be expected that the benefits from a more frequent and extensive route network will increase in the future. This and the “training effect” indicate that a reduction in salary cost in % of revenue should be expected.

Aviation fuel Figure 5-5 showed that Norwegian’s EBITDAR-margin has been dependant on the level of aviation fuel expenses. Fuel’s relative importance on total cost is even stronger for LCC’s than for flag carriers because LCCs have a substantial lower base of other costs. Norwegian’s historical sensitivity to the fluctuations in oil prices is underlined by figure 5-8. Because Norwegian has chosen to hedge a relative lower volume of fuel than its competitors the company is more sensitive to price fluctuations108. This explains Norwegian’s historical extremely volatile EBITDAR-margin showed in figure 5-4.

106 Norwegian Air Shuttle annual report 2010: Operating costs 107 Own calculations based on the companes’ 2010 annual reports. 108Norwegian Air Shuttle ASA annual report 2010: Letter to the shareholders

Figure 5-8: Relative changes in fuel and other opex’ effect on Norwegian’s EBITDAR-margins 2006-2010 25 % 12,7 % -1,0 %

20 % 17,5 % -5,4 %

15 % 4,6 % 11,9 % -8,8 % -0,9 % 11,2 % 10 % 0,5 %

6,8 % 2,7 % 5,8 % % of revenueof % 5 %

0 %

Aviation fuel Aviation fuel Aviation fuel Aviation fuel Aviation

FY06 EBITDAR FY06 EBITDAR FY07 EBITDAR FY08 EBITDAR FY09 EBITDAR FY10

Other expenses Other expenses Other expenses Other Other expenses Other Source: Own creation based on Norwegian Air Shuttle ASA annual reports 2006-2010

Figure 5-8 also shows that net change in other opex in % of revenue has been almost zero over the period, which means that reduced CASK from 2006 to 2010 is achieved through increasing ASK production at current cost level.

The strategic analysis highlighted that future jet fuel price development is subject to great uncertainty because it will depend on several macro environmental factors and events that is difficult to predict precisely. At the end of 2010 have the prices raised towards the high 2008- level because of increasing instability in several oil producing countries in the Middle East. There are also uncertainty around future demand and supply equilibrium. As of today

Figure 5-9: Expected oil price development Jet fuel prices have historically correlated with the price on

crude oil, which is heavily dependent on global events and changes in world economic factors. The unstable environment the recent years have therefore caused a volatile and hardly unpredictable crude oil price and it is difficult to foresee the future. Especially in the short-run are oil prices dependent on these external factors and “shocks”, while OPEC’s investment and production decisions, together with world demand, are more important price determinants in the long-run. Currently is the oil price rising towards the high 2008-level109, but because of the

Source: Arctic Securities 4th quarter 2010 report: p. 4 economic problems in USA and Europe and the conflicts in the

Middle East are future development under high uncertainty. We also know little about future demand from the densely populated

109 http://www.dn.no/energi/article2050023.ece (29.05.11)

44 and fast developing BRIC-countries110. Arctic Securities predict a high level the next years, shown in figure 5-9. A more pessimistic view is held by EIA, which assumes a rise in world oil prices from $62 per barrel towards $95 in 2015, $108 in 2020 and a long-term level of $125 per barrel in 2035111.

The renewal of the fleet will reduce fuel consumption per seat kilometre from 0,030 litres in 2010 to 0,028 litres in 2012. An effect was already seen in 2010 as the unit fuel consumption declined by 7% from 2009112. In addition will an increase in average sector length reduce the consumption per ASK. There are, however, few actions the company can take in order to reduce fuel costs, which not are costly itself.

5.2.2 Capital analysis According to the FCF-formula will the amount of cash flow tied up (net working capital) and the amount reinvested in fixed operating asset (capex) impact on the free cash flow.

Net working capital Norwegian’s net working capital (NWC) comprises inventories, trade and other receivables, trade and other payables and air traffic settlement liability. Cash is not considered part of the working capital and since Norwegian’s quarterly reports are on such a general level that restricted cash, for example employees tax payment, not is specified, I have chosen to exclude operational cash from the following analyses.

Quarterly numbers from 2006 to 2010 are presented in figure 5-10. Norwegian’s NWC has been negative over the entire period, which is due to several factors: The company has only a minor amount of sale on credit and, thus, relatively low trade receivables. Travellers rather pay in advance and as a result have Norwegian substantial air traffic settlement liabilities.

110 BRIC = Brazil, Russia, India and China 111 EIA annual energy outlook 2011: http://www.eia.gov/forecasts/aeo/pdf/0383(2011).pdf , page 92 (01.08.11) 112 Norwegian Air Shuttle ASA annual report 2010: Operating costs

Figure 5-10: Net Working Capital development 2006-2010

1 000 000 500 000

0 -500 000

NOK (000)NOK -1 000 000 -1 500 000

-2 000 000

jun.06 jun.07 jun.08 jun.09 jun.10

sep.06 des.06 sep.07 des.07 sep.08 des.08 sep.09 des.09 sep.10 des.10

mar.06 mar.07 mar.08 mar.09 mar.10

Inventories Trade and other receivables Trade payables and other current liabilities

Air traffic settlement liabilities Net Working Capital

Source: Own creation based on Norwegian Air Shuttle ASA quarterly reports

In addition to a negative NWC states figure 5-10 two other observations about the history. The first is that the components of NWC have increased, which is normal as all are directly or indirectly tied to revenue and, hence, the increased activity. It is therefore likely that the components will continue to increase, but the question is at which rate. The second observation is that Norwegian’s NWC is subject to seasonal fluctuations, and especially trade payables and air traffic settlement liability varies throughout the year. Trade payables will in general be high during the spring and summer because the heavy maintenance is undertaken during the low season (winter), whilst the high activity in the spring- and summer months drives day-to-day maintenance. Because of Norwegian’s exposure to the leisure segment will air traffic liability typical be high as of 31st of March and 30th of June.

Figure 5-11: Net Working Capital in % of revenue Figure 5-11 shows historical NWC in % of revenue for

10 % Norwegian and the peers. The different ratios between easyJet Norwegian Ryanair Ryanair and Norwegian/easyJet are due to Ryanair’s 0 % relatively low accounts receivables and high air traffic 2006 2007 2008 2009 2010

settlement liability. easyJet and Norwegian focus more -10 % on the business segment and have, among others, large customer contracts, in which batch payments in arrears NWC/revenue -20 % is common. The reduced ratios in 2009 and 2010 are -30 % due to increased air traffic settlement liability, which can be explained by increased optimism in the -40 % economy and, thus, increased leisure travel propensity. Source: Own creation based on the companies’ annual reports Despite figure 5-11 shows a convergence in the

46 companies’ ratios the peers have not shown any clear and stable trend that can be used in forecasting Norwegian’s future NWC.

Figure 5-12 shows that the accounts receivable Figure 5-12: Turnover ratios and in % of revenue turnover ratio has been relative stable around 9, 10 10 %

except of in 2010. In addition has the accounts 8 8 % payable ratio stabilized 8,5. The air traffic settlement 6 6 % liability in % of revenue has increased over the

4 4 % Turnover ratio Turnover analyzed period. This occurs when people book more revenue of %In tickets and more in advance. Table 5-12 indicates a 2 2 % stabilization around 9,5%. 0 0 % 2006 2007 2008 2009 2010

Accounts receivables Accountts payables Inventory Air traffic settlement liability

Source: Own creation based on the companies’ annual reports

Capital Expenditure Net capital expenditure (capex) is acquisitions of operational assets less disposals. Norwegian’s operational assets comprises mainly of aircrafts, parts and installations, prepayments to Boeing and a smaller amount of intangibles. The requirement for recognizing tangible assets on the Figure 5-13: Capex (incl.leasing) in % of revenue balance sheet is that it is likely that the assets will generate 60 % future value for the company, i.e. revenue. Hence, will it be 50 % relevant to analyze a company’s historical capex in relation 40 % to revenue and compare this level with peers in order to find a normalized capex. However, in the case of Norwegian is 30 % the situation somewhat different and this method will not be 20 % relevant in the explicit period, which is underlined by figure 10 %

5-13. Norwegian is in an earlier phase of its life cycle than 0 % easyJet and Ryanair and has higher capex than them. 2006 2007 2008 2009 2010 easyJet Norwegian Ryanair

Source: Own creation based on the companies’ annual reports

The focus on building for future growth is underlined by the fact that Norwegian’s depreciations in % of revenues have only been between 4,6% and 8,6% during this period. A huge gap between yearly capex and depreciations indicates that substantial investments for future growth purpose are taken and not only to sustain current business. Norwegian will continue to make huge investments in new aircrafts, at least the next five years, and it is therefore not

47 relevant to find any normalized capex at this stage. I will come back to Norwegian’s own projections of acquisitions and, thus, necessary future capex in the forecast.

5.2.3 Return On Invested Capital Historical ROIC summarizes profitability because EBITDAR Figure 5-14: Return On Invested Capital 2006-2010 form the basis of NOPAT, and NWC and capex of invested 25 % capital. Figure 5-14 shows that Norwegian’s ROIC have been 20 % unstable during the analyzed period, which is due to the volatile 15 % EBITDAR-margin For an investor will the absolute measure of

10 % whether an investment creates or destroys value be the spread between expected ROIC and its required rate of return. It is 5 % therefore crucial that Norwegian manage to generate positive 0 % 2007 2008 2009 2010 ROIC slightly above WACC in the future. -5 % easyJet Ryanair Norwegian

Source: Own creation based on the companies’ annual reports

5.2.4 Summary of profitability analysis

| 2010 Outlook for 2011-2015 Sales and distribution 2,0 % (-) Already very low, but will the ratio will decrease with increasing ASK. Because the costs are more or less fixed despite of activity. Airport charges 15,4 % (-) Increasing competition between rural airports and more fuel efficient fleet will contribute to small reductions. In addition was 2010 extraordinary high. Handling expenses 10,3 % (- -) Bargaining powerwill strengthen because of increasing company size. In addition will improvements at Kastrup and Osl impact positively . Technical maintenance 8,3 % (- -) Will experience substantial positive effect of new and streamlined fleet. Other expenses 9,6 % (- -) Will decrease as the organization becomes more and more streamlined.

EBITDAR Wages, salaries and other 18,2 % (-) The ratio has been extraordinary high in personell 2009 and 2010 because of training needed when changing fleet. This will be elinimated from 2012 and costs will, thus, be reduced. In addition increasing activity reduce slack for staff and, hence, the wage to revenue ratio. CASK ex fuel and leasing 0,30 0,30 -> 0,25 Should be expected to decrease because of the the factors explained above Fuel 25,0 % Norwegian has little control and historical level cannot be used in predicting future. The fleet renewal will impact positively on consumption. Inventory 0,6 % n/a Turnover ratios and relationships to Accounts receivable and other revenues should be expected to stabilize in receivables 9,0 n/a the future as Norwegian mature. However,

NWC Accounts payable and other the big seasonal variations and the fact that payables 8,5 n/a Norwegian is a young company makes it Air traffic settlement liability 9,5 % n/a difficult to draw any conclusions.

Capex in % of revenue has grown constantly over the analyzed period. As Norwegian is in a development phase is it difficult to use peers and histrical numbers to draw any estimates about future

Capex capex level.

5.3 Risk analysis Chapter five has so far focused on Norwegian’s ability to generate value. In this part I take the analysis further to understand how the value creation has been financed. By analysing short-term liquidity risk and long-term solvency risk will investors gain an understanding of Norwegian’s financial health and they can see whether the investment is generating or consuming cash113. All capital providers will evaluate the financial risks associated with providing capital, as that will impact on the rate of return they require.

Current ratio114 The current ratio is an indicator of the company’s ability to meet short-term obligations115. Generally will a high current ratio, above two, indicate short-term financial strength, but it has become more normal with a low ratio, as financial strength depend more on the liquidity of the assets than on the size of the ratio itself116.

Figure 5-15 shows that Norwegian’s current ratio has been slightly above one from 2006 to 2009 and that it decreased below one in 2010. This is substantial lower than Ryanair and easyJet, which have large cash reserves. However, cash reserves are not necessarily an indicator of 117 Figure 5-14: Current Ratios 2006 - 2010 good performance as it can indicate lack of investments . 2,5 Norwegian’s historically strong cash position has been 2,0 weakened the last years because of acquisition of aircrafts and earnings lower than expected in 2010. However, of 1,5 118 Norwegian’s current asset as of 31.12.10 are 97% either 1,0 receivables, securities or cash, which are assets with high 0,5 liquidity. Of current liability are 37%119 air traffic settlement 0,0 liabilities. These liabilities are recognized at ticket price while 2006 2007 2008 2009 2010 the real obligation for Norwegian is the costs associated with easyJet Ryanair Norwegian operating the flights, which shall be lower than then ticket Source: Own calculation based on the price. A current ratio slightly below one is therefore companies’ annual reports 2006-2010 appropriate and I currently see the short-term liquidity risk as acceptable.

113 Copeland, Koller, Murrin (2000): p. 173 114 Current Ration = Current Assets/Current Liabilities 115 Stickney, Brown, Wahlen (2007): p. 291 116 Stickney, Brown, Wahlen (2007): p. 291 117 Stickney, Brown, Wahlen (2007): p. 291 118 Own calculation based on Norwegian Air Shuttle Annual report 2010 119 Own calculation based on Norwegian Air Shuttle Annual report 2010

Debt/Total Investor Funds Analysis of long-term solvency risk gives insight into the company’s ability to withstand losses in the long-run120. The company’s ability to generate earnings over time and serve short-term obligations is a good indicator of its solvency risk. However, there is necessary to analyze the company’s leverage in order to evaluate the ability to withstand losses.

Net interest bearing debt to total investor’s fund Figure 5-15: NIBD/Invested Capital 0,9 (invested capital) measures a company’s reliance on 0,8 debt financing121. Figure 5-16 shows that 0,7 0,6 Norwegian is higher levered than Ryanair and 0,5 easyJet. The effect of fleet ownership strategies 0,4 0,3 should be removed as future leasing payments are 0,2 capitalized, but there exist great uncertainty to these 0,1 0,0 calculations. -0,1 2006 2007 2008 2009 2010

easyJet Ryanair Norwegian

Source: Own creation based on the companies’ annual reports 2006 - 2010

Which leverage that is considered to be healthy and not will vary from industry to industry, but in general will a high leverage suit companies with predictable incomes best. Norwegian’s income is heavy dependant on external factors and a high financial leverage can, thus, not be considered as healthy. However, the company has not been in violation with its covenants, which also includes ratios where leasing payments are capitalized. In addition comprises Norwegian’s fixed assets primarily owned planes and prepayments to Boeing. The purchase agreement with Boeing states that Norwegian will pay USD 45 million per aircraft, while the current market price is as high as USD 55 to 60 million. In addition are Boeing and Airbus’ order books closed for 2011 and 2012122, and it should therefore be possible to sell.

120 Stikney, Brwon, Wahlen (2007): p. 296 121 Copeland, Koller, Murrin (2000): p.175 122 Arctic Securities 4th quarter 2010 report: p. 7

6. Valuation of Norwegian Air Shuttle ASA This chapter starts with an overview of the valuation methodology and choice of method to apply. Secondly will the required rate of return be estimated, before the forecast of future free cash flow will be derived and the valuation itself undertaken. Finally will the share price estimate be tested by multiple and sensitivity analyses.

6.1 Choice of valuation methods Valuation methods can be classified into earnings-based models, relative models, liquidation and option-based models. I have chosen to conduct an earnings-based valuation and do a sanity check of the share price estimate by use of multiples and sensitivity analyses. This is a commonly used approach as a DCF-valuation only will be as accurate as the forecast it is based on, while a multiple can test the plausibility of the forecast123.

6.1.1 Earnings- based models Earnings-based valuation models state that “the value of an investment equals the present value of the expected future payoffs from the investment discounted at a rate that reflects the risk inherent in those expected payoffs” (Stickney, Brown, Wahlen (2006): 812).

Figure 6-1: General earnings-based valuation model

∑

Source: Stickney, Brown, Wahlen (2006): p. 812

The issue is which measure of future payoff to use. Dividend, cash flow and earnings will yield the same value estimate124, but there are several pro’s and con’s with the methods.

Dividend is the firm’s ultimate distribution of wealth to its shareholders and the payoff shareholders receive from their investment. The model is the theoretical correct, but is not commonly used as there often are only irregular payments and restrictions on dividend policies in many countries. In addition will it be necessary to forecast the value of the shares at the date of liquidation, which will be subject to high uncertainty125.

Earnings-based valuation methods rely on the assumption that earnings will be distributed to the shareholders each

123 Koller, Goedhart, Wessels (2005): p. 361 124 Elling, Sørensen (2005): p. 47 125 Stickney, Brown, Wahlen (2007): p. 828

52 period. Unlike other methods, the model focus on the actual wealth created since earnings are the most appropriate measure for performance. However, the model does not take wealth distribution into consideration and the numbers will depend on the accounting policies applied126.

Cash flow-based valuation model estimates the value of a company’s assets or equity based on the future cash flows they are expected to generate. Cash is the ultimate source of value and this model focuses on the firm’s ability to distribute free cash flow to its shareholders. However, the forecasting period must be fairly long because there are time differences between earnings and the actual cash conversion127.

6.1.2 Choice of valuation model Investments are made because of an expectation of a return on the invested capital. Dividend is an absolute and measureable return on an investment, but Norwegian has not paid dividend the last years. In addition is it not likely to happen the coming years neither, as the current strategy is reinvestment in order to grow. I therefore consider the DCF-model as the most appropriate to apply as it focuses on the cash distribution ability.

There are two approaches to the DCF-model: FCFE128- and FCFF129. FCFE is free cash flow left to the equity holders, while FCFF is free cash flow left to all capital providers. The methods will yield equal estimates of equity value if applied correct, but the FCFF- model has several benefits. The major is that net interest-bearing debt as of 31.12.10 is subtracted from estimated enterprise value and that estimation of future changes in capital structure is avoided. Because Norwegian is a growing company is it difficult to foresee future development and substantial errors may therefore arise. In addition shall a value estimate be based on the company’s value creation and not how it is financed. According to Miller & Modigliani do financing not have any impact on a company’s value130 and there is a constant required return on total assets, in which make the valuation easier and more accurate131.

6.2 Discounted Cash Flow (DCF) analysis of Norwegian Air Shuttle ASA

6.2.1 Introduction and methodology The estimate of Norwegian’s enterprise value will be determined by four factors: 1. Capital providers’ required weighted average rate of return (WACC) 2. The time until Norwegian reaches a “steady state” growth

126 Stickney, Brown, Wahlen (2007): p. 934 127 Stickney, Brown, Wahlen (2007): p. 881 128 FCFE = Free Cash Flow to Equity 129 FCFF = Free Cash Flow to Firm 130 Brealey, Myers, Allen (2008): p. 472 131 Brealey, Myers, Allen (2008): p. 474

3. Norwegian’s ability to generate cash flows from its assets 4. The expected growth rates of these cash flows

Norwegian’s enterprise value is a function of the cash flows generated and their expected growth, discounted by a required rate of return that mirrors the inherent risk of the company. To find an estimate of the share price as of 31.12.10, net interest-bearing debt as of 31.12.10 must be subtracted and the value of equity divided by the numbers of shares outstanding. FCFF can be derived directly from historical numbers or from forecasted income statements and balance sheets in the chosen explicit periods. I will use the latter method because it gives a better overview since the connections are easier to understand, and errors may be avoided.

Figure 6-2: DCF-model in the explicit forecasting periods

∑

Source: Lecture notes Financial Statement Analysis fall 2009, lecture 27 – Valuation 2, slide 14 (18.12.09)

6.2.2 Required rate of return on Free Cash Flow WACC132 is the capital providers required compensation for the opportunity cost associated with giving up alternative investments133. A company’s WACC is estimated by accounting for all capital providers required rate of return and share of total capital, which is an appropriate discount rate to FCFF. Forecasted FCFFs are nominal and subject to taxation, and WACC must therefore be based on nominal rates of return after tax. However, it is important to distinguish between company taxation and personal taxation. Interest expenses are tax deductible and cost of debt and leasing must therefore be estimated after tax. Regarding equity-providers’ required rate of return is it normal to disregard tax effects because it will depend on individual circumstances and be difficult to foresee when there are many investors.

Theoretically correct shall WACC be estimated for each year separately and, thus, reflect that year’s capital structure134. However, it is common to use one WACC for the entire valuation period. According to Modigliani & Miller’s proposition 1 will a company’s value be independent of capital structure135, which implies that WACC shall not change during the forecasting period. Even though the proposition has its weaknesses, it is commonly used and will be applied in this paper for simplicity reasons.

Figure 6-3: WACC-formula

Source: Koller, Goedhart, Wessels (2010): p.236

According to the formula can the estimation of WACC be divided into four: 1. Identify long-term capital structure 2. Estimate required rate of return on equity 3. Estimate cost of debt after tax 4. Estimate cost of leasing after tax

The variables are not directly observable and must therefore be estimated by use of theoretical models and assumptions. These analyses will be conducted in the following sections.

