NORWEGIAN AIR SHUTTLE ASA ANNUAL REPORT 2019 NORWEGIAN AIR SHUTTLE – ANNUAL REPORT 2019 2 CONTENTS LETTER FROM THE CEO 3 BOARD OF DIRECTOR'S REPORT 5 FINANCIAL STATEMENTS 19 CONSOLIDATED 20 PARENT COMPANY 77 ANALYTICAL INFORMATION 102 CORPORATE RESPONSIBILITY 105 CORPORATE GOVERNANCE 111 DECLARATION FROM THE BOARD OF DIRECTORS AND CEO 116 AUDITOR'S REPORT 117 BOARD OF DIRECTORS 120 MANAGEMENT 122 DEFINITIONS AND ALTERNATIVE PERFORMANCE MEASURES 125 NORWEGIAN AIR SHUTTLE – ANNUAL REPORT 2019 3 LETTER FROM THE CEO 2019 was an eventful year that presented A NEW NORWEGIAN renewed challenges in the aviation industry as tough competition and the global trading environment intensified. Ongoing issues RESILIENT AND FOCUSED with Rolls Royce Trent engines affected the It has been very clear that Norwegian must full utilization of our Boeing 787 fleet and quickly adapt to a new trading environment. the global grounding of the Boeing 737 MAX We must be able to quickly react to meant that Norwegian had to rapidly adapt profitable opportunities that present our network to ensure that our obligations themselves while maintaining a cost to our customers were met. These industry position that places us ahead of our challenges were met head on with the competition. Company adopting a number of cost reduction measures, including FOCUS2019 New Norwegian will in turn be a stronger which achieved our initial goal to cut costs Norwegian with a sharper, leaner focus and by NOK 2.3 billion and Program NEXT, while we will be able to offer our customers a revaluating the entire network to ensure true competitive choice that will in turn that the Company would continue along support jobs, tourism and the wider Nordic the path of returning to profitability in economies 2020. Full year results for 2019 showed that year A STRUCTURE FIT FOR PURPOSE AND on year, unit revenue increased in nine PROFITABILITY consecutive months, driven by maturing We have announced a new management routes and the optimization of Norwegian's structure for the New Norwegian that takes global route network. The punctuality saved in 2019 compared to the industry situation. Yet despite the current us from growth to profitability by delivering improved considerably during the past six average. At the same time, 40 percent of uncertainty affecting the entire travel on our strategy and business plan. In order quarters, and in the fourth quarter 2019 it the total CO2 emissions were offset through industry I see this as a clear opportunity to to run a profitable and sustainable business was up 3.1 percentage points to EU’s emissions trading system. Since its redefine the core business of Norwegian, going forward, we will build the commercial 82.6 percent. While the net loss was NOK launch in December 2019, 123,000 our structure, our network and our part around units in the Group – AIRLINE 1,609 million in 2019, the underlying customers compensated their carbon customer proposition. In fact, our agility and AIRLINE ECOSYSTEM with clear P&L operating result before ownership costs footprint using the partnership between and speed at seizing this crisis as a catalyst responsibilities. doubled to NOK 6.5 billion. The Company’s Norwegian and the climate-tech company to drive change within the Company has total revenue in 2019 was NOK 43.5 billion, CHOOOSE during the booking process. been instrumental in ensuring that we We need to be able to attract, retain and an increase of eight percent compared to emerge from this period a stronger develop good people, which is why the 2018, driven by improved unit revenue and The global spread of the COVID-19 virus has Norwegian with a defined and clear responsibility for all the Company's increased ancillary revenue per passenger. had an enormous impact on the aviation mandate that will provide a stable and employees is placed in one PEOPLE industry. At the beginning of the year, profitable platform for our investors. department. Our employees and their Our focus on sustainability continued Norwegian expected to deliver a positive contribution to New Norwegian is vital to thanks to our young and more fuel-efficient result in 2020, however, this guidance had achieving the Company's goals. fleet. 1.7 million metric tons of CO2 were to be withdrawn due to this unprecedented NORWEGIAN AIR SHUTTLE – ANNUAL REPORT 2019 4 By bringing departments together to focus and value propositioned leisure product THE FUTURE on our customers we gain insight and power that is ideally focused on this specific We must all be prepared for the reality that to innovate and use smart choices market segment. There is no doubt that across the industry there is still turbulence throughout the customer journey. We will leisure traffic will rebound before business on the horizon. There are many remain true to the core values of Norwegian travel and we will be perfectly placed to uncertainties facing every aspect of global which have been in place since its inception strategically and geographically take travel, from government-imposed travel - a popular company that offers good advantage of this. restrictions to general demand in some quality flights at a good price. We have also markets being impacted for months if not been committed to improving operations FOCUSING ON CUSTOMER CHOICE years. We must be ready to face these through a simplified structure, clear roles uncertainties head on; New Norwegian will New Norwegian also provides us with a and responsibilities, as well as even more continue to adapt and strategically align the unique opportunity to unlock further efficient operations. We will be flexible, business to ensure that we weather this customer revenue potential and revenue actionable, and cooperate well across the storm. business. streams within our business and industry ecosystem as we embrace further I can guarantee that this period will not be digitalization to meet the expectations of defined as the demise of the ‘old’ A MODERN AND EFFICIENT FLEET both our loyal and new customers. Norwegian but as the beginning of a bold New Norwegian will be ready to capitalize new chapter in our history for our Our customers will be able to take on the changing nature of the travel shareholders, colleagues and customers. advantage of a digital ecosystem that industry going forward with a reduced and We continue to be on this journey together responds and anticipates how they want to optimized fleet size concentrating on and I am proud of all that we have already travel and what ancillary services will profitable and sustainable routes. We will accomplished while facing such adversity, benefit their journey throughout every continue to use a young and efficient fleet be in no doubt that tough times lie ahead touch point. of aircraft that not only contribute to us but a stronger New Norwegian will emerge fulfilling our emission reduction targets but victorious. also provide a lower cost base while providing our customers with the best modern flying experience and cabin environment. FORTIFYING THE NORDICS AND THE WIDER NETWORK /s/ Jacob Schram Fortifying the Nordics will be the Chief Executive Officer cornerstone of the New Norwegian strategy. We will leverage our award- winning brand as the leading long-haul low- cost carrier to capitalize on the widely accepted recessionary environment that we will inevitably be operating in. We will continue to fly between proven long-haul destinations offering a low cost NORWEGIAN AIR SHUTTLE – ANNUAL REPORT 2019 5 BOARD OF DIRECTORS' REPORT Following several years of major time performance was close to 80 percent, commitments through postponed aircraft restructuring and a revised strategy for international growth, Norwegian continued improved by more than 3 percentage points deliveries and establishment of a joint when the Company returns to normalcy. throughout 2019 to shift its strategic focus from 2018. Thanks to the airline’s young venture, raising new equity, extending the from growth to profitability. This change aircraft fleet, its large share of direct flights maturity on the Company's existing bonds, laid the foundation for a sustainable and and high load factor, CO2-emissions were issuing a new convertible bond and selling LOW-COST IS MORE CARBON profitable business for years to come, and reduced by 3.6 percent to 70 grams CO2 per the Company's investment in Norwegian EFFICIENT AND BETTER FOR THE the Company targeted a positive net result passenger. More than 36 million passengers Finans Holding ASA. ENVIRONMENT in 2020. chose to travel with Norwegian in 2019, a Norwegian’s modern and fuel-efficient reduction of 3 percent from 2018. Norwegian’s financial position at the end of fleet is the backbone of the low-cost In March 2020, the effects of the COVID-19 