132 WACC = Weighted Average Cost of Capital 133 Copeland, Koller, Murrin (2000): p. 201 134 Copeland, Koller, Murrin (2000): p. 203 135 Brealey, Myers, Allen (2008): p. 475

Capital structure WACC shall represent the required return of return on alternative investments and market values of different capital sources must therefore be used when determining long-term capital structure136. According to Copeland et al. (2000) can market values as of today be used in evaluating a company’s current structure in order to derive the future weights. In addition will it be appropriate to review comparable companies’ capital structure because many capital sources not are traded and prices, hence, are not observable.

Norwegian has not stated its future targeted capital structure in public reports, but it is likely that the structure as of 31.12.10 will change as Norwegian currently changes its fleet ownership structure partly. In addition will it not be relevant to use the peers’ easyJet or Ryanair capital structures as estimates because these companies have a large amount of cash and, therefore, very low net interest-bearing debt. The most appropriate will therefore be use of the structure as of 31.12.10 and make changes based on stated numbers of leased versus owned planes.

The market value of equity is problematic to estimate due to the circularity problem that arises because the objective of this paper is to estimate this number. A common solution used for publicly traded firms is multiplying the number of shares outstanding with the traded price137. As of 31.12.10 Norwegian had 34 573 332 shares outstanding trading at NOK 117,50138, which gives a market value of equity at NOK 4 062 millions.

It is more difficult to estimate the market value of debt because it is rarely publicly traded. The theoretical correct method is to discount future instalments at a rate that reflect the debt’s inherent risk and distinguish between debt with floating interest and debt with fixed interest or coupons. However, when the interest is floating, will the debt’s book value be a good approximation of its market value139. Norwegian’s debt consists of ordinary bank loans and issued bonds at floating and fixed interest. A fair value computation of the long-term debt amounting to NOK 2 015 297 millions is stated in Norwegian’s annual report of 2010. It is also stated that the book value of current interest- bearing debt, NOK 535 975 millions, is a good approximation of its fair value because of the short time- horizon. The same argument applies to the interest bearing assets of NOK 1 224 770 million. Based on this I assume net interest- bearing debt of NOK 1 326 502 millions to be a good approximation of the market value of debt as of 31.12.10.

136 Koller, Goedhart, Wessels (2010): p.266 137 Copeland, Koller, Murrin (2000): p. 204 138 Annual report 2010 Norwegian Air Shuttle ASA and http://www.oslobors.no/markedsaktivitet/stockGraph?newt__ticker=NAS&newt__menuCtx=1.1.20 139 Koller, Goedhart, Wessels (2005): p. 324

I have chosen to capitalize future leasing payments and the estimate derived in section 5.2.2 amounted to NOK 5 448 800 million as of 31.12.10.

As of 31.12.10 the company leases 41 out of its 53 operated planes (77%), while this relationship will be 23:76 (32%) at the end of 2016140. In the annual report for 2010 it is stated that these acquisitions primarily shall be financed by loans and sale-and-leaseback agreements141. I assume that the current equity share of 35% must be sustained in order to be in compliance with the covenant requirements. Of the remaining 65% I assume that 32% (21%142) is financial leasing and that 68% (44%143) is debt financed.

Required rate of return on equity An equity provider’s required rate of return can be estimated by use of the CAPM-model:

Figure 6-4: Capital Asset Pricing Model (CAPM)

Source: Copeland, Koller, Murrin (2000): p. 215

The CAPM-model states a linear relationship between risk and return under the assumptions that investors have homogenous expectations and that no transaction costs occurs. Investors get as a minimum a return equal to the return on a risk-free investment and will be compensated proportionally for taking additional risk. A share’s total risk can be divided into firm-specific (non-systematic) risk and market (systematic) risk. Under the assumption of a perfect market can rational investors diversify firm-specific risk by investing in a diversified portfolio. The CAPM- model, thus, compensates investors only for taking market risk, i.e. the market risk premium. In addition will how the share varies with the market’s movement impact on an investor’s required return, known as the share’s beta144.

Risk- free interest rate145 The risk-free interest rate is the return on a security that not correlates with the market return and that has no default risk. In valuation practice it is most common to use the interest rate of a 10-year Treasury bond as an estimate, despite the fact that finance books argue for using a short term Treasury bill. The reasoning behind this practice is that a long-term rate better match the duration of the cash flows discounted. The same condition also applies for the stock market index and the risk free interest rate will, hence, be consistent with both the market risk premium and the estimated beta.

140 4th quarter 2010 result presentation Norwegian Air Shuttle ASA, page 17. 141 http://annualreport.norwegian.no/2010/letter_to_the_shareholders (12.05.11) 142 (1-0,35)*0,32 = 0,21 143 (1-035)*0,68 = 0,44 144 Stickney, Brown & Wahlen (2007)): p. 816 145Copeland, Koller, Murrin (2000): p. 215 - 216

The Norwegian share is listed on Oslo Stock Exchange and the estimated cash flows are in Norwegian Kroner: I therefore consider it as most reasonable to use a Norwegian 10-year Treasury bond. The rate as of 31.12.10 is 3,68%146.

Market risk premium The market risk premium is the required return for taking risk, i.e. the difference between the expected return on the market portfolio and the risk-free asset. This parameter is one of the most controversial issues in finance. Either can past data be used under the assumption that it will represent the future or attempts to estimate the future can be undertaken, but there exist no single view on how to make these estimations. Johnsen and Gjesdal (1999) have estimated the historical risk premium at Oslo Stock Exchange to 6%, but argue for a current risk premium at 5%. The reasoning behind this is the historical significant variations in government bond and stock returns, the fact that return on government bonds have decreased relative to the stock market and that traded instruments not have been liquid enough. A survey performed by PriceWaterhouseCoopers in 2008 among Swedish professionals within finance concluded that the premium currently is 5% in Scandinavia147. Based on these arguments I will use a market risk premium of 5% in estimating the cost of equity.

Beta Beta is a relative measure of a share’s systematic risk as it measures how the share varies with the market’s movements, i.e. how sensitive the share is to cyclical changes. The Norwegian share’s beta can be estimated by an ordinary least square regression of historical returns on Oslo Stock Exchange and the Norwegian share’s returns. Eventually can a regional and more diversified index, for example MSCI Europe, be used. I have chosen to make regressions with both indexes because Oslo Stock Exchange is highly correlated with the price on raw oil while the Norwegian share normally will be affected oppositely by changes in oil the price. A rule of thumb is to use monthly returns from the last five years148. The regressions results are stated in the table 6-5.

146 http://www.norges-bank.no/templates/article____55496.aspx (22.03.11) 147 http://www.pwc.com/no_NO/no/publikasjoner/business-valuation-inside-01-2008.pdf (03.05.10) 148 Koller, Goedhart, Wessels (2010): p. 250

Figure 6-5: Regression results Results OSB Benchmark index MSCI Europe Beta 1,19 0,82 SE (beta) 0,239 0,400 R2 0,302 0,069 Beta range 0,708 - 1,663 0,021 – 1,623

The regression results have a low coefficient of determination (R2) as it says that only 30% of the shares’ inherent risk is systematic. This can be explained by the fact that the Norwegian share has been volatile in the analyzed period because of price war, financial crisis, periodically extreme expectations about growth and profitability and abnormal behaviour on Oslo Stock Exchange and in the overall European market. With a 95% confidential interval can beta range from 0,712 to 1,668. This wide gap must be analysed further.

Companies that operate within the same market and face equal growth opportunities and risks shall have similar betas. Calculations of an industry mean will give a more precise beta estimate as over- and underestimates of single betas will cancel out149.

Figure 6-6: Beta calculations

Equity- (raw) beta Operating- beta Company National index National Regional D/E National Regional Air Berlin HDAX 1,09 1,27 13,20 0,08 1,08 easyJet FTSE 0,70 0,65 0,08 0,65 0,39 Ryanair ISEQ 0,35 0,59 0,00 0,34 0,44 Mean 0,36 0,67

The regressions give estimates of raw-equity betas and therefore disregard companies’ financial risks. Companies with higher financial leverage are riskier, which shall be reflected in their equity betas. In order to compare companies with similar operating risk, but different financial leverage, the estimated equity-betas must be unlevered by the formula on the next page.

149 Koller, Goedhart, Wessels (2010): p. 254

Figure 6-7: Formula for unlevering of beta

⁄

Source: Koller, Goedhart, Wessels (2010): p.255

In order to find an estimate of Norwegian’s equity beta the industry operating betas derived above must be relevered with the company’s future financial leverage. The long-term capital structure gives a D/E- ratio of 1,86150. With operating beta estimates of 0,36 and 0,67 the equity beta estimates are 0,66151 and 1,25152 respectively. In the following calculation of WACC I will use a beta estimate of 1,25 because Norwegian is heavily exposed in the leisure market, which I consider as more sensitive to market fluctuations than the overall market is.

Liquidity premium153 A common assumption is that investors require a higher rate of return on illiquid shares than on more liquid because of the associated transactions costs. Conventional asset valuation theory assumes that shares are perfect liquid. However, the shares of relatively small companies are often valued lower because of more difficulties with transferring them (illiquidity discount). The Norwegian’s share is not on the list of the 30 most traded shares at Oslo Stock Exchange, the company must be seen as relatively small in international terms, and chapter three showed that a substantial part of the shares are owned by central persons in the management. This indicates that the shares are somewhat illiquid and investors should require a liquidity premium. Technically is this accounted for by adding a premium directly on the cost of equity estimate. Domantas Skardziukas at Erasmus University Rotterdam argues for a premium between 2% and 6%154. I have chosen to place Norwegian’s premium in the lower of the range and will use a liquidity premium of 2% in the WACC calculation.

Based on the estimates derived in this section I get a required rate of equity estimate at:

150 2,86 = (0,21 + 0,44)/0,35 151 0,36*1,86 = 0,66 152 0,67*1,86 = 1,25 153Chen & Ibbotson (2009): http://advisor.morningstar.com/articles/fcarticle.asp?docId=16609 (16.08.11) 154 http://mpra.ub.uni-muenchen.de/31325/1/MPRA_paper_31325.pdf (16.08.11)

Cost of leasing Damodaran (1999) argues that a company’s cost of unsecured debt can be used as an approximation of its cost of leasing because the opportunity costs of leasing and unsecured debt will be similar in most cases. In the annual report for 2010 Norwegian states that an interest of 7 % is used in discounting the company’s financial leases, which equals the interest on their loan facility. The size of the risk premium is considered reasonable and based on this I will use a cost of leasing at 6,5% before tax and, thus, 4,68% after taxes.

Cost of debt Norwegian has debt and debt-like financial instruments in order to finance the acquisitions of new planes. Because of problems getting sufficient financing in the Scandinavian market, mostly is financed through the American Ex-Im bank. There exist no public credit ratings of Norwegian and historical interest/debt-ratios do not give any realistic estimate of future interest level. Theoretically correct shall the marginal interest rate be used in calculating WACC, i.e. the interest on the next amount of debt obtained. However, without a credit rating it is difficult to draw any realistic estimate of Norwegian’s spread above the risk free interest. Based on outlooks of continuing low interest level the next years I assume cost of debt to average around 7,5% before taxes and, thus, 5,40% after taxes.

Summary of WACC By combining the estimates derived in this chapter into the WACC-formula, I obtain an estimate of Norwegian’s weighted average cost of capital at 7,53%.

For detailed calculation see Appendix 9.2. This calculation is based on assumptions that are heavy and vague. The estimate of Norwegian’s share price in section 6.2.7 will depend heavily on this WACC estimate and I will therefore test the share price estimate’s sensitivity to changes in WACC in section 6.4.

6.2.3 Determination of explicit period and the terminal period Before the forecasting can be undertaken, the length and detail of the explicit forecasting period must be determined. The explicit forecast period is the period until the company reaches a steady state, which is defined by constant growth rate that equals or is less than the one of the economy and that the company earns a constant rate of return. Koller, Goedhart and Wessels recommend in their book, Valuation - Measuring and Managing the Value of Companies, that the explicit period should be as long as 10 to 15 years. However, it is difficult to estimate individual line items precisely 10 to 15 years into the future, and I will therefore split the forecasting into two separate explicit periods:

1. A detailed forecast for 2011 to 2015, where all major P&L and balance lines are forecasted separately based on their drivers identified in chapter four and five. A five year period I chosen because of Norwegian’s current investment schedule. 2. A simplified forecast for 2010 to 2025, focusing on revenue growth, earnings margins and capital turnover. Norwegian is a young company, currently in an investing phase, and it is, thus, unlikely that steady state will be reached before 2025.

6.2.4 Explicit period 1: 2011-2015

Revenues Norwegian’s revenue will be forecasted trough these factors: 1. Price development (RASK) 2. Market growth and market share development (ASK) 3. Ancillary revenue

The revenue forecast can be conducted as either a top-down forecast or as a bottom-up forecast, but it is preferred to combine the two approaches. A top-down forecast is prepared through sizing the market and its growth, estimating the company’s future market share and future prices. The bottom-up approach rather focuses on forecasting customer demand and turnover, and the potential for new customers. I will primarily use the top-down approach because estimating the demand Norwegian will face is very difficult. The forecasted growth in ASK, showed in figure 6-8, is under assumptions about growth in the overall market and the company’s ability to take market shares. I have assumed that Norwegian will sustain its current load factor of 77,5%, which imply that 77,5% of the growth will generate revenue.

RASK I expect that RASK will decrease further from 2011 to 2015 because the additional capacity Norwegian and Ryanair will add to the Nordic market will generate more price pressure to a market with overcapacity. Section 4.1.2 highlighted that the yield index for intra European flights has decreased by approximately 2,3% Figure 6-8: Forecasted ASK-growth and RASK yearly between 2001 and 2007, while 0,60 60 %

Norwegian’s RASK on average decreased by 0,50 50 %

6,17% yearly between 2006 and 2010. SAS’ 0,38 0,40 0,37 0,365 0,36 0,36 40 % CEO announced in November that he expects 0,30 30 %

155 ASK growth ASK the prices to stabilize in 2011 . I rather expect (NOK)RASK 20 % 0,20 15 % 15 % 20 % RASK to stabilize in 2014/2015 and have 12 % 12 % forecasted a decrease by 6,2% in 2011, 2,6% in 0,10 10 %

2012 and 1,4% in 2013. 0,00 0 % 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

RASK ASK Ticket revenue

Market growth The forecasted growth in ASK is under the assumption that Norwegian will achieve some organic growth because the company will capture a significant part of the growth in the Nordic market. The analysis in 4.1.3 concluded that the Nordic market will grow at a rate slightly above the European market, which is expected to grow 4% yearly. Primarily because there still are a relative low share of low fare tickets in the Nordic market and the analysis of Norway showed that the capacity Norwegian has added at a low fare has driven the historical growth in international leisure traffic. It is therefore likely to expect part of this development in international leisure traffic to occur in Sweden, Denmark and Finland the next five years also, and that Norwegian will capture a significant part of this because of its strong position in the leisure segment. The domestic growth rates are expected to be approximately zero and international business traffic will grow with the countries’ economies, i.e. 2-3%. In addition will the personal wealth develop more positively in the Nordic countries compared to the rest of Europe the next years and the competition from trains will not likely increase. The analysis of the market showed however strong competition and limited differentiation possibilities, especially in the leisure segment, and it should therefore be expected that Ryanair and maybe easyJet will capture some of the growth as price will be the most important determinant.

155 http://www.dn.no/forsiden/naringsliv/article2017520.ece (07.03.11)

Market share Despite some organic growth, which also impact on Norwegian’s market share, I have forecasted the company to grow above the market under the assumption that it will continue to take travellers from other airlines, hereby SAS, Finnair and Sterling especially. The forecasted growth of 15% to 20% from 2011 to 2013 is based on the announced expansion in the Finnish market and the effect of change to airplanes with additional capacity. Norwegian is as of today almost not present in the Finnish market and it is likely that the company will fill the added capacity. One reason is that SAS and Blue1 charges higher prices, but in addition is also the number of leisure routes offered to the Finnish people substantial lower than in the other Nordic countries. In addition to the Finnish market is Norwegian almost not present at Landvetter, the company plans to open intercontinental routes to Bangkok and New York from Nordic cities156 and the international focus on Arlanda and Kastrup will continue. Through these actions I expect the company to take travellers and increasing its market share in the overall Nordic market from 17% in 2009 to approximately 25% in 2015. Norwegian will then equal SAS in size because of a dominant position in the leisure segment, while SAS will remain the dominant in the business and intercontinental segments.

Norway will continue to be Norwegian’s biggest market, but I have forecasted the growth rate to slow down earlier than in the other Nordic countries. However, the distance between Norwegian and SAS’ market shares have decreased from 34% to 9% and it is expected that they will equal during 2011/2012157. I expect an increasing share of business customers in the Norwegian market because of extensive network, installed WIFI and cost consciousness.

Ancillary and other revenue Ancillary revenue will vary with the number of passengers and, hence, ticket revenue. I therefore consider it as appropriate that the growth rate will converge towards the growth rate in ticket revenue during the period 2011 to 2015. Because it is not likely that ancillary revenue will continue to grow at rates above 30%. However, I have forecasted the growth to be 25% and 20% in 2011 and 2012 because Norwegian has announced that WIFI will be charged for and because the traffic growth primarily will come in the leisure segment where travellers normally bring checked-in luggage.

Other revenue, which primarily is revenue from Bank Norwegian, amounted to 2% of ticket revenue in 2010. These are insignificant for the valuation, I have not analyzed future development and I assume that they will amount 2% of ticket revenue in the future also.

156 http://www.dn.no/forsiden/naringsliv/article1935851.ece (07.03.11) 157 http://www.dn.no/forsiden/naringsliv/article1891565.ece (07.03.11)

Operational expenses Based on the analyses in chapter five I consider it as appropriate to forecast operational expenses, except of fuel, leasing and depreciations, in percent of revenue. Norwegian presents operating expenses as operating expenses, wages, depreciation and other operational expenses in its annual report. The analyses in chapter five, however, identified that the different cost categories under operating expenses are expected to develop somewhat differently and I have therefore chosen to forecast detailed in the period 2011 to 2015.

Figure 6-9: Forecasted operational expenses in percent of revenue 100 % EBITDAR- 9,0 % 10,8 % 12,2 % 13,2 % 14,4 % margin 90 % 9,3 % 9,0 % Other 8,7 % 8,5 % 80 % 8,2 % expenses

28,7 % 28,5 % 28,3 % 28,3 % 28,0 % Aviation fuel 70 %

60 % Wages, 62,3% salaries and 57,8 % other personell 50 % Technical

% ofrevenue % 18,0 % maintenance 17,7 % 17,5 % 40 % 17,5 % 17,5 % Handling expenses 30 % 8,0 % 7,7 % 7,5 % 7,2 % 7,0 % Airport 10,0 % 9,7 % 9,4 % 20 % 9,2 % 9,0 % charges

Sales and 10 % 15,0 % 14,7 % 14,5 % 14,3 % 14,1 % distribution

0 % Opex ex fuel 2011 2012 2013 2014 2015

Airport charges are forecasted to decrease from 15,4% of revenue in 2010 to 14,1% in 2015. This will be back to pre- 2010 level, which I assume as realistic with a more fuel efficient fleet and increased competition between airports outside of the strategically important European cities. The share of flights to smaller and more rural airports will increase with increasing share of leisure routes in the future.

Handling expenses are forecasted to decrease from 10,3% of revenue in 2010 to 9% in 2015. The level in 2009 and 2010 was high because of problems at Kastrup and Osl, but the ongoing development of luggage handling at Kastrup and the expansion at Osl will contribute positively on Norwegian’s expenses. In addition will the company gain stronger bargaining power with increasing size and importance at airports.

Technical maintenance is forecasted to decrease from 8,3% of revenue in 2010 to 7% in 2015. The decrease by 2%- point from 2006 to 2010 was achieved solely through more effective maintenance processes and stronger bargaining power. It is therefore likely that Norwegian will achieve a 1%-point improvement over the next five years with a younger and more modern fleet, in which average age decreased by four years from 2009 to 2010158.

Wages and other personnel costs were high in 2009 and 2010 because of extra training costs. During 2011 and 2012 will all of the new aircrafts be in use and it is likely that these extra costs will lapse and the wages to revenue ratio is therefore forecasted to converge back to 2008-level. I expect that potential wage increases because of increasing seniority will be overcome by improved route planning because of a more extensive and frequent network.

Other expenses in percent of revenue are forecasted to decrease from 9,6% in 2010 to 8,6% in 2015. These are mainly fixed or batch costs and will therefore not increase proportionally with revenue. In addition will Norwegian aim to streamline its organization further.

Summarized does this forecast assume a reduction in operational expenses exclusive fuel, leasing and depreciations in percent of revenue from 62,3% in 2011 to 57,8% in 2015. The reduction is primarily based on corrections of one- offs in 2009 and 2010 and that revenue will increase at no extra cost with phasing in of bigger aircrafts, increased bargaining power, improvement of maintenance and handling, and further streamlining of the organization.

Aviation fuel Because of the uncertainty regarding future jet fuel price level that was highlighted in chapter five I have forecasted a conservative price level for 2011 to 2015. Arctic Securities predicts a jet fuel price of USD 800 per ton in 2011, while EIA argues for a long-term price of USD 108 per barrel (≈ USD 852 per ton). Norwegian had an average jet fuel price of USD 1 048 per ton in 2008, while it was 710 in 2010. Based on these numbers, the currently rising price level and the high uncertainty about the future, I chose to use EIA’s estimate of USD 108 per barrel from 2011 to 2015. Hereby I assume that Norwegian not will change its hedging strategy, and that the company’s charged fuel price mainly will be determined by the market price. Under this assumption will the forecast of a constant price over five year not be correct, but I consider it as the best estimate of the average price throughout the period. The exchange rate used is Norwegian’s own forecast159 and the fuel consumption forecast is from Pareto Securities160, which has based its projections on consumption improvements already seen from 2009 to 2010.

158 Norwegian Air Shuttle ASA 4th quarter report 2010, p. 17 159 Norwegian Air Shuttle ASA 4th report 2010, p.19 160 Pareto Securities 2nd quarter report 2010, p. 3

Figure 6-9: Fuel cost forecast

Fuel cost forecast 2011 2012 2013 2014 2015

Jet Fuel price (USD/ton) 852 852 852 852 852 USD/NOK 6 6 6 6 6 Jet fuel price (NOK/ton) 5 112 5 112 5 112 5 112 5 112

Jet fuel price (NOK/kg) 5 5 5 5 5 Fuel consumption per ASK (kg) 0,0252 0,0246 0,0241 0,0239 0,0237 Fuel cost per ASK 0,13 0,13 0,12 0,12 0,12

Aviation fuel expense 2 752 265 3 089 745 3 480 987 3 866 351 4 294 076 % of revenue 29 % 29 % 28 % 28 % 28 %

Leasing In order to capitalize operational leasing, Figure 6-10: Fleet development 2006-2014 Norwegian and estimate its depreciations, must yearly payments to be multiplied with seven be 80 73 B738 forecasted. The number of leasing 70 68 Owned agreements capitalized is based on 63 60 57 B738 Norwegian’s own fleet projections. For 53 S&LB

2010 was the average leasing cost per plane 50 46 7 27 37 48 17 B738 2 2 40 Leased NOK 19 million. Because of the financial 40 33 6 Aircrafts 7 16 problems many airlines experience currently 21 B733 2 6 30 5 Owned 6 I expect overcapacity in 2011 an, hence, not 22 5 2 24 6 any increase in 2011. From 2012 to 2015 I 20 23 5 B733 23 Leased 30 have forecasted the prices to grow with the 23 25 10 20 18 19 5 M80 8 Leased mature western economies at approximately 5 5 0 2,5%. Details around the calculations are 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Norwegian Air Shuttle ASA summarized in table 6-14 on page 69. 4th quarter report 2010, slide 17.

Depreciations Depreciations concerns primarily capitalized leasing and acquired planes. In section 5.1.2 was it argued that common practice is to threat the remaining of yearly leasing payments less the interest element as depreciations of capitalized leasing. Yearly leasing payments were derived in the section above and they, less an interest of 6,5%, gives the forecasted numbers stated in table 6-14 on page 69.

Depreciations of PP&E161 are usually forecasted as a percentage of revenue or book value of the depreciated asset162. However, this will be difficult here because the relative increase in book value of aircrafts is higher than the increase in revenues. Use of the historical ratio will therefore forecast unrealistic low depreciations. A solution is to include historical leasing depreciations, find the depreciation to revenue or asset ratio, use this in the forecast, subtract forecasted leasing depreciations and the residual is asset depreciations. This method will, however, be complicated and involve several sources of potential error. Stickney, Brown and Wahlen (2007) argue for forecasting depreciations through dividing net book value as of 31.12 by average useful life. For the 2010 accounts is average useful life calculated to 18,2 years. In the annual report of 2010 is it stated that the aircraft body has a useful life of 25 years and the other components 10 years. The body accounts for the majority of the book value and I therefore consider an average useful life of 20 years as appropriate. The forecasted depreciations for 2011 to 2015 are stated in table 6-14 on page 69.

Financial items Net financial items is forecasted as 7,5% times net interest bearing debt plus 6,5% times capitalized leasing debt.

Tax Tax is forecasted to 28% of earnings before tax. Norwegian has not significant permanent differences and the effective tax rate is close to the Norwegian company tax rate of 28%.

Fixed assets In forecasting future levels of PP&E I will focus on aircrafts and capitalized leasing agreements as these accounted for the majority of fixed assets as of 31.12.10. I also assume that Norwegian not will dispose any aircrafts during its useful life.

Capitalized leasing asset The forecasted book value of capitalized operational leasing is forecasted yearly payments multiplied by seven. The forecasted numbers are presented in table 6-14 on page 69.

Property, plant and equipment Figure 6-9 presented Norwegian’s own projections of fleet development. Arctic Securities has, based on these projections, estimated Norwegian’s capex from 2009 to 2016 as stated in figure 6-11, which from my point of view are realistic. These will be used in the forecast and the book values are stated in table 6-14 on page 69.

161 PP&E = Property, plant and equipment 162 Koller, Goedhart, Wessels (2010): p. 196

Figure 6-11: Estimated capex Norwegian

2011 2012 2013 2014 2015 Estimated capex (NOKm) 3 150 2 750 2 700 2 850 1 600 Source: Arctic Securities 4th quarter report 2010, p: 6

Net working capital The analyses in chapter five showed that the year-end numbers of NWC and its accounts have increased because of increasing activity. Despite significant seasonal variations have the year-end numbers been relative stable in relation to revenue and cost of goods sold (COGS), which are the primary drivers of the NWC accounts. It is recommended that the line items are forecasted as a percentage of these163.

Figure 6-12 summarizes the forecasted level of the drivers. Accounts receivables have amounted to approximately 11% from 2006 to 2010 and it is therefore reasonable to use this level in forecasting as Norwegian not has announced any changes in its business. Accounts payables in % of COGS have varied more throughout the period, but amounted to 12% in 2009 and 2010, which I have used in the forecast. The air traffic settlement liabilities are forecasted to 10% of this, which equal the 2010-level.

Figure 6-12: Forecasted drivers of NWC 2011-2015

% of revenue % of COGS % of revenue t+1 Inventory 0,64 % Accounts receivables 10 % Accounts payables 12 % Air traffic settlement liability 10 %

Cash and cash equivalents Yearly changes in cash and cash equivalents will be determined by the derived cash flow from the forecasted financial statements.

Equity The market expects a share issue in order to finance aircraft acquisitions, but this is only a rumour and Norwegian has not announced any. I therefore assume that no shares will be issued or repurchased and that changes in equity, hence, will equal changes in retained earnings only. In addition is it likely to assume that Norwegian not will pay dividend as the company focus on reinvesting.

163 Koller, Goedhart, Wessels (2010): p. 202

Interest bearing debt Norwegian’s long-term interest-bearing debt Figure 6-13: Net Interest Bearing Debt Norwegian 3 500 will primarily be aircraft financing. Figure 6-

3 000 2 650 13 shows a forecast of future development in 2 400 2 500 2 300 2 250 debt and that it is expected that the majority

2 000 1 620 of the acquisitions from 2011 to 2015 shall be 1 350 NOKm 1 500 1 150 debt financed. This view is in accordance 900 1 000 with Norwegian’s own projections of the 500 financing164. Forecasted long-term debt will, 0 thus, be book value as of 31.12.10 adjusted 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e Capex External financing Internal financing for the additions stated in figure 6-13. Source: Arctic Securities 4th quarter report 2010, p: 6

Capitalized leasing liability will, according to Damodaran (1999), equal forecasted capitalized leasing asset. Next year’s payment is classified as current liability.

Tax payable Tax payable is calculated as 28% of earnings before taxes. For simplicity reasons I assume that tax is paid the year it accrues.

Short term borrowing165 The different asset and liability line items are forecasted individually based on their operating drivers. Because the drivers not vary perfectly with each other will total assets less total liability and equity not balance. This difference must be adjusted for on a flexible account. Since Norwegian relies on debt financing and has substantial seasonal variations, I have chosen to use short-term borrowings as the flexible account. Norwegian has recognized short-term borrowings from 2008 to 2010, but no clear relationship to revenue, total assets, total debt or other related drivers have been possible to identify. I therefore see it as appropriate to use the account to balance the statements, as short- term borrowings often will be flexible account for companies in their day-to-day operations anyway.

164 Norwegian Air Shuttle ASA 2010 annual report: Dear Shareholders 165 Stickney, Brown, Wahlen (2007): p. 764-765

Summary explicit period 1: 2011-2015 The forecasted operational drivers and the key P&L line items are presented in the table below. Detailed statements are found in Appendix 9.3.

Figure 6-14: Forecasted operational drivers

2011 2012 2013 2014 2015 ASK 21 365 24 570 28 255 31 646 35 443 growth 20,0 % 15,0 % 15,0 % 12,0 % 12,0 % RASK 0,38 0,37 0,365 0,36 0,36 growth -6,2 % -2,6 % -1,4 % -1,4 % 0,0 % Ticket revenue 8 118 624 9 090 722 10 313 056 11 392 395 12 759 482 growth 12,6 % 12,0 % 13,4 % 10,5 % 12,0 %

Ancillary revenue 1 292 508 1 551 009 1 783 660 2 051 209 2 297 355 growth 25,0 % 20,0 % 15,0 % 15,0 % 12,0 % share of revenue 13,5 % 14,3 % 14,5 % 15,0 % 15,0 %

Other revenue 178 389 196 228 215 851 237 436 261 180 share of revenue 2,2 % 2,2 % 2,1 % 2,1 % 2,0 %

Total revenue 9 589 521 10 837 960 12 312 567 13 681 040 15 318 017

growth 14,1 % 13,0 % 13,6 % 11,1 % 12,0 % Income statement CASK ex fuel and leasing 0,28 0,27 0,26 0,25 0,25 Fuel cost per ASK 0,13 0,13 0,12 0,12 0,12 EBITDAR 862 984 1 169 573 1 505 603 1 811 281 2 200 763 margin 9,0 % 10,8 % 12,2 % 13,2 % 14,4 %

Leased aircrafts 35 36 31 25 23 Average per airline 19 000 19 475 19 962 20 461 20 972 growth 2,5 % 2,5 % 2,5 % 2,5 % 2,5 % Leasing per ASK 0,03 0,03 0,02 0,02 0,01 Depreciations 310 828 398 525 299 818 229 961 249 623 Capitalized leasing 4 655 000 4 907 700 4 331 727 3 580 661 3 376 564

CASK 0,44 0,42 0,40 0,39 0,38

Inventory in % of revenue 0,64 % 0,64 % 0,64 % 0,64 % 0,64 % Accounts receivables in % of revenue 10 % 10 % 10 % 10 % 10 % Accounts payable in % of revenues 12 % 12 % 12 % 12 % 12 % Air traffic liability in % of revenues 10 % 10 % 10 % 10 % 10 %

Capex aircrafts 3 150 000 2 750 000 2 700 000 2 850 000 1 600 000 in % of revenue 32,85 % 25,37 % 21,93 % 20,83 % 10,45 % Average useful life 20 20 20 20 20

Depreciation 371 358 490 290 600 775 713 237 757 575 Balance sheet Balance in % of revenue 3,87 % 4,52 % 4,88 % 5,21 % 4,95 % Book value 31.12 7 055 795 9 315 506 11 414 730 13 551 494 14 393 919

Provision maintenance in % of revenue 1 % 1 % 1 % 1 % 1 % Intangible asset 210 293 210 293 210 293 210 293 210 293

6.2.5 Explicit period 2: 2016-2025 The size of the value drivers in explicit period 2016-2025 is subject to high uncertainty and I will therefore limit the forecast to the most important line items and margins. Those not mentioned in this section have been forecasted based on equal arguments as in the previous.

Revenues From 2016 to 2025 I anticipate that Norwegian’s ticket revenue growth will converge from 12% in 2016 towards the growth in the economy as a whole from 2026. The Nordic market is expected to grow with 4% in the period, but it is likely that Norwegian will continue to take customers from flag carriers and, thus, grow with more than 4%. In addition will also the effect from intercontinental routes contribute to a growth of 6% to 10% the first five years of this period. The forecasted ticket revenue growth is under the assumption that RASK not will decrease significantly.

In explicit period 1 was ancillary revenue forecasted to grow by 10% in 2015, which equals ticket revenue growth. I consider it as likely that ancillary revenue has reached a steady state relationship to ticket revenue of 15% in 2015, which also is aligned with Norwegian’s own expectations.

EBITDAR-margin Figure 6-15 shows that the EBITDAR-margin is forecasted to Figure 6-15: EBITDAR-margin forecast 20 % increases throughout explicit period 1 because of improved 17,7 % 18 % CASK. As of 2015 I consider it not realistic that Norwegian 16 % 14 % 11,9 % 11,4 % 14,4 % will manage to cut the unit cost further and that a steady state 12 % 13,2 % 12,2 % 10 % EBITDAR-margin of 13% is reached. 10,8 % 8 % 9,0 % 6,8 % 6 % 4 % 5,9 % 2 % 0 % 2006 2008 2010 2012 2014

EBITDAR- margin

Depreciations Figure 6-16 shows forecasted depreciations in percent of revenue from 2011 to 2016. Norwegian’s investment plan lasts until 2016. From 2017 and onwards I expect that Norwegian has reached a steady state investment level and that yearly reinvestments equal depreciations. Forecasted depreciations from 2017 will therefore amount to 4,5% of revenues.

Figure 6-16: Forecasted depreciations and capex in % of revenue

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Depreciations/revenue 3,9 % 4,5 % 4,9 % 5,2 % 4,9 % 4,7 % 4,5 % 4,5 % 4,5 % 4,5 % 4,5 % 4,5 % 4,5 % 4,5 % 4,5 %

Capex/revenue 32,8 % 25,4 % 21,9 % 20,8 % 10,4 % 6,7 % 6,5 % 6,3 % 6,0 % 5,7 % 5,5 % 5,3 % 5,0 % 4,7 % 4,5 %

Aircrafts As a company matures the ratio of capex in percent of revenue will converges towards the ratio of depreciations in percent of revenue. Because the company reinvests only the amount of property, plant and equipment that is necessary in order to sustain its current businesses. The section above predicts that depreciations in percent of revenue will be 4% in steady state.

Long-term debt Forecasted long-term debt from 2017 is the book value the year before added with the difference between depreciations in percent of revenue and capex in percent of revenue, i.e. the investments above yearly reinvestments are anticipated to be debt financed.

Summary explicit period 2: 2016-2025 The forecasted numbers in explicit period 1 and 2 gives a negative spread in almost the entire period, i.e. Norwegian do not generate value to its capital providers. This is typical for young growth companies and the terminal value will account for the major amount of enterprise value Figure 6-17: Forecasted spread as of 31.12.10. Based on the forecast in the 9 % 2 % explicit periods will the terminal value in next 8 % 1 % section be estimated based on a spread of 0,76. 7 % 0 % According to theory shall this number be close 6 % -1 % 5 % -2 % to zero in order to not produce technically super

4 % -3 % Spread

profit. However, this will give a negative stock ROICWACC & 3 % -4 % value and underlines a weakness with DCF- 2 % -5 % valuation: The exclusion of non-numerical 1 % -6 % 0 % -7 % factors. 2011 2013 2015 2017 2019 2021 2023 2025

ROIC WACC Spread

6.2.6 Terminalperiod 2026 -> Because it is both costly and difficult to make detailed projections to infinity I will use Gordon’s constant growth formula. The formula assumes that free cash flow will grow at a constant rate and that the cost of capital will remain unchanged forever. I have ensured that Norwegian therefore has reached steady state in 2026, which is characterized by stable and low growth that not exceeds the economy as a whole and that the return on invested capital has converged towards the company’s cost of capital.

Norwegian will most likely not manage to sustain a growth rate that is higher than the economy for more than 15 more years. The company will experience difficulties in finding profitable routes and sustaining competitive advantages, because as long as growth and profit opportunities exist will competitors also strive to gain the same. It is therefore common practise to define long-term steady state growth to be between expected inflation and long-term macroeconomic growth. The Norwegian Central Bank adjusts the interest based on a long-term inflation target of 2,5%. The strategic analysis showed that expected growth in GDP for the Nordic countries in 2011, which all is considered as mature, is between 2% and 3,8% while the long-term expectations for USA is 2,7%. Based on this I have chosen a conservative estimate of 2,5% as Norwegian’s long-term growth rate.

The WACC estimated in section 6.2.2 was under the assumption of a long-term capital structure and that Norwegian’s underlying business risk will be consistent with the industry expectations. I therefore consider a WACC of 7,53% to be the best estimate Norwegian’s long-term cost of capital.

6.2.7 Estimation of Norwegian Air Shuttle ASA share price as of 31.12.10 Based on the forecasts derived in explicit period 1 and 2, the estimated cost of capital and the chosen valuation method can the DCF-valuation be undertaken and the answer to the overall problem formulation be found:

“What is the estimated fair value of Norwegian Air Shuttle ASA’s stock price as of 31.12.2010?”

Figure 6-18: Estimate of share price as of 31.12.10

Forecast year Free Cash Flow Discount factor Present value of FCF

2011 -1 877 353 359 0,9300 -1 745 915 569 2012 -2 253 214 011 0,8649 -1 948 753 332 2013 -970 841 987 0,8043 -780 872 614 2014 -615 083 806 0,7480 -460 090 375 2015 307 138 038 0,6956 213 658 254 2016 1 275 438 142 0,6469 825 130 581 2017 477 543 353 0,6016 287 311 693 2018 640 396 689 0,5595 358 316 485 2019 710 579 673 0,5203 369 749 593 2020 899 497 798 0,4839 435 283 538 2021 947 552 072 0,4500 426 434 603 2022 1 125 404 596 0,4185 471 015 556 2023 1 214 290 024 0,3892 472 635 357 2024 1 379 875 471 0,3620 499 483 203 2025 1 458 573 358 0,3366 491 005 644 2026 -> 1 522 428 190 0,3366 10 192 335 402 Present value of future cash flows 10 106 728 017

Midyear adjustment factor 1,0370 Value of operations 10 480 257 939

Interest-bearing assets as of 31.12.10 1 224 770 000 Enterprise value as of 31.12.10 11 705 027 939

Interest-bearing debt as of 31.12.10 8 070 357 000 Equity value as of 31.12.10 3 634 670 939

Numbers of shares outstanding as of 31.12.10 34 573 332 Equity value per share 105,13

Traded share price closing 31.12.10 117,50

The present value of the free cash flows derived from the forecasted statements summarizes to the value of Norwegian operations. Adding interest-bearing assets gives the Enterprise value, as these assets shall be available to

75 all capital providers166. By subtracting interest-bearing debt total equity value as is found. As of 31.12.10 were 34 573 332 shares outstanding, which gives an estimate of Norwegian Air Shuttle ASA’s share price at NOK 105,3. This estimate indicates, thus, that the traded price of NOK 117,5 is too high compared to expectations about future performance.

6.3 Multiple analysis A DCF-valuation is the most accurate and thoroughly method, but the value estimate will only be as accurate as the forecast and, thus, the assumptions itself167. It will therefore be of relevance to test the plausibility of the estimate by use of peer group multiples. Valuation by use of multiples is commonly used, as it is an easy, fast and cheap method. However, if not carried out carefully can the method generate substantial errors. Koller, Goedhart and Wessels, thus, state three requirements in order to make a plausible analysis: 1. Use the right multiple 2. Calculate the multiple in a consistent manner 3. Use the right peer group

6.3.1 Choice of consistent multiples The choice includes determining both the value basis (numerator) and the value driver (denominator). The first choice is between equity multiples as P/E and P/B or total capital multiples as EV/EBITDA and EV/Sales. Despite price earning (P/E) is a widely used multiple it is not suitable in valuation as long as the peer companies have different capital structures and substantial non-operating items168. EV-multiples are based on the market value of operations independent of the financial leverage. I will therefore use EV as the numerator in the following and extract the share price by deducting net interest bearing debt from the enterprise value estimate given by the multiple.

The denominator must be a parameter that represents the company’s underlying value drivers and future expectations most properly. In addition is it crucial that the denominator is based on the same underlying asset as the numerator, i.e. using EBT will not be correct as EBT includes interest income while EV excludes cash. EBITA and EBITDA are correct denominators, but as previously described have airline’s different aircraft ownership structures who affect EBITDA differently. In order to avoid this problem will EV/EBITDAR be a preferable multiple. This thesis has, however, shown that airlines, and especially Norwegian, are subject to volatile EBITDAR. There can, thus, be uncertain how well EBITDAR represent future long-term performance and use of EV/Sales can be a useful multiple to supplement the analysis. I will therefore conduct a multiple analysis with use of both EV/EBITDAR and EV/Sales.

166 Koller, Goedhart, Wessels (2010): p. 273 167 Koller, Goedhart, Wessels (2010): p. 313 168 Koller, Goedhart, Wessels (2010): p. 317

6.3.2 Choice of peer group In order to be comparable, companies must face similar expectations about long-term growth and ROIC169. In addition will peers within the same market be subject to equal operating risks and, thus, have similar cost of capital. The companies chosen170 as Norwegian’s peers sell the same services and have similar business models, but operate partly within different markets. However, despite some differences between the European and American markets, they are considered to not distort this multiple analyses significantly. Further will there also exist some differences in expected growth and profitability because of different stages in the life cycle and variations between markets. These potential weaknesses must be considered when assessing the result, but there will never exist any “perfect” peer.

6.3.3 Multiple analysis of Norwegian Air Shuttle ASA Figure 6-19: Multiple analyses

NOK (000) EV/Sales EV/EBITDAR

Revenue +1 9 858 292 EBITDAR +1 762 651 Estimated multiple 1,1 7,9 Enterprise value 11 247 159 6 034 073

Interest bearing assets 1 224 770 1 224 770 Capitalized leasing 5 448 800 5 448 800 Interest bearing debt 2 621 557 2 621 557 Equity value 4 401 572 -811 514

Number of shares 34 573 34 573 Value per share 127,3 -23,5

Norwegian’s share is valued to NOK 127,3 by use of the EV/Sales multiple and NOK -23,5 by use of the EV/EBITDAR multiple as of 31.12.10. Norwegian’s forecasted EBITDAR for 2011 is low due to expectations of high oil price, world economic distress and extra costs due to the fleet renewal process and this causes a mispricing of Norwegian by use of EV/EBITDAR in this case. The multiple EV/Sales is as expected better suited for a company with volatile earnings as Norwegian. As of 31.12.10 the Norwegian share traded at NOK 117,50, which indicates that the market has less positive expectations to Norwegian’s future growth than the peers. Compared to my DCF estimate is this estimate of share price NOK 22,2 higher. This indicates that several psychological and other non-monetary factors drive the price up, whom the DCF model not has captured.

169 Koller, Goedhart, Wessels (2010): p. 315 170 easyJet, JetBlue, Ryanair, Virgin and Vueling

6.4 Sensitivity analysis The forecast in section 6-2 is based on several heavy assumptions that are subject to great uncertainty regarding future development. It will therefore be of value for potential investors to assess the share price estimate’s sensitivity to changes in the valuation model’s key input factors171. The table below shows variations in the share price when long-term WACC and growth are changed. These input factors are chosen because the present value of the terminal period comprises 97% of total present value of the forecasted cash flows. The outcome in figure 6-20 highlights the price estimate’s sensitivity to changes in these parameters. With only one percentage point change in one or both of the factors will the share price lie within a range of NOK 0 to 186, which are prices the Norwegian share not has been traded at since 2003.

Figure 6-20: Sensitivity analysis

Long-term WACC 7,0 % 7,5 % 8,0 % 7,5 % 8,5 % 9,0 % 9,5 % 10,0 % -1,0 % 12 -19 n/a n/a n/a n/a n/a n/a -0,5 % 26 -7 -36 -9 n/a n/a n/a n/a 0,0 % 42 6 -26 4 n/a n/a n/a n/a 0,5 % 60 20 -14 18 -43 n/a n/a n/a 1,0 % 81 37 0 35 -32 n/a n/a n/a 1,5 % 106 57 16 54 -19 n/a n/a n/a 2,0 % 136 80 34 77 -4 -36 n/a n/a

2,5 % 173 108 56 105,1 13 -22 n/a n/a Steady state growth state Steady 3,0 % 219 143 82 139 34 -6 -40 n/a 3,5 % 278 186 114 181 58 13 -25 n/a

171 Koller, Goedhart, Wessels (2010): p.298

7. Conclusion In this thesis I have conducted a valuation of Norwegian Air Shuttle ASA, which culminated into an estimate of the share price as of 31.12.10 from an investor’s point of view. The valuation is conducted by use of a Discounted Cash Flow model and supplemented by multiple and sensitivity analyses in order to test the price estimate’s plausibility and sensitivity to changes in the underlying assumptions. The assumptions, in which the discounted free cash flows are based on, are derived from the outcome of strategic analyses of the Nordic market for air travel and Norwegian’s future revenue growth potential, and analyses of historical financial performance.

The strategic analysis concluded that the Nordic market for air travel has significant elements of a perfect market and especially in the leisure segment in which Norwegian is most exposed. This is due to homogenization of products, low switching costs and brand loyalty and few entrance barriers on new routes for existing companies. In the business segment is it possible to differentiate on frequency and attractive slot times at central airports, which is a constraint, and this favour Norwegian and SAS. This makes the competition high, but the minor presence of low fare tickets in the Nordic countries compared to in UK, indicates future growth opportunities for the LCCs.

The analysis of Norwegian’s future revenue growth potential showed that future growth primarily must come through taking travellers from its competitors. However, the company has the last five years showed that it is possible to take substantial market shares from SAS in the Norwegian market and this progress has also started in the other Nordic countries. Especially has increased offered capacity on leisure routes driven growth, but also resulted in overcapacity and decreasing unit price.

The financial analysis uncovered two issues. The first is that Norwegian’s EBITDAR-margin, and return on invested capital, is heavily dependent on the jet fuel price. Norwegian hedges a relative low amount of fuel compared to its peers and is therefore more exposed to variations, which imply a risk. I have therefore used a conservative estimate in the forecast. Secondly is Norwegian highly levered compares to its peers and the aircraft acquisitions until 2016 shall primarily be debt financed.

The assumptions derived gives an estimated share price of NOK 105,13 as of 31.12.10, which is below the traded price at 117,50. This indicates that the traded price is too high and that “sell” should be the recommended action. The DCF-model, however, does not incorporate psychological and other non-monetary factors, is only as good as the estimate itself and is very sensitive to changes in the growth and required rate of return assumptions. Hence, the price estimate is subject to great uncertainty.

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8.2 Articles Bråthen, S. (2003); Luftfartens rolle i regional samferdsel, notat, Høgskolen i Molde

Damodaran, A. (1999), Dealing with operational leases in valuation, Working paper, Stern School of Business, New York.

Denstadli, J.M., Rideng, A. (2010), Reisevaner på fly 2009, Transportøkonomisk Institutt

PriceWaterhouse Coopers (2008), Business valuation inside: http://www.pwc.com/no_NO/no/publikasjoner/business- valuation-inside-01-2008.pdf

Skardziukas, D (2010), Practical approach to estimating cost of capital, Erasmus University, Rotterdam

Wessels, D. (2006), Consumer loyalty in the airline industry, Wharton University of Pennsylvania, Philadelphia

8.3 Annual and quarter reports AirBerlin PLC: 2010 easyJet Holdings PLC: 2006 – 2010 Norwegian Air Shuttle ASA: 2006 – 2010 Norwegian Air Shuttle ASA, quarterly reports 1st quarter 2006 to 4th quarter 2010 Ryanair Holding PLC: 2006 – 2010 SAS AB: 2010 Vueling: 2010

8.4 Investor and other analyst reports AEA: Operating economy of AEA-Airlines 2007 Arctic Securities: Norwegian 4th quarter 2010 (31.12.10) Datamonitor: Airlines in Denmark, industry profile, October 2010 Datamonitor: Airlines in Europe, industry profile, October 2010 Datamonitor: Airlines in Norway, industry profile, October 2010 Deutsche Bank: JetBlue 4th quarter 2010 (31.12.10) IATA: Industry outlook , December 2010 Morgan Stanley: easyJet 1st quarter 2011 (31.12.10) Morgan Stanley: Ryanair 3rd quarter 2011 (31.12.10) Morgan Stanley: Virgin 4th quarter 2010 (31.12.10) Pareto Securities: Norwegian 1st quarter 2010 (31.03.10)

8.5 Web pages AEA: http://www.aea.be/ Avinor: http://www.avinor.no/ Bloomberg: http://www.bloomberg.com/ Børsen: http://borsen.dk/nyheder.html Cimber Sterling: http://www.cimber.dk/

Dagens Næringsliv: http://www.dn.no/ easyJet: http://corporate.easyjet.com/investors European Commission: http://ec.europa.eu/ Global Finance: http://www.gfmag.com/ Hegnar Online (Finansavisen): http://www.hegnar.no/ IATA: http://www.iata.org/Pages/default.aspx JetBlue: http://www.jetblue.com/about/ Københavns Lufthavne: http://www.cph.dk/CPH/DK/MAIN Morningstar Advisor: http://www.morningstar.com/advisor Norges Bank: http://www.norges-bank.no/ Norwegian Air Shuttle ASA: http://www.norwegian.no/om-norwegian/ NRK: http://www.nrk.no/ OAG: http://www.oag.com/ Oslo Børs: http://www.oslobors.no/ Oslo Lufthavn Gardermoen (OSL): http://www.osl.no/ Proff Forvalt: http://www.proff.no/ Reuters: http://www.reuters.com/ Ryanair: http://www.ryanair.com/en/investor/investor-relations-news SAS AB: http://www.sasgroup.net/SASGroup/default.asp Star Alliance: http://www.staralliance.com/en/ Swedavia: http://swedavia.se/ Transportøkonomisk Institutt: http://www.toi.no/ Trafikstyrelsen: http://www.trafikstyrelsen.dk/da.aspx U.S. Energy Information Administration: http://www.eia.gov/ Virgin: http://www.virgin.com/gateways/virginairlines/ Vueling: http://www.vueling.com/EN/vueling/ Yahoo Finance: http://finance.yahoo.com/

9 Appendix

9.1 Accounting data

9.1.1 Reorganized P&L, Norwegian

Adjusted historical data (NOK 1 000) 2006 2007 2008 2009 2010

Revenue 2 941 400 4 226 202 6 226 503 7 309 190 8 406 339 Total operating income 2 941 400 4 226 202 6 226 503 7 309 190 8 406 339

Operationell expenses ex fuel and leasing 2 036 691 2 731 066 3 854 044 4 594 314 5 359 263 Aviation fuel 703 872 990 741 2 006 248 1 423 328 2 092 859 Other losses/(gains) - net 0 0 0 0 0

Total operating expenses 2 740 563 3 721 807 5 860 292 6 017 642 7 452 122

EBITDAR 200 837 504 395 366 211 1 291 548 954 217

Leasing 180 277 296 400 426 597 620 114 778 400

EBITDA 20 560 207 995 - 60 386 671 434 175 817

Capitalized leasing - 180 277 - 296 400 - 426 597 - 620 114 - 778 400

Ordinary depreciation 51 070 74 044 129 611 148 882 186 707 Depreciation capitalized leasing 124 226 214 374 291 735 426 012 496 248

Operating profit (EBIT) 25 541 215 977 - 55 135 716 654 271 262

Tax on operating profit (loss) 7 152 60 474 -15 438 200 663 75 953

NOPAT 18 390 155 503 -39 697 515 991 195 309

Net financial income (loss) -1 196 8 278 25 079 8 663 1 807 Interest on capitalized leasing -56 051 -82 026 -134 862 -194 102 -282 152 Share of profit (loss) from associated company -1 821 -8 773 3 200 6 328 Gain from sale of subsidiary 10 800 Transitory operational items 147 768 -49 315 -221 032 Transitory financial items -38 227 326 887 39 311 24 793

Total non operating items - 57 247 - 102 996 60 563 - 93 613 - 28 192

Tax on non- operating items -16 861 -32 072 16 832 -23 874 -3 739

Net non- operating after tax -40 387 -70 924 43 731 -69 739 -24 453

Control tax -9 709 28 402 1 394 176 789 72 214 Control profit/loss -21 997 84 579 4 034 446 252 170 856

9.1.2 Reorganized balance sheet, Norwegian

Adjusted historical data (NOK 1 000) 2006 2007 2008 2009 2010

FROM ASSET SIDE Intangible assets 33 243 232 407 198 074 190 543 210 293 Tangible fixed assets 237 263 636 635 1 340 935 2 521 148 4 277 153 Aircraft, parts and installations on leased aircrafts 214 419 209 820 523 676 974 892 2 092 136 Equipment and fixture 14 025 24 313 31 014 30 905 26 175 Buildings 0 3 933 3 933 3 933 9 525 Financial lease asset 0 0 0 26 092 31 203 Investment in associate 0 53 516 44 743 47 943 62 272 Prepayment Boeing contract 0 316 546 705 165 1 410 992 2 002 600 Other receivables 8 819 28 507 32 404 26 391 53 242 Capitalized leasing asset 1 261 939 2 074 800 2 986 179 4 340 798 5 448 800 Provision for periodic maintenance 81 734 101 042 114 090 70 336 94 961 Net operating investments 1 450 711 2 842 800 4 411 098 6 982 153 9 841 285

Inventories 19 341 28 000 34 214 40 825 66 191 Trade and other receivables 443 492 491 543 914 379 829 893 842 143 Trade and other payables 395 850 644 837 694 832 746 549 1 063 436 Air traffic settlement liabilities 291 795 536 548 598 162 792 713 954 232 Tax payable 30 1 212 267 111 158 976 Net working capital -224 842 -663 054 -344 668 -779 702 -1 110 310

INVESTED CAPITAL 1 225 869 2 179 746 4 066 430 6 202 451 8 730 975

FROM LIABILITY SIDE Share capital 1 967 2 087 3 236 3 421 3 457 Share premium 271 934 408 277 789 130 1 041 894 1 055 083 Other paid- in equity 1 709 32 753 38 984 47 421 54 521 Other reserves 0 0 -7 633 -11 032 -7 944 Retained earnings -14 883 65 156 73 650 519 902 690 785 Total equity 260 727 508 273 897 367 1 601 606 1 795 902

Deferred tax 19 470 9 695 17 806 89 483 Total equity- like items 0 19 470 9 695 17 806 89 483

Interest- bearing long term liability 943 969 2 098 488 2 872 529 4 460 874 6 377 064 Pension obligation 30 794 33 310 61 815 97 558 121 672 Borrowings 0 297 697 440 873 878 878 1 943 903 Capitalized leasing debt, long- term 913 175 1 613 148 2 369 841 3 455 609 4 291 482 Financial lease liability 0 0 0 28 829 20 007 Derivative financial instrument 0 154 333 Interest bearing current liability 349 778 496 027 978 119 1 561 719 1 693 293 Short- term borrowings 0 0 257 456 675 303 520 972 Capitalized leasing liability, current 348 764 461 652 616 338 885 189 1 157 318 Derivative and other financial instruments 1 014 34 375 104 325 1 227 15 003 Interest- bearing debt 1 293 747 2 594 515 3 850 648 6 022 593 8 070 357

Cash and cash equivalents 231 710 501 410 607 536 1 408 475 1 178 416 Deferred tax asset 96 597 61 317 59 759 157 270 Fixed assets investments 0 138 035 5 628 7 236 2 689 Financial assets available for sale 0 10 004 5 628 7 236 2 689 Hedged iten - firm commitment 0 128 031 0 0 0 Financial current assets 298 241 751 18 360 23 688 43 395 Financial assets available for sale 0 215 758 0 0 0 Derivative and financial instruments 298 7 771 18 360 23 688 43 395 Hedged item - firm commitment 0 18 222 0 0 0 Interest- bearing assets 328 605 942 513 691 283 1 439 556 1 224 770

INVESTED CAPITAL 1 225 869 2 179 745 4 066 427 6 202 449 8 730 972

9.1.3 Reorganized P&L, easyJet

Adjusted historical data th GDP 30.09.10 30.09.09 30.09.08 30.09.07 30.09.06

Revenue 2 973 100 2 666 800 2 362 800 1 797 200 1 619 700

Ground handling 274 400 255 900 212 200 156 100 144 100 Airport charges 529 800 481 500 397 200 305 800 258 400 Fuel 733 400 807 200 708 700 425 500 387 800 Navigation 256 000 232 300 195 700 141 800 121 200 Crew 336 000 306 600 263 200 204 100 160 000 Maintenance 176 800 161 600 147 500 98 100 109 500 Advertising 49 800 47 000 46 500 38 000 38 200 Merchant fees and commissions 42 400 33 500 33 700 20 600 17 900 Insurance 10 200 11 300 9 100 12 100 15 800 Loss/(profit) on disposal of assets 7 000 -11 000 0 0 0 Other costs 189 300 104 800 100 400 96 900 88 300

EBITDAR 368 000 236 100 248 600 298 200 278 500

Aircraft wet leasing 13 700 0 0 1 000 9 600 Aircraft dry leasing 102 000 116 200 110 700 91 000 122 900 Capitalized dry leasing -102 000 -116 200 -110 700 -91 000 -122 900

EBITDA 354 300 236 100 248 600 297 200 268 900

Amortization 6 200 4 400 2 500 900 800 Depreciation 72 500 55 400 44 400 33 300 27 400 Depreciation capitalized leasing 45 062 61 957 66 110 30 779 62 287

Operating profit (EBIT) 230 538 114 343 135 590 232 221 178 413

Tax on operating profit 64 551 32 016 37 965 69 666 53 524 NOPAT 165 987 82 327 97 625 162 555 124 889

Financial revenue 7 100 22 500 53 200 65 200 35 400 Interest on capitalized leasing 56 938 54 243 44 590 60 221 60 613 Financial expenses 26 700 27 900 34 000 35 400 24 100 Financial items -76 538 -59 643 -25 390 -30 421 -49 313

Transitory operational items Transitory financial items Total non- operating items -76 538 -59 643 -25 390 -30 421 -49 313

Tax on non- operating items -31 851 -48 516 -10 965 -20 066 -18 424 Net non-operating items -44 687 -11 127 -14 425 -10 355 -30 889

Control tax 32 700 -16 500 27 000 49 600 35 100 Control profit 121 300 71 200 83 200 152 200 94 000

9.1.4 Reorganized balance sheet, easyJet

Adjusted historical data th GDP 30.09.10 30.09.09 30.09.08 30.09.07 30.09.06

FROM ASSET SIDE

Intangible fixed assets 452 200 447 100 440 400 311 400 310 700 Tangible fixed assets 1 928 100 1 612 200 1 102 600 935 800 695 700 Capitalized leasing 714 000 813 400 774 900 637 000 860 300 Other non- current assets 53 500 62 700 61 100 58 100 2 900 Non- current deferred income 56 600 52 600 68 800 86 800 74 800 Net operating investments 3 091 200 2 882 800 2 310 200 1 855 500 1 794 800

Asset held for sale 73 200 73 200 195 800 Trade and other receivables 194 100 241 800 236 900 223 600 213 300 Trade and other payables 828 700 750 700 653 000 461 700 414 100

Current tax liability 27 500 57 700 75 100 89 700 46 800 Maintenance provisions 71 400 45 100 49 000 2 800 Net working capital -660 300 -538 500 -344 400 -330 600 -247 600

Invested capital 2 430 900 2 344 300 1 965 800 1 524 900 1 547 200

FROM LIABILITY SIDE

Capital 107 300 106 000 105 700 104 800 102 600 Other shareholders funds 1 393 400 1 201 300 1 172 500 1 047 600 880 300 Total equity 1 500 700 1 307 300 1 278 200 1 152 400 982 900

Deferred tax liability 147 900 76 700 108 100 35 000 32 000 Total equity- like items 147 900 76 700 108 100 35 000 32 000

Borrowings 1 084 600 1 003 000 570 200 478 600 446 900 Capitalized long- term leasing 617 291 712 795 657 349 529 091 744 113 Provisions 144 100 168 600 160 400 136 000 73 200 Derivative financial instruments 4 000 2 600 300 6 300 4 800 Borrowings 127 400 117 600 56 700 40 500 32 800 Capitalized current leasing 96 709 100 605 117 551 107 909 116 187 Derivative financial instruments 9 600 91 100 76 000 26 600 15 300

Total interest- bearing debt 2 083 700 2 196 300 1 638 500 1 325 000 1 433 300

Cash & cash equivalent 1 195 000 1 099 200 885 800 928 400 872 900 Deferred tax asset 400 500 400 300 Financial fixed assets 53 800 68 400 76 200 44 300 26 800 Derivative financial assets 52 600 68 000 96 500 14 400 1 000 Total interest- bearing assets 1 301 400 1 236 000 1 059 000 987 500 901 000

Invested capital 2 430 900 2 344 300 1 965 800 1 524 900 1 547 200

9.1.5 Reorganized P&L, Ryanair

Adjusted historical data th EUR 2010 2009 2008 2007 2006

Revenue 3 469 150 2 976 575 2 884 950 2 594 575 2 100 800

Staff costs 365 825 328 575 303 300 270 625 212 800 Fuel and Oil 1 143 725 984 700 1 140 650 766 800 635 600 Maintenance, materials and repairs 91 925 81 200 64 275 53 025 40 850 Route charges 392 025 323 875 279 775 244 275 190 550 Airport and handling chargess 483 625 455 175 431 625 365 625 259 275 Marketing, distribution and others 161 450 146 575 148 700 136 500 119 900

EBITDAR 830 575 656 475 516 625 757 725 641 825

Aircraft rentals 96 775 91 175 76 825 69 075 55 500 Capitalized leasing -96 775 -91 175 -76 825 -69 075 -55 500

EBITDA 830 575 656 475 516 625 757 725 641 825

Depreciation 267 125 240 575 236 075 167 875 138 725 Depreciation capitalized leasing 52 099 53 531 42 978 41 880 44 942

Operating profit (EBIT) 511 351 362 369 237 572 547 970 458 158

Tax on operating profit 63 919 45 296 29 696 68 496 57 270

NOPAT 447 432 317 073 207 875 479 474 400 888

Financial revenue 26 275 36 500 77 600 78 675 56 800 Financial expenses -88 450 -86 700 -122 150 -93 550 -80 675 Interest on capitalized leasing -44 676 -37 644 -33 847 -27 195 -10 558 Foreign exchange gain (loss) -700 350 1 900 -4 425 -975 Loss on sale of financial assets -3 375 -65 750 -189 775 -68 700 0

Gain on disposal of property, plant and equipment 500 1 500 3 050 9 175 275 Financial items -110 426 -151 744 -263 222 -106 020 -35 133

Transitory operational items

Transitory financial items Total non- operating items -110 426 -151 744 -263 222 -106 020 -35 133

Tax on non- operating items -20 269 -21 346 -26 121 -28 496 -37 670 Net non-operating items -90 157 -130 398 -237 100 -77 524 2 537

Control tax 43 650 23 950 3 575 40 000 19 600 Control profit 357 275 186 675 -29 225 401 950 403 425

9.1.6 Reorganized balance sheet, Ryanair

Adjusted historical data th EUR 2010 2009 2008 2007 2006

FROM ASSET SIDE

Intangible fixed assets 46 800 46 800 46 800 46 800 46 800 Tangible fixed assets 4 778 825 4 146 850 3 629 125 3 407 575 2 796 250 Capitalized leasing 677 425 638 225 537 775 483 525 388 500 Net operating investments 5 503 050 4 831 875 4 213 700 3 937 900 3 231 550

Inventories 2 650 2 400 2 075 2 100 2 650 Trade receivables 49 025 43 675 39 900 31 500 25 025 Current tax 0 0 400 1 200 0 Other current assets 94 700 83 200 110 650 146 625 65 650

Trade payables 151 600 148 675 131 850 110 675 60 925 Accrued axpenses and other liabilities 1 184 800 1 042 600 909 200 891 325 747 975 Current tax 225 775 300 5 200 19 400 Net working capital -1 190 250 -1 062 775 -888 325 -825 775 -734 975

Invested capital 4 312 800 3 769 100 3 325 375 3 112 125 2 496 575

FROM LIABILITY SIDE

Capital 9 475 9 400 9 425 9 575 9 800 Other shareholders funds 2 918 100 2 733 325 2 434 950 2 502 025 2 393 050 Total equity 2 927 575 2 742 725 2 444 375 2 511 600 2 402 850

Deferred tax 250 675 188 575 153 650 148 825 145 075 Total equity- like items 250 675 188 575 153 650 148 825 145 075

Long term debt 3 159 375 2 566 900 2 121 550 1 845 575 1 643 500 Other creditors 129 100 129 075 104 850 102 975 95 675 Capitalized long- term leasing 601 655 554 665 461 606 410 168 344 580 Provisions 98 400 95 175 65 200 40 775 25 700 Derivatives 15 075 40 075 59 500 71 450 64 500 Loans 316 725 249 850 243 875 319 825 172 500 Capitalized current leasing 75 770 83 560 76 169 73 357 43 920 Derivative financial instruments 104 300 65 100 138 475 120 300 48 925 Total interest- bearing debt 4 500 400 3 784 400 3 271 225 2 984 425 2 439 300

Cash & cash equivalent 2 908 800 2 679 600 2 251 025 2 176 625 2 141 500 Financial assets 138 175 142 550 192 775 335 150 304 775 Derivative financial instruments 318 500 124 450 100 075 20 900 44 250 Total interest- bearing assets 3 365 475 2 946 600 2 543 875 2 532 675 2 490 525

Invested capital 4 313 175 3 769 100 3 325 375 3 112 175 2 496 700

9.1.7 Reorganized balance sheet, AirBerlin

Adjusted historical data th EUR 31.12.10 31.12.09 31.12.08 31.12.07 31.12.06

FROM ASSET SIDE

Intangible fixed assets 387 420 318 060 313 819 317 765 95 791 Property, plant & equipment 887 664 1 209 743 1 269 943 1 203 610 977 980 Capitalized leasing 3 745 196 2 562 224 2 516 661 1 846 901 897 092 Trade and other receivables 157 657 106 252 108 254 100 963 0

Deferred expenses 20 409 5 825 0 0 0 Investment in associates 405 3 183 1 771 935 720 Trade and other payables 73 261 36 401 10 661 11 036 0 Net operating investments 5 125 490 4 168 886 4 199 787 3 459 138 1 971 583

Inventories 42 890 38 724 36 692 30 825 11 914 Trade and other receivables 298 570 297 663 283 427 260 199 171 416

Deferred expenses 52 618 35 120 25 110 30 751 14 116 Tax liabilities 10 616 7 526 8 076 5 611 3 510 Provisions 3 282 11 177 15 562 13 350 7 Trade and other payables 394 635 334 926 316 121 442 289 236 396

Deferred income 75 223 78 390 45 039 48 079 15 626 Advanced payments received 321 523 287 548 256 820 167 237 166 091 Net working capital -411 201 -348 060 -296 389 -354 791 -224 184

Invested capital 4 714 289 3 820 826 3 903 398 3 104 347 1 747 399

FROM LIABILITY SIDE

Share capital 21 379 21 379 16 502 16 502 15 009 Other shareholders funds 483 957 588 635 374 270 577 037 432 797

Minority interests 629 629

Total equity 505 336 610 014 391 401 594 168 447 806

Deferred tax liabilities 26 733 4 327 31 263 26 164 38 974 Total equity- like items 26 733 4 327 31 263 26 164 38 974

Intereset- bearing liabilities 810 668 856 513 913 246 845 055 518 384 Capitalized long- term leasing 3 332 644 2 230 110 2 188 907 1 539 612 747 060 Provisions 8 090 10 298 0 1 205 0 Negative market value of derivatives 25 913 70 853 58 767 81 610 0 Intereset- bearing liabilities 89 673 90 808 117 023 185 337 161 064 Capitalized current leasing 412 552 332 114 327 754 307 289 150 032 Negative market value of derivatives 25 166 12 756 236 735 81 960 0 Interest- bearing liabilities 4 704 706 3 603 452 3 842 432 3 042 068 1 576 540

Cash & cash equivalent 411 093 373 233 268 287 468 658 315 921 Deferred tax asset 51 283 0 46 180 2 956 0 Positive market value of derivatives 6 448 14 664 2 077 0 Positive market value of derivatives 53 662 23 720 46 567 84 362 0 Interest- bearing assets 522 486 396 967 361 698 558 053 315 921

Invested capital 4 714 289 3 820 826 3 903 398 3 104 347 1 747 399

9.2 WACC calculations

9.2.1 WACC

WEIGHTED AVERAGE COST OF CAPITAL

Capital structure Equity 0,35 Debt 0,44 Leasing 0,21

Required rate of return equity Risk- free interest rate 3,68 % Market risk premium 5,00 % Beta 1,25 Liquidity premium 4 % Required rate of return on equity 13,91 %

Cost of leasing 7,00 % Tax rate 28 % After tax cost of leasing 5,04 %

Cost of debt 8,00 % Tax rate 28 % After tax cost of debt 5,76 %

WACC 8,46 %

9.2.2 Norwegian versus OSBX (beta regression)

OSB Dev from av Squared dev from NAS average Dev from av NS Prod of dev from average Return Return return av return mnd return av returns mnd 341,77 70,02 358,67 0,0494 0,0429 0,0018 77,57 0,1077 0,0876 0,0038 379,13 0,0571 0,0505 0,0026 84,71 0,0921 0,0720 0,0036 407,33 0,0744 0,0679 0,0046 96,44 0,1384 0,1183 0,0080 397,86 -0,0232 -0,0297 0,0009 96,57 0,0014 -0,0187 0,0006 364,86 -0,0830 -0,0895 0,0080 92,00 -0,0473 -0,0674 0,0060 378,35 0,0370 0,0305 0,0009 85,34 -0,0724 -0,0925 -0,0028 380,72 0,0063 -0,0002 0,0000 76,75 -0,1007 -0,1208 0,0000 374,84 -0,0154 -0,0219 0,0005 75,92 -0,0109 -0,0310 0,0007 388,11 0,0354 0,0289 0,0008 81,13 0,0687 0,0486 0,0014 412,59 0,0631 0,0566 0,0032 80,95 -0,0022 -0,0223 -0,0013 425,74 0,0319 0,0254 0,0006 78,01 -0,0364 -0,0565 -0,0014 445,62 0,0467 0,0402 0,0016 84,67 0,0854 0,0653 0,0026 463,14 0,0393 0,0328 0,0011 80,88 -0,0448 -0,0649 -0,0021 447,54 -0,0337 -0,0402 0,0016 78,01 -0,0355 -0,0556 0,0022 470,14 0,0505 0,0440 0,0019 88,23 0,1310 0,1109 0,0049 485,85 0,0334 0,0269 0,0007 105,45 0,1952 0,1751 0,0047 497,50 0,0240 0,0175 0,0003 108,46 0,0285 0,0084 0,0001 511,28 0,0277 0,0212 0,0004 104,73 -0,0344 -0,0545 -0,0012 465,92 -0,0887 -0,0952 0,0091 102,39 -0,0224 -0,0425 0,0040 484,84 0,0406 0,0341 0,0012 107,53 0,0502 0,0301 0,0010 498,71 0,0286 0,0221 0,0005 123,13 0,1451 0,1250 0,0028 489,84 -0,0178 -0,0243 0,0006 139,68 0,1344 0,1143 -0,0028 483,34 -0,0133 -0,0198 0,0004 137,74 -0,0138 -0,0339 0,0007 427,65 -0,1152 -0,1217 0,0148 122,89 -0,1079 -0,1280 0,0156 415,49 -0,0284 -0,0350 0,0012 105,45 -0,1419 -0,1620 0,0057 409,17 -0,0152 -0,0217 0,0005 98,55 -0,0654 -0,0855 0,0019 440,26 0,0760 0,0695 0,0048 99,51 0,0097 -0,0104 -0,0007 496,43 0,1276 0,1211 0,0147 79,87 -0,1974 -0,2175 -0,0263 482,94 -0,0272 -0,0337 0,0011 63,95 -0,1993 -0,2194 0,0074 423,67 -0,1227 -0,1292 0,0167 41,17 -0,3563 -0,3764 0,0486 409,97 -0,0324 -0,0389 0,0015 45,37 0,1021 0,0820 -0,0032 357,36 -0,1283 -0,1348 0,0182 38,55 -0,1504 -0,1705 0,0230 250,98 -0,2977 -0,3042 0,0925 27,36 -0,2902 -0,3103 0,0944 226,20 -0,0987 -0,1052 0,0111 28,24 0,0319 0,0118 -0,0012 213,18 -0,0575 -0,0640 0,0041 31,31 0,1089 0,0888 -0,0057 230,06 0,0792 0,0727 0,0053 40,86 0,3050 0,2849 0,0207 223,99 -0,0264 -0,0329 0,0011 38,91 -0,0477 -0,0678 0,0022 217,08 -0,0309 -0,0374 0,0014 33,18 -0,1472 -0,1673 0,0063 237,04 0,0920 0,0855 0,0073 39,66 0,1953 0,1752 0,0150 279,68 0,1799 0,1734 0,0301 54,62 0,3771 0,3570 0,0619 290,59 0,0390 0,0325 0,0011 50,37 -0,0778 -0,0979 -0,0032 282,89 -0,0265 -0,0330 0,0011 56,39 0,1195 0,0994 -0,0033 302,10 0,0679 0,0614 0,0038 66,27 0,1752 0,1551 0,0095 314,36 0,0406 0,0341 0,0012 91,27 0,3772 0,3571 0,0122 335,63 0,0677 0,0612 0,0037 136,93 0,5002 0,4801 0,0294 347,49 0,0353 0,0288 0,0008 141,88 0,0361 0,0160 0,0005 365,16 0,0508 0,0443 0,0020 128,43 -0,0948 -0,1149 -0,0051 371,45 0,0172 0,0107 0,0001 118,95 -0,0738 -0,0939 -0,0010 352,64 -0,0506 -0,0571 0,0033 128,00 0,0761 0,0560 -0,0032 369,71 0,0484 0,0419 0,0018 144,43 0,1284 0,1083 0,0045 386,79 0,0462 0,0397 0,0016 145,76 0,0092 -0,0109 -0,0004 357,66 -0,0753 -0,0818 0,0067 120,39 -0,1741 -0,1942 0,0159 351,53 -0,0172 -0,0237 0,0006 121,98 0,0132 -0,0069 0,0002 348,97 -0,0073 -0,0138 0,0002 102,49 -0,1598 -0,1799 0,0025 360,40 0,0328 0,0263 0,0007 101,90 -0,0058 -0,0259 -0,0007 374,35 0,0387 0,0322 0,0010 93,52 -0,0822 -0,1023 -0,0033 393,91 0,0522 0,0457 0,0021 89,65 -0,0414 -0,0615 -0,0028 407,92 0,0356 0,0291 0,0008 108,11 0,2059 0,1858 0,0054 425,82 0,0439 0,0374 0,0014 115,74 0,0705 0,0504 0,0019

9.2.3 Norwegian versus MSCI (beta regression)

MSCI Europe NAS MSCI Europe Dev from av Squared dev Dev from av Prod of dev EUR average mnd i Return average Return average mnd return from av return NS return from av returns NOK mnd 8,0366 113,057 908,594 70,02 8,0593 115,092 927,561 0,02088 0,02279 0,00052 77,57 0,10774 0,08764 0,00200 7,9775 117,350 936,160 0,00927 0,01118 0,00013 84,71 0,09214 0,07204 0,00081 7,8414 118,086 925,960 -0,01090 -0,00898 0,00008 96,44 0,13843 0,11833 -0,00106 7,7968 111,825 871,877 -0,05841 -0,05649 0,00319 96,57 0,00135 -0,01875 0,00106 7,8604 112,414 883,619 0,01347 0,01538 0,00024 92,00 -0,04729 -0,06739 -0,00104 7,9386 114,239 906,898 0,02634 0,02826 0,00080 85,34 -0,07241 -0,09251 -0,00261 7,9920 117,128 936,087 0,03219 0,03410 0,00116 76,75 -0,10067 -0,12077 -0,00412 8,2572 119,300 985,084 0,05234 0,05426 0,00294 75,92 -0,01086 -0,03097 -0,00168 8,3960 123,410 1 036,150 0,05184 0,05375 0,00289 81,13 0,06869 0,04859 0,00261 8,2446 122,774 1 012,223 -0,02309 -0,02118 0,00045 80,95 -0,00223 -0,02233 0,00047 8,1575 127,335 1 038,735 0,02619 0,02811 0,00079 78,01 -0,03635 -0,05646 -0,00159 8,2780 129,908 1 075,378 0,03528 0,03719 0,00138 84,67 0,08543 0,06533 0,00243 8,0876 127,190 1 028,662 -0,04344 -0,04153 0,00172 80,88 -0,04476 -0,06487 0,00269 8,1340 130,322 1 060,039 0,03050 0,03242 0,00105 78,01 -0,03554 -0,05564 -0,00180 8,1192 134,714 1 093,770 0,03182 0,03373 0,00114 88,23 0,13099 0,11089 0,00374 8,1400 138,116 1 124,264 0,02788 0,02979 0,00089 105,45 0,19525 0,17515 0,00522 8,0590 137,299 1 106,493 -0,01581 -0,01389 0,00019 108,46 0,02851 0,00841 -0,00012 7,9380 132,476 1 051,594 -0,04961 -0,04770 0,00228 104,73 -0,03436 -0,05446 0,00260 7,9735 131,189 1 046,035 -0,00529 -0,00337 0,00001 102,39 -0,02241 -0,04251 0,00014 7,8306 132,043 1 033,976 -0,01153 -0,00962 0,00009 107,53 0,05022 0,03011 -0,00029 7,6963 135,704 1 044,419 0,01010 0,01201 0,00014 123,13 0,14509 0,12498 0,00150 7,9519 129,230 1 027,624 -0,01608 -0,01417 0,00020 139,68 0,13441 0,11431 -0,00162 8,0130 127,430 1 021,097 -0,00635 -0,00444 0,00002 137,74 -0,01385 -0,03395 0,00015 7,9566 112,623 896,096 -0,12242 -0,12050 0,01452 122,89 -0,10785 -0,12796 0,01542 7,9480 111,415 885,526 -0,01180 -0,00988 0,00010 105,45 -0,14187 -0,16197 0,00160 7,9629 106,785 850,318 -0,03976 -0,03785 0,00143 98,55 -0,06543 -0,08553 0,00324 7,9629 112,906 899,059 0,05732 0,05923 0,00351 99,51 0,00968 -0,01042 -0,00062 7,8660 112,571 885,483 -0,01510 -0,01319 0,00017 79,87 -0,19737 -0,21747 0,00287 7,9915 101,198 808,724 -0,08669 -0,08477 0,00719 63,95 -0,19931 -0,21941 0,01860 8,0487 99,160 798,109 -0,01313 -0,01121 0,00013 41,17 -0,35628 -0,37638 0,00422 7,9723 100,671 802,579 0,00560 0,00751 0,00006 45,37 0,10207 0,08197 0,00062 8,1566 89,488 729,918 -0,09054 -0,08862 0,00785 38,55 -0,15037 -0,17047 0,01511 8,5928 77,996 670,204 -0,08181 -0,07990 0,00638 27,36 -0,29017 -0,31027 0,02479 8,8094 72,310 637,008 -0,04953 -0,04762 0,00227 28,24 0,03195 0,01185 -0,00056 9,4039 69,429 652,903 0,02495 0,02687 0,00072 31,31 0,10893 0,08882 0,00239 9,2164 66,906 616,632 -0,05555 -0,05364 0,00288 40,86 0,30499 0,28489 -0,01528 8,7838 60,437 530,867 -0,13909 -0,13717 0,01882 38,91 -0,04774 -0,06784 0,00931 8,8388 61,660 545,000 0,02662 0,02854 0,00081 33,18 -0,14721 -0,16731 -0,00477 8,7870 69,910 614,299 0,12715 0,12907 0,01666 39,66 0,19533 0,17523 0,02262 8,7920 72,723 639,381 0,04083 0,04274 0,00183 54,62 0,37706 0,35695 0,01526 8,9450 71,766 641,947 0,00401 0,00593 0,00004 50,37 -0,07776 -0,09786 -0,00058 8,9494 78,375 701,409 0,09263 0,09454 0,00894 56,39 0,11951 0,09941 0,00940 8,6602 82,106 711,054 0,01375 0,01566 0,00025 66,27 0,17525 0,15515 0,00243 8,5964 84,282 724,522 0,01894 0,02085 0,00043 91,27 0,37721 0,35710 0,00745 8,3596 82,479 689,491 -0,04835 -0,04644 0,00216 136,93 0,50025 0,48015 -0,02230 8,4143 83,174 699,851 0,01502 0,01694 0,00029 141,88 0,03614 0,01604 0,00027 8,4107 88,281 742,505 0,06095 0,06286 0,00395 128,43 -0,09484 -0,11494 -0,00723 8,1817 85,700 701,172 -0,05567 -0,05375 0,00289 118,95 -0,07378 -0,09388 0,00505 8,0971 85,374 691,282 -0,01410 -0,01219 0,00015 128,00 0,07608 0,05598 -0,00068 8,0368 91,428 734,789 0,06294 0,06485 0,00421 144,43 0,12840 0,10829 0,00702 7,9278 90,157 714,747 -0,02728 -0,02536 0,00064 145,76 0,00920 -0,01091 0,00028 7,8972 85,043 671,602 -0,06036 -0,05845 0,00342 120,39 -0,17408 -0,19418 0,01135 7,9062 84,396 667,252 -0,00648 -0,00456 0,00002 121,98 0,01319 -0,00691 0,00003 8,0201 88,505 709,819 0,06379 0,06571 0,00432 102,49 -0,15977 -0,17987 -0,01182 7,9325 87,191 691,643 -0,02561 -0,02369 0,00056 101,90 -0,00577 -0,02587 0,00061 7,9156 90,015 712,523 0,03019 0,03210 0,00103 93,52 -0,08219 -0,10229 -0,00328 8,1110 92,173 747,615 0,04925 0,05116 0,00262 89,65 -0,04136 -0,06146 -0,00314 8,1463 90,730 739,114 -0,01137 -0,00946 0,00009 108,11 0,20589 0,18579 -0,00176 7,9060 95,376 754,043 0,02020 0,02211 0,00049 115,74 0,07052 0,05042 0,00111

9.2.4 Beta regression, AirBerlin

MSCI Europe Dev from av Squared dev HDAX (GE) Dev from av Return Return average mnd return from av return average mnd return

113,057 2930,2 115,092 3006,33 117,350 3095,6 118,086 3117,43 111,825 2942,04 112,414 0,005267159 0,0068618 4,70844E-05 2925,66 -0,005567565 -0,010698319 114,239 0,016234633 0,0178293 0,000317883 2920,55 -0,001746614 -0,006877368 117,128 0,025289087 0,0268837 0,000722735 3014,63 0,032213111 0,027082357 119,300 0,018543815 0,0201385 0,000405558 3094,93 0,026636768 0,021506015 123,410 0,034450964 0,0360456 0,001299286 3218,65 0,039975056 0,034844303 122,774 -0,005153553 -0,0035589 1,26658E-05 3243,03 0,007574604 0,002443851 127,335 0,037149559 0,0387442 0,001501114 3403,6 0,049512339 0,044381585 129,908 0,020206542 0,0218012 0,000475292 3512,21 0,03191033 0,026779577 127,190 -0,020922499 -0,0193279 0,000373566 3474,08 -0,010856412 -0,015987166 130,322 0,024624577 0,0262192 0,000687448 3590,31 0,03345634 0,028325586 134,714 0,03370114 0,0352958 0,001245793 3834,9 0,068125037 0,062994283 138,116 0,0252535 0,0268481 0,000720823 4061,16 0,059000235 0,053869481 137,299 -0,005915318 -0,0043207 1,86682E-05 4115,44 0,013365639 0,008234886 132,476 -0,035127714 -0,0335331 0,001124466 3913,09 -0,049168497 -0,05429925 131,189 -0,009714967 -0,0081203 6,59396E-05 3916,37 0,000838212 -0,004292541 132,043 0,006509692 0,0081043 6,56803E-05 4024,24 0,027543363 0,02241261 135,704 0,027725817 0,0293205 0,00085969 4113,78 0,022250164 0,017119411 129,230 -0,047706774 -0,0461121 0,002126328 4014,6 -0,024109213 -0,029239967 127,430 -0,013928654 -0,012334 0,000152128 4103,12 0,022049519 0,016918766 112,623 -0,116197128 -0,1146025 0,013133728 3488,72 -0,14973971 -0,154870464 111,415 -0,010726051 -0,0091314 8,33825E-05 3458,23 -0,008739595 -0,013870348 106,785 -0,041556343 -0,0399617 0,001596937 3341,45 -0,03376872 -0,038899473 112,906 0,057320785 0,0589154 0,003471028 3559,16 0,065154349 0,060023596 112,571 -0,00296707 -0,0013724 1,88354E-06 3641,95 0,023261107 0,018130353 101,198 -0,101029572 -0,0994349 0,009887304 3307,19 -0,091917791 -0,097048545 99,160 -0,020138738 -0,0185441 0,000343883 3296,95 -0,003096284 -0,008227037 100,671 0,015237999 0,0168326 0,000283338 3296,39 -0,000169854 -0,005300607 89,488 -0,111084622 -0,10949 0,011988054 2940,11 -0,108081871 -0,113212625 77,996 -0,128419453 -0,1268248 0,016084531 2487,83 -0,153830979 -0,158961732 72,310 -0,072901174 -0,0713065 0,005084621 2323,25 -0,066154038 -0,071284791 69,429 -0,039842345 -0,0382477 0,001462886 2395,66 0,031167545 0,026036792 66,906 -0,036339282 -0,0347446 0,00120719 2165,77 -0,09596103 -0,101091783 60,437 -0,09668789 -0,0950932 0,009042725 1922,01 -0,112551194 -0,117681948 61,660 0,020235948 0,0218306 0,000476575 2024,45 0,05329837 0,048167617 69,910 0,133798248 0,1353929 0,018331236 2380,1 0,175677344 0,170546591 72,723 0,040237448 0,0418321 0,001749924 2466,91 0,036473257 0,031342504 71,766 -0,013159523 -0,0115649 0,000133746 2408,4 -0,023717931 -0,028848684 78,375 0,092090962 0,0936856 0,008776994 2660,26 0,104575652 0,099444899 82,106 0,047604466 0,0491991 0,002420553 2743,27 0,031203717 0,026072964 84,282 0,026502326 0,028097 0,00078944 2861,8 0,043207559 0,038076806 82,479 -0,021392468 -0,0197978 0,000391954 2719,02 -0,049891677 -0,05502243 83,174 0,008426387 0,010021 0,000100421 2831,25 0,041275901 0,036145148 88,281 0,061401399 0,062996 0,003968502 2995,26 0,057928477 0,052797724 85,700 -0,029236189 -0,0276415 0,000764055 2840,83 -0,051558129 -0,056688882 85,374 -0,003803967 -0,0022093 4,88109E-06 2829,27 -0,004069233 -0,009199987 91,428 0,070911519 0,0725062 0,005257144 3105,38 0,097590545 0,092459791 90,157 -0,013901649 -0,012307 0,000151462 3104,88 -0,000161011 -0,005291764 85,043 -0,056723272 -0,0551286 0,003039165 3011,68 -0,030017263 -0,035148016 84,396 -0,007607916 -0,0060133 3,61594E-05 3009,22 -0,00081682 -0,005947573 88,505 0,048687142 0,0502818 0,002528258 3104,23 0,031572966 0,026442212 87,191 -0,014846619 -0,013252 0,000175615 2995,39 -0,035061835 -0,040192588 90,015 0,032388664 0,0339833 0,001154866 3157,07 0,053976277 0,048845524 92,173 0,023973782 0,0255684 0,000653745 3345,72 0,059754773 0,054624019 90,730 -0,015655344 -0,0140607 0,000197703 3378,45 0,009782648 0,004651894 95,376 0,051206878 0,0528015 0,002788001 3522,35 0,042593497 0,037462744

Squared dev from AirBerlin Dev from av Prod of dev from Prod of dev from av Return av return average mnd AIB return av returns (MSCI) returns (HDAX)

10,4 0,000114454 9,5 -0,086538462 -0,079466387 -0,000545283 0,000850157 4,72982E-05 10,14 0,067368421 0,074440496 0,001327221 -0,000511955 0,000733454 11,95 0,178500986 0,185573061 0,004988897 0,005025756 0,000462509 12,41 0,038493724 0,045565799 0,000917625 0,000979939 0,001214125 15,05 0,212731668 0,219803743 0,00792296 0,007658908 5,97241E-06 14 -0,069767442 -0,062695367 0,000223127 -0,000153218 0,001969725 16,55 0,182142857 0,189214932 0,007330983 0,008397659 0,000717146 15,99 -0,033836858 -0,026764783 -0,000583504 -0,00071675 0,000255589 15,65 -0,02126329 -0,014191215 0,000274286 0,000226877 0,000802339 17,2 0,099041534 0,106113608 0,002782217 0,00300573 0,00396828 19,52 0,134883721 0,141955796 0,005010442 0,008942404 0,002901921 17,48 -0,104508197 -0,097436122 -0,002615979 -0,005248833 6,78133E-05 15,77 -0,097826087 -0,090754012 0,000392118 -0,000747349 0,002948409 14,39 -0,087507926 -0,080435852 0,002697261 0,004367606 1,84259E-05 12,84 -0,10771369 -0,100641615 0,000817242 0,000432008 0,000502325 11,82 -0,079439252 -0,072367177 -0,000586488 -0,001621937 0,000293074 12,5 0,057529611 0,064601686 0,001894151 0,001105943 0,000854976 10,83 -0,1336 -0,126527925 0,005834472 0,003699672 0,000286245 12,25 0,131117267 0,138189342 -0,001704428 0,002337993 0,02398486 11,5 -0,06122449 -0,054152415 0,006206001 0,00838661 0,000192387 10,18 -0,114782609 -0,107710534 0,000983548 0,001493983 0,001513169 7,45 -0,268172888 -0,261100813 0,010434031 0,010156684 0,003602832 7,96 0,068456376 0,075528451 0,004449791 0,004533489 0,00032871 7,56 -0,050251256 -0,043179181 5,926E-05 -0,000782854 0,00941842 3,8 -0,497354497 -0,490282422 0,048751195 0,047581196 6,76841E-05 3,41 -0,102631579 -0,095559504 0,001772064 0,000786172 2,80964E-05 4,02 0,17888563 0,185957705 0,003130161 -0,000985689 0,012817098 3,14 -0,218905473 -0,211833398 0,023193633 0,023982215 0,025268832 3,65 0,162420382 0,169492457 -0,021495848 -0,026942815 0,005081521 3,55 -0,02739726 -0,020325185 0,001449318 0,001448877 0,000677915 4,89 0,377464789 0,384536864 -0,01470765 0,010012106 0,010219549 3,74 -0,235173824 -0,228101749 0,007925312 0,023059212 0,013849041 3,53 -0,056149733 -0,049077658 0,004666954 0,005775554 0,002320119 3,08 -0,127478754 -0,120406679 -0,00262855 -0,005799703 0,02908614 4 0,298701299 0,305773374 0,041399543 0,052148607 0,000982353 4,05 0,0125 0,019572075 0,000818741 0,000613438 0,000832247 3,33 -0,177777778 -0,170705703 0,00197419 0,004924635 0,009889288 3,35 0,006006006 0,013078081 0,001225228 0,001300548 0,000679799 3,83 0,143283582 0,150355657 0,007397365 0,003920218 0,001449843 3,73 -0,026109661 -0,019037586 -0,000534899 -0,00072489 0,003027468 3,47 -0,069705094 -0,062633019 0,001239997 0,003446221 0,001306472 3,66 0,054755043 0,061827118 0,000619572 0,00223475 0,0027876 3,76 0,027322404 0,034394479 0,002166716 0,00181595 0,003213629 4,26 0,132978723 0,140050798 -0,00387122 -0,007939323 8,46398E-05 4,05 -0,049295775 -0,0422237 9,32856E-05 0,000388457 0,008548813 4,07 0,004938272 0,012010347 0,000870824 0,001110474 2,80028E-05 4,02 -0,012285012 -0,005212937 6,41556E-05 2,75856E-05 0,001235383 3,42 -0,149253731 -0,142181656 0,007838279 0,004997403 3,53736E-05 3,31 -0,032163743 -0,025091668 0,000150883 0,000149235 0,000699191 3,65 0,102719033 0,109791108 0,005520493 0,00290312 0,001615444 3,37 -0,076712329 -0,069640254 0,000922871 0,002799022 0,002385885 3,06 -0,091988131 -0,084916056 -0,002885729 -0,004147769 0,002983783 3,42 0,117647059 0,124719134 0,003188872 0,00681266 2,16401E-05 3,73 0,090643275 0,09771535 -0,001373946 0,000454561 0,001403457 3,72 -0,002680965 0,00439111 0,000231857 0,000164503

9.2.5 Beta regression, easyJet

MSCI Europe MSCI Europe Dev from av Squared dev FTSE (UK) EUR/GDP average mnd Return Return average mnd (EUR) return from av return gj.snitt mnd (GBP)

0,6860 113,057 77,55484 2977 0,6830 115,092 78,60438 0,013532906 0,011378644 0,000129474 3003,7 0,00896876 0,6894 117,350 80,89522 0,029143912 0,02698965 0,000728441 3098,9 0,031694244 0,6946 118,086 82,02608 0,013979264 0,011825002 0,000139831 3126,2 0,008809578 0,6833 111,825 76,41002 -0,06846671 -0,070620972 0,004987322 2966,6 -0,051052396 0,6867 112,414 77,19020 0,010210372 0,008056109 6,49009E-05 3020,9 0,018303782 0,6878 114,239 78,57587 0,017951395 0,015797133 0,000249549 3059,8 0,012876957 0,6767 117,128 79,25935 0,008698311 0,006544048 4,28246E-05 3061,4 0,00052291 0,6751 119,300 80,54062 0,016165623 0,01401136 0,000196318 3103,7 0,013817208 0,6725 123,410 82,99816 0,030513029 0,028358767 0,00080422 3195,6 0,029609821 0,6740 122,774 82,74599 -0,003038243 -0,005192506 2,69621E-05 3173,5 -0,006915759 0,6729 127,335 85,67863 0,035441418 0,033287155 0,001108035 3272,7 0,031258862 0,6634 129,908 86,18227 0,005878224 0,003723962 1,38679E-05 3261,4 -0,003452807 0,6680 127,190 84,96292 -0,014148459 -0,016302722 0,000265779 3246,5 -0,00456859 0,6802 130,322 88,64633 0,043353119 0,041198857 0,001697346 3334,5 0,027106114 0,6793 134,714 91,51661 0,032379019 0,030224757 0,000913536 3408,1 0,022072275 0,6814 138,116 94,10672 0,028302065 0,026147802 0,000683708 3493,1 0,024940583 0,6756 137,299 92,76195 -0,014289813 -0,016444075 0,000270408 3461,5 -0,009046406 0,6744 132,476 89,34181 -0,036870031 -0,039024293 0,001522895 3342,2 -0,034464827 0,6777 131,189 88,90154 -0,004928002 -0,007082265 5,01585E-05 3315,5 -0,00798875 0,6889 132,043 90,96046 0,023159596 0,021005333 0,000441224 3377 0,018549238 0,6961 135,704 94,46898 0,038571937 0,036417674 0,001326247 3518,4 0,041871484 0,7090 129,230 91,61890 -0,030169498 -0,03232376 0,001044825 3349,1 -0,048118463 0,7206 127,430 91,83116 0,00231671 0,000162447 2,63891E-08 3356 0,002060255 0,7473 112,623 84,15754 -0,083562255 -0,085716518 0,007347321 3063,3 -0,087216925 0,7509 111,415 83,66598 -0,005840911 -0,007995173 6,39228E-05 3073 0,00316652 0,7749 106,785 82,75197 -0,010924538 -0,013078801 0,000171055 2988,3 -0,027562642 0,7949 112,906 89,74559 0,084513088 0,082358825 0,006782976 3167,2 0,059866814 0,7921 112,571 89,16636 -0,00645412 -0,008608383 7,41043E-05 3148,9 -0,005777974 0,7915 101,198 80,10024 -0,101676485 -0,103830748 0,010780824 2918,8 -0,073073137 0,7931 99,160 78,64181 -0,018207538 -0,0203618 0,000414603 2810,1 -0,037241332 0,7928 100,671 79,81096 0,014866764 0,012712502 0,000161608 2933 0,043735098 0,7992 89,488 71,52239 -0,103852563 -0,106006826 0,011237447 2540,45 -0,133839073 0,7867 77,996 61,35789 -0,142116279 -0,144270542 0,020813989 2238,95 -0,118679761 0,8306 72,310 60,06286 -0,021106298 -0,023260561 0,000541054 2190,98 -0,021425222 0,9045 69,429 62,79714 0,045523754 0,043369491 0,001880913 2268,07 0,035185168 0,9182 66,906 61,43242 -0,021732228 -0,02388649 0,000570564 2133,34 -0,059402928 0,8869 60,437 53,60218 -0,127461045 -0,129615308 0,016800128 1978,95 -0,072370086 0,9197 61,660 56,70624 0,057909136 0,055754874 0,003108606 2034,76 0,028201824 0,8976 69,910 62,74842 0,106552374 0,104398111 0,010898966 2222,12 0,092079656 0,8845 72,723 64,31986 0,025043463 0,022889201 0,000523916 2303,78 0,03674869 0,8567 71,766 61,48193 -0,044122068 -0,046276331 0,002141499 2220,51 -0,036144944 0,8609 78,375 67,47461 0,09747047 0,095316207 0,009085179 2406,69 0,083845603 0,8627 82,106 70,82874 0,049709604 0,047555342 0,002261511 2574,43 0,069697385 0,8914 84,282 75,12476 0,060653624 0,058499361 0,003422175 2689,61 0,044740001 0,9156 82,479 75,51530 0,005198517 0,003044254 9,26748E-06 2639,27 -0,018716468 0,8989 83,174 74,76677 -0,009912243 -0,012066505 0,000145601 2707,61 0,025893524 0,8997 88,281 79,42818 0,062346001 0,060191738 0,003623045 2823,73 0,042886531 0,8831 85,700 75,67739 -0,047222488 -0,04937675 0,002438063 2718,19 -0,037376095 0,8760 85,374 74,79104 -0,011712165 -0,013866428 0,000192278 2798,33 0,029482854 0,9016 91,428 82,43148 0,102157236 0,100002974 0,010000595 2977,41 0,063995311 0,8746 90,157 78,84771 -0,04347585 -0,045630113 0,002082107 2926,71 -0,017028223 0,8571 85,043 72,89376 -0,075512012 -0,077666274 0,00603205 2732,67 -0,066299702 0,8277 84,396 69,85541 -0,041681812 -0,043836074 0,001921601 2598,19 -0,049211943 0,8357 88,505 73,96009 0,058759586 0,056605323 0,003204163 2775,98 0,068428406 0,8236 87,191 71,81312 -0,029028697 -0,031182959 0,000972377 2756,36 -0,007067774 0,8399 90,015 75,60090 0,052744882 0,05059062 0,002559411 2930,58 0,063206548 0,8764 92,173 80,77857 0,06848696 0,066332698 0,004400027 3000 0,023688144 0,8551 90,730 77,58322 -0,03955691 -0,041711172 0,001739822 2923,93 -0,025356667 0,8481 95,376 80,89125 0,042638392 0,04048413 0,001638965 3129,01 0,070138478

easyJet Dev from av Squared dev Dev from av Prod of dev from Prod of dev from average Return return from av return EAJ return av returns (MSCI) av returns (FTSE) mnd

376 3,76 0,006967918 4,85519E-05 371 3,71 -0,013297872 -0,021803457 -0,000248094 -0,000151925 0,029693401 0,000881698 351 3,51 -0,053908356 -0,062413941 -0,00168453 -0,001853282 0,006808735 4,63589E-05 317 3,17 -0,096866097 -0,105371682 -0,00124602 -0,000717448 -0,053053239 0,002814646 349 3,49 0,100946372 0,092440787 -0,006528258 -0,004904283 0,016302939 0,000265786 386,25 3,8625 0,106733524 0,098227939 0,000791335 0,001601404 0,010876114 0,00011829 445,5 4,455 0,153398058 0,144892473 0,002288886 0,001575867 -0,001477933 2,18429E-06 463,75 4,6375 0,040965208 0,032459623 0,000212417 -4,79731E-05 0,011816365 0,000139626 486 4,86 0,047978437 0,039472852 0,000553068 0,000466426 0,027608978 0,000762256 527 5,27 0,08436214 0,075856555 0,002151198 0,002094322 -0,008916602 7,95058E-05 595 5,95 0,129032258 0,120526673 -0,000625835 -0,001074688 0,02925802 0,000856032 613 6,13 0,030252101 0,021746516 0,00072388 0,00063626 -0,005453649 2,97423E-05 653 6,53 0,065252855 0,05674727 0,000211325 -0,00030948 -0,006569433 4,31575E-05 662 6,62 0,013782542 0,005276957 -8,60288E-05 -3,46666E-05 0,025105271 0,000630275 694 6,94 0,048338369 0,039832784 0,001641065 0,001000013 0,020071432 0,000402862 711,5 7,115 0,025216138 0,016710553 0,000505072 0,000335405 0,02293974 0,000526232 568,5 5,685 -0,200983837 -0,209489422 -0,005477688 -0,004805633 -0,011047249 0,000122042 525 5,25 -0,07651715 -0,085022735 0,00139812 0,000939267 -0,03646567 0,001329745 511,5 5,115 -0,025714286 -0,034219871 0,001335406 0,001247851 -0,009989593 9,9792E-05 577 5,77 0,128054741 0,119549156 -0,000846679 -0,001194247 0,016548396 0,000273849 524,5 5,245 -0,090987868 -0,099493453 -0,002089893 -0,001646457 0,039870641 0,001589668 663 6,63 0,26406101 0,255555425 0,009306734 0,010189159 -0,050119306 0,002511945 563 5,63 -0,150829563 -0,159335148 0,005150311 0,007985767 5,94121E-05 3,5298E-09 613,5 6,135 0,089698046 0,081192461 1,31895E-05 4,82381E-06 -0,089217768 0,00795981 465,5 4,655 -0,241238794 -0,249744379 0,021407219 0,022281636 0,001165677 1,3588E-06 409,5 4,095 -0,120300752 -0,128806337 0,001029829 -0,000150147 -0,029563485 0,000874 371,25 3,7125 -0,093406593 -0,101912178 0,001332889 0,003012879 0,057865971 0,003348471 308,75 3,0875 -0,168350168 -0,176855753 -0,014565632 -0,01023393 -0,007778817 6,051E-05 301 3,01 -0,025101215 -0,0336068 0,0002893 0,000261421 -0,07507398 0,005636102 269,75 2,6975 -0,103820598 -0,112326183 0,011662912 0,008432774 -0,039242175 0,001539948 333 3,33 0,234476367 0,225970782 -0,004601172 -0,008867585 0,041734255 0,001741748 328,75 3,2875 -0,012762763 -0,021268348 -0,000270374 -0,000887619 -0,135839916 0,018452483 315 3,15 -0,041825095 -0,05033068 0,005335396 0,006836915 -0,120680604 0,014563808 308 3,08 -0,022222222 -0,030727807 0,004433117 0,00370825 -0,023426065 0,000548781 275 2,75 -0,107142857 -0,115648442 0,002690048 0,002709188 0,033184325 0,001101199 280,25 2,8025 0,019090909 0,010585324 0,00045908 0,000351267 -0,061403771 0,003770423 299 2,99 0,06690455 0,058398964 -0,001394946 -0,003585917 -0,074370929 0,005531035 308,75 3,0875 0,032608696 0,024103111 -0,003124132 -0,001792571 0,026200981 0,000686491 279,5 2,795 -0,094736842 -0,103242427 -0,005756268 -0,002705053 0,090078813 0,008114192 317,25 3,1725 0,135062612 0,126557027 0,013212315 0,011400107 0,034747848 0,001207413 313 3,13 -0,013396375 -0,02190196 -0,000501318 -0,000761046 -0,038145787 0,001455101 270,25 2,7025 -0,13658147 -0,145087055 0,006714097 0,00553446 0,08184476 0,006698565 302,25 3,0225 0,118408881 0,109903296 0,010475565 0,008995009 0,067696542 0,004582822 319,8 3,198 0,058064516 0,049558931 0,002356792 0,003354968 0,042739158 0,001826636 379,2 3,792 0,185741088 0,177235503 0,010368164 0,007574896 -0,020717311 0,000429207 360,1 3,601 -0,050369198 -0,058874783 -0,00017923 0,001219727 0,023892681 0,00057086 367 3,67 0,019161344 0,010655759 -0,000128578 0,000254595 0,040885688 0,001671639 353 3,53 -0,038147139 -0,046652724 -0,002808109 -0,001907429 -0,039376938 0,001550543 391,4 3,914 0,10878187 0,100276285 -0,004951317 -0,003948573 0,027482011 0,000755261 414,1 4,141 0,057996934 0,049491349 -0,000686268 0,001360122 0,061994469 0,003843314 458,9 4,589 0,108186428 0,099680843 0,009968381 0,006179661 -0,019029065 0,000362105 472,4 4,724 0,029418174 0,020912589 -0,000954244 -0,000397947 -0,068300545 0,004664964 401 4,01 -0,151143099 -0,159648684 0,012399318 0,010904092 -0,051212786 0,002622749 397,8 3,978 -0,00798005 -0,016485635 0,000722666 0,000844275 0,066427563 0,004412621 399,8 3,998 0,005027652 -0,003477933 -0,00019687 -0,000231031 -0,009068617 8,22398E-05 348,6 3,486 -0,128064032 -0,136569617 0,004258645 0,001238498 0,061205705 0,003746138 369,9 3,699 0,061101549 0,052595964 0,002660862 0,003219173 0,021687301 0,000470339 456 4,56 0,232765612 0,224260027 0,014875773 0,004863595 -0,02735751 0,000748433 427,9 4,279 -0,061622807 -0,070128392 0,002925137 0,001918538 0,068137635 0,004642737 440 4,4 0,028277635 0,01977205 0,000800454 0,001347221

9.2.6 Beta regression, Ryanair

Dev from av Squared dev ISEQ (Ireland) Dev from av Return Return return from av return average mnd return

7562,37 0,01799977 0,01964105 0,000385771 7928,3 0,04838827 0,061655864 0,019619087 0,02126037 0,000452003 8066,1 0,017380775 0,03064837 0,006271836 0,00791312 6,26174E-05 7930,99 -0,01675035 -0,00348276 -0,05302068 -0,0513794 0,002639843 7605,86 -0,040994882 -0,02772729 0,005267159 0,00690844 4,77266E-05 7516,28 -0,011777761 0,001489833 0,016234633 0,01787591 0,000319548 7507,18 -0,001210705 0,012056889 0,025289087 0,02693037 0,000725245 8045,05 0,07164741 0,084915004 0,018543815 0,0201851 0,000407438 8223,84 0,022223603 0,035491198 0,034450964 0,03609225 0,00130265 8621,33 0,048333868 0,061601463 -0,005153553 -0,00351227 1,2336E-05 8694,33 0,008467371 0,021734965 0,037149559 0,03879084 0,001504729 9408,12 0,082098333 0,095365927 0,020206542 0,02184782 0,000477327 9205,16 -0,021572854 -0,00830526 -0,020922499 -0,01928122 0,000371765 9408,68 0,022109339 0,035376933 0,024624577 0,02626586 0,000689895 9375,3 -0,003547788 0,009719807 0,03370114 0,03534242 0,001249087 9470,48 0,010152208 0,023419803 0,0252535 0,02689478 0,000723329 9854,86 0,040587172 0,053854766 -0,005915318 -0,00427404 1,82674E-05 9306,25 -0,05566898 -0,04240139 -0,035127714 -0,03348643 0,001121341 8563,39 -0,079823774 -0,06655618 -0,009714967 -0,00807369 6,51844E-05 8400,93 -0,018971459 -0,00570386 0,006509692 0,00815097 6,64384E-05 7883,67 -0,061571755 -0,04830416 0,027725817 0,0293671 0,000862426 7911,12 0,003481881 0,016749475 -0,047706774 -0,04606549 0,00212203 7207,05 -0,088997512 -0,07572992 -0,013928654 -0,01228737 0,00015098 6934,35 -0,03783795 -0,02457036 -0,116197128 -0,11455585 0,013123042 6664,48 -0,038917851 -0,02565026 -0,010726051 -0,00908477 8,2533E-05 6415,12 -0,037416273 -0,02414868 -0,041556343 -0,03991506 0,001593212 6177,05 -0,037110763 -0,02384317 0,057320785 0,05896207 0,003476525 6338,52 0,02614031 0,039407904 -0,00296707 -0,00132579 1,75771E-06 6105,87 -0,036704152 -0,02343656 -0,101029572 -0,09938829 0,009878032 5209,57 -0,146793168 -0,13352557 -0,020138738 -0,01849746 0,000342156 4371,62 -0,160848208 -0,14758061 0,015237999 0,01687928 0,00028491 4494,92 0,028204647 0,041472242 -0,111084622 -0,10944334 0,011977845 3550,63 -0,210079378 -0,19681178 -0,128419453 -0,12677817 0,016072705 3029,46 -0,146782402 -0,13351481 -0,072901174 -0,07125989 0,005077972 2538,49 -0,162065187 -0,14879759 -0,039842345 -0,03820106 0,001459321 2343,27 -0,076903986 -0,06363639 -0,036339282 -0,034698 0,001203951 2311,39 -0,01360492 -0,00033733 -0,09668789 -0,09504661 0,009033858 2074,32 -0,102565988 -0,08929839 0,020235948 0,02187723 0,000478613 2193,95 0,057671912 0,070939506 0,133798248 0,13543953 0,018343866 2622,05 0,19512751 0,208395104 0,040237448 0,04187873 0,001753828 2722,52 0,038317347 0,051584941 -0,013159523 -0,01151824 0,00013267 2706,08 -0,006038523 0,007229071 0,092090962 0,09373224 0,008785734 2791,1 0,03141814 0,044685734 0,047604466 0,04924575 0,002425144 3096,16 0,10929741 0,122565004 0,026502326 0,02814361 0,000792063 3347,33 0,081123069 0,094390663 -0,021392468 -0,01975119 0,000390109 2866,69 -0,143589069 -0,13032148 0,008426387 0,01006767 0,000101358 2807,59 -0,020616111 -0,00734852 0,061401399 0,06304268 0,00397438 2974,93 0,05960272 0,072870314 -0,029236189 -0,02759491 0,000761479 2976,25 0,000443708 0,013711302 -0,003803967 -0,00216269 4,67721E-06 2873,6 -0,03448971 -0,02122212 0,070911519 0,0725528 0,005263909 3177,77 0,105849805 0,119117399 -0,013901649 -0,01226037 0,000150317 3397 0,06898863 0,082256225 -0,056723272 -0,05508199 0,003034026 2947,7 -0,132263762 -0,11899617 -0,007607916 -0,00596663 3,56007E-05 2878,67 -0,023418258 -0,01015066 0,048687142 0,05032842 0,00253295 2915,36 0,012745469 0,026013064 -0,014846619 -0,01320534 0,000174381 2703,86 -0,072546787 -0,05927919 0,032388664 0,03402995 0,001158037 2676,18 -0,010237216 0,003030378 0,023973782 0,02561506 0,000656132 2684,25 0,003015492 0,016283087 -0,015655344 -0,01401406 0,000196394 2646 -0,01424979 -0,0009822 0,051206878 0,05284816 0,002792928 2885,1 0,090362812 0,103630406

Squared dev Dev from av Prod of dev from Prod of dev from av Ryanair average mnd Return from av return RYA return av returns (MSCI) returns (ISEQ)

7,73 0,003801446 7,66 -0,009055627 -0,003654411 -7,17765E-05 -0,000225316 0,000939323 7,83 0,022193211 0,027594428 0,000586668 0,000845724 1,21296E-05 6,69 -0,14559387 -0,140192653 -0,001109361 0,000488257 0,000768802 6,67 -0,002989537 0,00241168 -0,000123911 -6,68693E-05 2,2196E-06 7,1 0,064467766 0,069868982 0,000482686 0,000104093 0,000145369 7,79 0,097183099 0,102584315 0,001833788 0,001236848 0,007210558 7,5 -0,037227214 -0,031825998 -0,000857086 -0,002702505 0,001259625 8,44 0,125333333 0,13073455 0,00263889 0,004639926 0,00379474 8,85 0,048578199 0,053979415 0,001948238 0,003325211 0,000472409 9,4 0,062146893 0,067548109 -0,000237247 0,001468156 0,00909466 10,43 0,109574468 0,114975684 0,004460004 0,010964763 6,89773E-05 10,87 0,042186002 0,047587218 0,001039677 -0,000395224 0,001251527 5,76 -0,470101196 -0,46469998 0,008959981 -0,01643966 9,44746E-05 5,83 0,012152778 0,017553994 0,000461071 0,000170621 0,000548487 6,07 0,041166381 0,046567597 0,001645812 0,001090604 0,002900336 5,32 -0,123558484 -0,118157268 -0,003177814 -0,006363332 0,001797877 4,96 -0,067669173 -0,062267957 0,000266135 0,002640248 0,004429725 5,3 0,068548387 0,073949603 -0,002476308 -0,004921803 3,25341E-05 5,34 0,00754717 0,012948386 -0,000104541 -7,38558E-05 0,002333292 5 -0,063670412 -0,058269196 -0,000474951 0,002814645 0,000280545 5,74 0,148 0,153401216 0,004504949 0,00256939 0,00573502 4,98 -0,132404181 -0,127002965 0,005850454 0,009617924 0,000603702 4,63 -0,070281124 -0,064879908 0,000797204 0,001594122 0,000657936 3,8 -0,179265659 -0,173864442 0,019917188 0,004459668 0,000583159 3,15 -0,171052632 -0,165651415 0,001504905 0,004000263 0,000568497 2,8 -0,111111111 -0,105709895 0,004219417 0,002520459 0,001552983 2,96 0,057142857 0,062544073 0,003687728 0,002464731 0,000549272 2,7 -0,087837838 -0,082436622 0,000109293 0,001932031 0,017829079 2,8 0,037037037 0,042438253 -0,004217865 -0,005666592 0,021780038 2,44 -0,128571429 -0,123170212 0,002278336 0,018177536 0,001719947 2,59 0,06147541 0,066876626 0,001128829 0,002773524 0,038734878 2,26 -0,127413127 -0,122011911 0,013353391 0,024013382 0,017826204 2,75 0,216814159 0,222215376 -0,028172059 -0,029669043 0,022140723 2,93 0,065454545 0,070855762 -0,005049174 -0,010543167 0,00404959 2,97 0,013651877 0,019053093 -0,000727848 -0,00121247 1,13788E-07 2,87 -0,033670034 -0,028268817 0,000980871 9,53579E-06 0,007974203 2,96 0,031358885 0,036760101 -0,003493923 -0,003282618 0,005032414 2,89 -0,023648649 -0,018247432 -0,000399203 -0,001294464 0,043428519 3,3 0,141868512 0,147269728 0,019946143 0,03069029 0,002661006 3,63 0,1 0,105401216 0,004414069 0,005437116 5,22595E-05 3,26 -0,101928375 -0,096527158 0,001111823 -0,000697802 0,001996815 3,1 -0,049079755 -0,043678538 -0,004094087 -0,001951808 0,01502218 3,12 0,006451613 0,011852829 0,000583701 0,001452742 0,008909597 3,41 0,092948718 0,098349934 0,002767922 0,009283315 0,016983687 2,95 -0,134897361 -0,129496144 0,002557702 0,016876129 5,40007E-05 2,77 -0,061016949 -0,055615733 -0,000559921 0,000408693 0,005310083 3,3 0,19133574 0,196736956 0,012402825 0,014336284 0,000188 3,35 0,015151515 0,020552731 -0,000567151 0,000281805 0,000450378 3,5 0,044776119 0,050177336 -0,000108518 -0,001064869 0,014188955 3,68 0,051428571 0,056829788 0,00412316 0,006769417 0,006766087 3,73 0,013586957 0,018988173 -0,000232802 0,001561895 0,014160088 3,38 -0,09383378 -0,088432564 0,004871042 0,010523136 0,000103036 3,6 0,065088757 0,070489974 -0,000420588 -0,00071552 0,000676679 3,84 0,066666667 0,072067883 0,003627063 0,001874706 0,003514023 3,83 -0,002604167 0,00279705 -3,6936E-05 -0,000165807 9,18319E-06 3,92 0,023498695 0,028899911 0,000983462 8,75777E-05 0,000265139 4,13 0,053571429 0,058972645 0,001510588 0,000960257 9,64709E-07 3,85 -0,06779661 -0,062395394 0,000874413 6,12845E-05 0,010739261 3,77 -0,020779221 -0,015378004 -0,000812699 -0,001593629

9.2.7 Beta calculations

Norwegian Air Shuttle ASA AirBerlin

OSBX MSCI HDAX MSCI Total market return 0,3836 -0,11287 Total market return 0,282191432 -0,087705657 Average market return 0,0065 -0,00191 Average market return 0,005130753 -0,001594648

Total NAS return 1,1860 1,18602 Total AIB return -0,388964121 -0,388964121 Average NAS return 0,0201 0,02010 Average AIB return -0,007072075 -0,007072075

Variance market 0,0051 0,00244 Variance market 0,003633287 0,002541528 Covariance 0,0061 0,00201 Covariance 0,003966092 0,00322952

Beta 1,19 0,82 Beta 1,09 1,27

easyJet plc Ryanair plc

FTSE 350 MSCI ISEQ MSCI Total market return0,118049732 0,12710149 Total market return-0,782788064 -0,096835643 Average market 0,002000843return 0,002154263 Average market-0,013267594 return -0,001641282

Total EAJ return0,501829518 0,501829518 Total RYA return-0,318671763 -0,318671763 Average EAJ return0,008505585 0,008505585 Average RYA return-0,005401216 -0,005401216

Variance market0,002268615 0,002826265 Variance market0,005661979 0,002429227 Covariance 0,001587642 0,001825567 Covariance 0,001957287 0,001439045

Beta 0,70 0,65 Beta 0,35 0,59

9.3 Forecast

9.3.1 P&L Norwegian explicit period 1

Adjusted historical data Explicit period 1: 2011 - 2015 Input cell 2010 2011 2012 2013 2014 2015

TRAFFIC FIGURES

ASK 17 804 21 365 24 570 28 255 31 646 35 443

ASK 31 % 20 % 15 % 15 % 12 % 12 %

RPK 13 774 growth 30 % Load factor 77,4 % change -1,0 %

Passengers 13 000 growth 20 % Ticket revenue per passengers 555 growth -6,3 %

Yield 0,52 change -13,1 % RASK 0,40 0,380 0,37 0,365 0,36 0,36 Change (%) -14,1 % -6,2 % -2,6 % -1,4 % -1,4 % 0,0 %

Ticket revenue 7 210 161 8 118 624 9 090 722 10 313 056 11 392 395 12 759 482 Ticket revenue 13 % 13 % 12 % 13 % 10 % 12 %

Ancillary revenue per passenger 80 growth 9 % Ancillary revenue 1 034 006 1 292 508 1 551 009 1 783 660 2 051 209 2 297 355 growth 31 % 25 % 20 % 15 % 15 % 12 % share of revenue 12,3 % 13,5 % 14,3 % 14,5 % 15,0 % 15,0 % 0,44 0,43 0,43 0,42 0,42 Other 162 172 178 389 196 228 215 851 237 436 261 180 growth 24 % 10 % 10 % 10 % 10 % 10 % andel av ticket revenue 2 % 2 % 2 % 2 % 2 % 2 %

Total revenue 8 406 339 9 589 521 10 837 960 12 312 567 13 681 040 15 318 017 15,0 % 14,1 % 13,0 % 13,6 % 11,1 % 12,0 %

100

Adjusted historical data Explicit period 1: 2011 - 2015 Input cell 2010 2011 2012 2013 2014 2015

COST FIGURES

Expenses ex fuel and leasing Sales and distribution 167 859 191 790 205 921 233 939 246 259 275 724 % of revenue 2,0 % 2,0 % 1,9 % 1,9 % 1,8 % 1,8 % Airport charges 1 295 913 1 438 428 1 593 180 1 785 322 1 956 389 2 159 840 % of revenue 15,4 % 15,0 % 14,7 % 14,5 % 14,3 % 14,1 % Handling expenses 863 551 958 952 1 051 282 1 157 381 1 258 656 1 378 621 % of revenue 10,3 % 10,0 % 9,7 % 9,4 % 9,2 % 9,0 % Technical maintenance 697 196 767 162 834 523 923 443 985 035 1 072 261 % of revenue 8,3 % 8,0 % 7,7 % 7,5 % 7,2 % 7,0 % Other expenses 803 522 891 825 975 416 1 071 193 1 162 888 1 256 077 % of revenue 9,6 % 9,3 % 9,0 % 8,7 % 8,5 % 8,2 % Wages, salaries and other personell 1 531 211 1 726 114 1 918 319 2 154 699 2 394 182 2 680 653 % of revenue 18,2 % 18,0 % 17,7 % 17,5 % 17,5 % 17,5 % Expenses ex fuel and leasing 5 359 252 5 974 271 6 578 641 7 325 978 8 003 409 8 823 178 % of revenue 64 % 62 % 61 % 60 % 59 % 58 %

CASK ex fuel and leasing 0,30 0,28 0,27 0,26 0,25 0,25

Aviation fuel Oil price - brent (USD/barrel) 79 Jet Fuel price (USD/ton) 710 852 852 852 852 852 USD/NOK 6,04 6 6 6 6 6 Jet fuel price (NOK/ton) 4 288 5 112 5 112 5 112 5 112 5 112 Jet fuel price (NOK/kg) 4 5 5 5 5 5 Fuel consumption (1000' tonnes) 488 Fuel consumption per ASK (kg) 0,0274 0,0252 0,0246 0,0241 0,0239 0,0237

Aviation fuel expense 2 092 859 2 752 265 3 089 745 3 480 987 3 866 351 4 294 076 % of revenue 25 % 29 % 29 % 28 % 28 % 28 %

Fuel cost per ASK 0,12 0,13 0,13 0,12 0,12 0,12

Total expenses ex leasing 7 452 111 8 726 536 9 668 386 10 806 965 11 869 760 13 117 254 CASK ex leasing 0,42 0,41 0,39 0,38 0,38 0,37

EBITDAR 954 228 862 984 1 169 573 1 505 603 1 811 281 2 200 763 EBITDAR- margin 11,4 % 9,0 % 10,8 % 12,2 % 13,2 % 14,4 %

Leasing expenses Leased 41 35 36 31 25 23 average 40

Average per airline 19 460 19 000 19 475 19 962 20 461 20 972 growth 2,5 % 2,5 % 2,5 % 2,5 % 2,5 %

Leasing expenses 778 400 665 000 701 100 618 818 511 523 482 366 % of revenue 9,3 % 7 % 6 % 5 % 4 % 3 %

Leasing per ASK 0,04 0,03 0,03 0,02 0,02 0,01

Total expenses 8 230 511 9 391 536 10 369 486 11 425 783 12 381 283 13 599 620 CASK 0,46 0,44 0,42 0,40 0,39 0,38

EBITDA 175 828 197 984 468 473 886 785 1 299 758 1 718 397 EBITDA- margin 2,1 % 2,1 % 4,3 % 7,2 % 9,5 % 11,2 %

Capitalized leasing payments - 778 400 -665 000 -701 100 -618 818 -511 523 -482 366

Ordinary depreciation 186 707 371 358 490 290 600 775 713 237 757 575 Depreciation capitalized leasing 496 248 310 828 398 525 299 818 229 961 249 623

EBIT 271 273 180 799 280 758 605 010 868 083 1 193 565 Margin (%) 3,2 % 1,9 % 2,6 % 4,9 % 6,3 % 7,8 %

101

9.3.2 Balance sheet Norwegian explicit period 1

Explicit period 1: 2011 - 2015 (NOK 1 000) 2011 2012 2013 2014 2015

ASSETS Non- current assets Intangible assets 210 293 210 293 210 293 210 293 210 293 Deferred tax asset Tangible fixed assets 7 055 795 9 315 506 11 414 730 13 551 494 14 393 919 Capitalized leasing asset 4 655 000 4 907 700 4 331 727 3 580 661 3 376 564 Total non- current assets 11 921 088 14 433 499 15 956 750 17 342 448 17 980 776

Current assets Inventories 61 039 68 986 78 372 87 083 97 502 Trade and other receivables 1 054 847 1 192 176 1 354 382 1 504 914 1 684 982 Cash and cash equivalents 869 349 959 782 1 257 071 1 757 518 2 656 771 Total current assets 1 985 235 2 220 943 2 689 825 3 349 515 4 439 255

TOTAL ASSETS 13 906 324 16 654 442 18 646 575 20 691 963 22 420 031

EQUITY AND LIABILITES Equity Share capital 3 457 3 457 3 457 3 457 3 457 Share premium 1 055 083 1 055 083 1 055 083 1 055 083 1 055 083 Other paid- in equity 54 521 54 521 54 521 54 521 54 521 Other reserves - 7 944 - 7 944 - 7 944 - 7 944 - 7 944 Retained earnings 460 986 197 207 30 863 - 40 613 27 808 Total equity 1 566 103 1 302 324 1 135 980 1 064 504 1 132 925

Non- current liabilities Provision for periodic maintenance 95 895 108 380 123 126 136 810 153 180 Deferred tax 45 000 Interest- bearing long term liability 8 583 903 11 100 503 12 856 812 14 613 041 15 788 100 Borrowings 4 593 903 6 893 903 9 143 903 11 543 903 12 893 903 Capitalized leasing debt, long- term 3 990 000 4 206 600 3 712 909 3 069 138 2 894 197 Total long-term liabilities 8 679 798 11 208 883 12 979 937 14 749 852 15 941 281

Short- term liabilities Interest bearing current liability 1 457 847 1 750 819 1 864 592 1 920 389 2 128 390 Short- term borrowings 792 847 1 049 719 1 245 774 1 408 866 1 646 024 Capitalized leasing liability, current 665 000 701 100 618 818 511 523 482 366 Trade and other payables 1 046 566 1 161 160 1 297 962 1 425 416 1 575 321 Air traffic settlement liabilities 1 083 796 1 231 257 1 368 104 1 531 802 1 642 114 Tax payable 72 214 0 0 0 0 Total short-term liabilities 3 660 423 4 143 236 4 530 658 4 877 607 5 345 825 Total liabilities 12 340 221 15 352 118 17 510 596 19 627 459 21 287 105

TOTAL EQUITY AND LIABILITIES 13 906 324 16 654 442 18 646 576 20 691 963 22 420 030

102

9.3.3 P&L Norwegian explicit period 2 and terminal period

Explicit period 2: 2016 - 2025 Input cell 2016 2017 2018 2019 2020 Ticket revenue 14 035 431 15 438 974 16 674 092 18 008 019 19 088 500 Ticket revenue 10 % 10 % 8 % 8 % 6 %

Ancillary revenue per passenger growth Ancillary revenue 2 104 996 2 315 495 2 500 735 2 700 794 2 862 841 growth share of revenue 15,0 % 15,0 % 15,0 % 15,0 % 15,0 %

Other 280 709 308 779 333 482 360 160 381 770 growth andel av ticket revenue 2 % 2 % 2 % 2 % 2 %

Total revenue 16 421 135 18 063 249 19 508 308 21 068 973 22 333 112 7,2 % 10,0 % 8,0 % 8,0 % 6,0 %

EBITDAR 2 359 250 2 595 174 2 802 788 3 027 012 3 208 632 EBITDAR- margin 14,4 % 14,4 % 14,4 % 14,4 % 14,4 %

EBITDA 1 842 146 2 026 361 2 188 469 2 363 547 2 505 360 EBITDA- margin 11,2 % 11,2 % 11,2 % 11,2 % 11,2 %

Capitalized leasing payments -410 528 -451 581 -487 708 -526 724 -558 328

Ordinary depreciation 774 696 812 846 877 874 948 104 1 004 990 Depreciation capitalized leasing 191 052 264 791 282 238 304 817 318 668

EBIT 1 286 927 1 400 305 1 516 065 1 637 350 1 740 029 Margin (%) 7,8 % 7,8 % 7,8 % 7,8 % 7,8 %

103

Explicit period 2: 2016 - 2025 Terminal value Input cell 2021 2022 2023 2024 2025 2026 -> Ticket revenue 20 233 810 21 043 163 21 884 889 22 541 436 23 217 679 Ticket revenue 6 % 4 % 4 % 3 % 3 %

Ancillary revenue per passenger growth Ancillary revenue 3 034 612 3 155 996 3 282 236 3 380 703 3 482 124 growth share of revenue 15,0 % 15,0 % 15,0 % 15,0 % 15,0 %

Other 404 676 420 863 437 698 450 829 464 354 growth andel av ticket revenue 2 % 2 % 2 % 2 % 2 %

Total revenue 23 673 098 24 620 022 25 604 823 26 372 968 27 164 157 27 843 261 6,0 % 4,0 % 4,0 % 3,0 % 3,0 % 2,5 %

EBITDAR 3 401 150 3 537 196 3 678 684 3 789 045 3 902 716 4 000 284 EBITDAR- margin 14,4 % 14,4 % 14,4 % 14,4 % 14,4 % 14,4 %

EBITDA 2 655 681 2 761 909 2 872 385 2 958 557 3 047 313 3 123 496 EBITDA- margin 11,2 % 11,2 % 11,2 % 11,2 % 11,2 % 11,2 %

Capitalized leasing payments -591 827 -615 501 -640 121 -659 324 -679 104 -696 082

Ordinary depreciation 1 065 289 1 107 901 1 152 217 1 186 784 1 222 387 1 252 947 Depreciation capitalized leasing 337 788 346 219 360 068 368 069 379 111 387 089

EBIT 1 844 431 1 923 289 2 000 221 2 063 028 2 124 919 2 179 542 Margin (%) 7,8 % 7,8 % 7,8 % 7,8 % 7,8 % 7,8 %

104

9.3.4 Balance sheet Norwegian explicit period 2 and terminal period

Explicit period 2: 2016 - 2025 (NOK 1 000) 2016 2017 2018 2019 2020

ASSETS Non- current assets Intangible assets 225 437 247 981 267 819 289 245 306 600 Deferred tax asset Tangible fixed assets 14 719 223 15 080 488 15 431 638 15 747 672 16 015 670 Capitalized leasing asset 2 873 699 3 161 069 3 413 954 3 687 070 3 908 295 Total non- current assets 17 818 359 18 489 537 19 113 411 19 723 987 20 230 564

Current assets Inventories 104 524 114 976 124 174 134 108 142 155 Trade and other receivables 1 806 325 1 986 957 2 145 914 2 317 587 2 456 642 Cash and cash equivalents 3 627 029 4 025 119 4 518 057 5 060 066 5 688 178 Total current assets 5 537 878 6 127 052 6 788 145 7 511 761 8 286 975

TOTAL ASSETS 23 356 237 24 616 590 25 901 556 27 235 749 28 517 539

EQUITY AND LIABILITES Equity Share capital 3 457 3 457 3 457 3 457 3 457 Share premium 1 055 083 1 055 083 1 055 083 1 055 083 1 055 083 Other paid- in equity 54 521 54 521 54 521 54 521 54 521 Other reserves - 7 944 - 7 944 - 7 944 - 7 944 - 7 944 Retained earnings 100 102 228 961 412 822 658 497 953 717 Total equity 1 205 219 1 334 078 1 517 939 1 763 614 2 058 834

Non- current liabilities Provision for periodic maintenance 164 211 180 632 195 083 210 690 223 331 Deferred tax Interest- bearing long term liability 16 257 073 16 779 268 17 249 283 17 698 229 18 062 304 Borrowings 13 793 903 14 069 781 14 323 037 14 537 883 14 712 337 Capitalized leasing debt, long- term 2 463 170 2 709 487 2 926 246 3 160 346 3 349 967 Total long-term liabilities 16 421 285 16 959 901 17 444 366 17 908 918 18 285 635

Short- term liabilities Interest bearing current liability 2 208 531 2 486 243 2 776 476 3 092 176 3 414 316 Short- term borrowings 1 798 003 2 034 662 2 288 768 2 565 452 2 855 988 Capitalized leasing liability, current 410 528 451 581 487 708 526 724 558 328 Trade and other payables 1 688 269 1 857 423 2 005 766 2 166 227 2 295 903 Air traffic settlement liabilities 1 806 325 1 950 831 2 106 897 2 233 311 2 367 310 Tax payable 26 608 28 114 50 112 71 501 95 540 Total short-term liabilities 5 729 733 6 322 611 6 939 251 7 563 216 8 173 069 Total liabilities 22 151 018 23 282 512 24 383 618 25 472 135 26 458 704

TOTAL EQUITY AND LIABILITIES 23 356 236 24 616 590 25 901 557 27 235 749 28 517 539

105

Explicit period 2: 2016 - 2025 Terminal value (NOK 1 000) 2021 2022 2023 2024 2025 2026 ->

ASSETS Non- current assets Intangible assets 324 996 337 995 351 515 362 061 372 922 382 245 Deferred tax asset Tangible fixed assets 16 252 401 16 449 361 16 577 385 16 630 131 16 630 131 16 630 131 Capitalized leasing asset 4 142 792 4 308 504 4 480 844 4 615 269 4 753 727 4 872 571 Total non- current assets 20 720 188 21 095 860 21 409 744 21 607 461 21 756 781 21 884 947

Current assets Inventories 150 684 156 711 162 980 167 869 172 905 177 228 Trade and other receivables 2 604 041 2 708 202 2 816 531 2 901 026 2 988 057 3 062 759 Cash and cash equivalents 6 349 633 7 081 418 7 864 407 8 726 173 9 643 689 10 606 943 Total current assets 9 104 358 9 946 332 10 843 917 11 795 069 12 804 651 13 846 930

TOTAL ASSETS 29 824 546 31 042 192 32 253 661 33 402 529 34 561 432 35 731 876

EQUITY AND LIABILITES Equity Share capital 3 457 3 457 3 457 3 457 3 457 3 457 Share premium 1 055 083 1 055 083 1 055 083 1 055 083 1 055 083 1 055 083 Other paid- in equity 54 521 54 521 54 521 54 521 54 521 54 521 Other reserves - 7 944 - 7 944 - 7 944 - 7 944 -7 944 -7 944 Retained earnings 1 304 333 1 692 808 2 122 499 2 585 301 3 084 748 3 617 043 Total equity 2 409 450 2 797 925 3 227 616 3 690 418 4 189 865 4 722 160

Non- current liabilities Provision for periodic maintenance 236 731 246 200 256 048 263 730 271 642 278 433 Deferred tax Interest- bearing long term liability 18 410 425 18 671 340 18 893 951 19 039 280 19 157 958 19 259 824 Borrowings 14 859 461 14 978 336 15 053 228 15 083 334 15 083 334 15 083 334 Capitalized leasing debt, long- term 3 550 965 3 693 003 3 840 723 3 955 945 4 074 624 4 176 489 Total long-term liabilities 18 647 156 18 917 540 19 150 000 19 303 009 19 429 600 19 538 256

Short- term liabilities Interest bearing current liability 3 757 471 4 099 232 4 455 787 4 814 927 5 185 686 5 561 621 Short- term borrowings 3 165 644 3 483 731 3 815 666 4 155 603 4 506 582 4 865 539 Capitalized leasing liability, current 591 827 615 501 640 121 659 324 679 104 696 082 Trade and other payables 2 433 657 2 530 662 2 631 889 2 710 658 2 791 977 2 861 676 Air traffic settlement liabilities 2 462 002 2 560 482 2 637 297 2 716 416 2 784 326 2 853 934 Tax payable 114 808 136 351 151 073 167 102 179 979 194 229 Total short-term liabilities 8 767 939 9 326 727 9 876 046 10 409 102 10 941 968 11 471 460 Total liabilities 27 415 095 28 244 267 29 026 045 29 712 112 30 371 567 31 009 716

TOTAL EQUITY AND LIABILITIES 29 824 546 31 042 192 32 253 661 33 402 530 34 561 432 35 731 876

106

9.3.5 Free Cash Flow Norwegian

Explicit period 1: 2011 - 2015

(NOK 1 000) 2011 2012 2013 2014 2015

Operating profitt before tax 180 799 280 758 605 010 868 083 1 193 565 Operating tax -50 624 -78 612 -169 403 -243 063 -334 198 Ordinary depreciation 371 358 490 290 600 775 713 237 757 575 Depreciation capitalized leasing 310 828 398 525 299 818 229 961 249 623 Gross cash flow 812 361 1 090 961 1 336 200 1 568 217 1 866 565

Change in inventories 5 152 -7 947 -9 386 -8 711 -10 420 Change in trade and other receivables -212 704 -137 328 -162 207 -150 532 -180 067 Change in accounts payables -16 870 114 594 136 802 127 454 149 904 Change in air traffic settlement 129 564 147 461 136 847 163 698 110 312 Change in tax payable 71 238 -72 214 0 0 0 Change in net working capital -23 620 44 566 102 056 131 909 69 729

Change in provision periodic maintenance 934 12 484 14 746 13 685 16 370 Change in capitalized leasing 482 972 -651 225 276 156 521 105 -45 526 Purchases of tangible assets -3 150 000 -2 750 000 -2 700 000 -2 850 000 -1 600 000 Purchases of intangible assets 0 0 0 0 0 Gross investments -2 666 094 -3 388 741 -2 409 098 -2 315 211 -1 629 156

Free Cash Flow -1 877 353 -2 253 214 -970 842 -615 084 307 138

Interest paid -499 965 -647 118 -836 043 -967 355 -1 098 536 Adjustment of operational tax 50 624 78 612 169 403 243 063 334 198 Obtaining (payment) of long-term debt 2 650 000 2 300 000 2 250 000 2 400 000 1 350 000 Obtaining (payment) of fin.leasing debt -482 972 651 225 -276 156 -521 105 45 526 Other changes in interest bearing debt -156 682 0 0 0 0 Other changes in interest bearing assets 46 354 0 0 0 0 Cash from financing activities 1 607 359 2 382 720 1 307 204 1 154 604 631 188

CASH FLOW -269 994 129 506 336 362 539 520 938 326

Cash as of 01.01 1 178 416 869 349 959 782 1 257 071 1 757 518 Change during year -269 994 129 506 336 362 539 520 938 326 Cash as of 31.12. 908 422 998 855 1 296 144 1 796 591 2 695 844

NOPAT 130 175 202 146 435 607 625 020 859 367 Increase invested capital 2 007 529 2 455 360 1 406 449 1 240 104 552 229 Free cash flow -1 877 353 -2 253 214 -970 842 -615 084 307 138

107

Explicit period 2: 2016 - 2025

(NOK 1 000) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Operating profitt before tax 1 286 927 1 400 305 1 516 065 1 637 350 1 740 029 1 844 431 1 923 289 2 000 221 2 063 028 2 124 919 Operating tax -360 339 -392 085 -424 498 -458 458 -487 208 -516 441 -538 521 -560 062 -577 648 -594 977 Ordinary depreciation 774 696 812 846 877 874 948 104 1 004 990 1 065 289 1 107 901 1 152 217 1 186 784 1 222 387 Depreciation capitalized leasing 191 052 264 791 282 238 304 817 318 668 337 788 346 219 360 068 368 069 379 111 Gross cash flow 1 892 335 2 085 856 2 251 679 2 431 813 2 576 479 2 731 068 2 838 888 2 952 444 3 040 233 3 131 440

Change in inventories -7 022 -10 452 -9 198 -9 934 -8 046 -8 529 -6 027 -6 268 -4 889 -5 036 Change in trade and other receivables -121 343 -180 632 -158 957 -171 673 -139 055 -147 399 -104 162 -108 328 -84 496 -87 031 Change in accounts payables 112 948 169 154 148 343 160 461 129 676 137 754 97 005 101 226 78 769 81 320 Change in air traffic settlement 164 211 144 506 156 066 126 414 133 999 94 692 98 480 76 814 79 119 67 910 Change in tax payable 26 608 1 506 21 998 21 389 24 039 19 268 21 543 14 723 16 028 12 877 Change in net working capital 175 403 124 081 158 253 126 657 140 612 95 786 106 839 78 167 84 531 70 040

Change in provision periodic maintenance 11 031 16 421 14 451 15 607 12 641 13 400 9 469 9 848 7 681 7 912 Change in capitalized leasing 311 813 -552 161 -535 124 -577 934 -539 892 -572 286 -511 931 -532 408 -502 495 -517 569 Purchases of tangible assets -1 100 000 -1 174 111 -1 229 023 -1 264 138 -1 272 987 -1 302 020 -1 304 861 -1 280 241 -1 239 529 -1 222 387 Purchases of intangible assets -15 144 -22 544 -19 838 -21 426 -17 355 -18 396 -13 000 -13 520 -10 545 -10 862 Gross investments -792 300 -1 732 394 -1 769 535 -1 847 891 -1 817 593 -1 879 302 -1 820 323 -1 816 321 -1 744 888 -1 742 906

Free Cash Flow 1 275 438 477 543 640 397 710 580 899 498 947 552 1 125 405 1 214 290 1 379 875 1 458 573

Interest paid -1 186 519 -1 221 333 -1 260 703 -1 296 135 -1 330 001 -1 357 464 -1 383 741 -1 403 428 -1 420 247 -1 431 243 Adjustment of operational tax 332 225 341 973 352 997 362 918 372 400 380 090 387 447 392 960 397 669 400 748 Obtaining (payment) of long-term debt 900 000 275 878 253 256 214 846 174 455 147 123 118 876 74 892 30 106 0 Obtaining (payment) of fin.leasing debt -311 813 552 161 535 124 577 934 539 892 572 286 511 931 532 408 502 495 517 569 Other changes in interest bearing debt 0 0 0 0 0 0 0 0 0 0 Other changes in interest bearing assets 0 0 0 0 0 0 0 0 0 0 Cash from financing activities -266 107 -51 321 -119 326 -140 438 -243 254 -257 965 -365 487 -403 168 -489 977 -512 925

CASH FLOW 1 009 331 426 222 521 070 570 142 656 244 689 587 759 917 811 122 889 899 945 648

Cash as of 01.01 2 656 771 3 627 029 4 025 119 4 518 057 5 060 066 5 688 178 6 349 633 7 081 418 7 864 407 8 726 173 Change during year 1 009 331 426 222 521 070 570 142 656 244 689 587 759 917 811 122 889 899 945 648 Cash as of 31.12. 3 666 102 4 053 251 4 546 189 5 088 199 5 716 310 6 377 765 7 109 550 7 892 540 8 754 306 9 671 821

NOPAT 926 587 1 008 219 1 091 567 1 178 892 1 252 821 1 327 990 1 384 768 1 440 159 1 485 380 1 529 941 Increase invested capital -348 851 530 676 451 170 468 312 353 323 380 438 259 364 225 869 105 505 71 368 Free cash flow 1 275 438 477 543 640 397 710 580 899 498 947 552 1 125 405 1 214 290 1 379 875 1 458 573

108

9.4 Share price estimate Norwegian

Estimate of share price as of 31.12.10

Forecast year Free Cash Flow Discount factor Present value of FCF

Midyear adjustment factor 1,0370 Value of operations 10 480 257 939

Interest-bearing assets as of 31.12.10 1 224 770 000 Enterprise value as of 31.12.10 11 705 027 939

Interest-bearing debt as of 31.12.10 8 070 357 000 Equity value as of 31.12.10 3 634 670 939

Numbers of shares outstanding as of 31.12.10 34 573 332 Equity value per share 105,13

Traded share price closing 31.12.10 117,50

109

9.5 Multiple analysis

Currency (000) easyJet JetBlue Ryanair Virgin Vueling Shares outstanding 429 500 296 880 1 490 000 2 160 000 29 905 Share prise 4,22 6,61 3,68 0,43 9,73 Market capitalization 1 812 490 1 962 377 5 483 200 928 800 290 971

Capitalized leasing 714 000 3 732 000 677 425 2 044 700 676 018 Borrowings 1 212 000 183 000 3 476 100 1 890 900 Other financial debt 157 700 766 000 346 875 176 421 Gross enterprise value 3 896 190 6 643 377 9 983 600 4 864 400 1 143 410

Interest bearing assets 1 301 400 1 250 000 3 365 475 916 000 556 517 Net enterprise value 2 594 790 5 393 377 6 618 125 3 948 400 586 893

Enterprise value 2 594 790 5 393 377 6 618 125 3 948 400 586 893 Revenue +1 3 363 200 4 523 000 3 652 400 3 331 400 789 623 EV/Revenue 0,8 1,2 1,8 1,2 0,7 Mean 1,1

Enterprise value 2 594 790 5 393 377 6 618 125 3 948 400 586 893 EBITDAR +1 425 800 634 000 879 100 461 700 66 100 EV/EBITDAR 6,1 8,5 7,5 8,6 8,9 Mean 7,9

NOK (000) EV/Sales EV/EBITDAR

Revenue +1 9 858 292 EBITDAR +1 762 651 Estimated multiple 1,1 7,9 Enterprise value 11 247 159 6 034 073

Interest bearing assets 1 224 770 1 224 770 Capitalized leasing 5 448 800 5 448 800 Interest bearing debt 2 621 557 2 621 557 Equity value 4 401 572 -811 514

Number of shares 34 573 34 573 Value per share 127,3 -23,5

110

9.6 Sensitivity analysis

2,5 % 173 108 56 105,1 13 -22 n/a n/a Steady state growth state Steady 3,0 % 219 143 82 139 34 -6 -40 n/a 3,5 % 278 186 114 181 58 13 -25 n/a

111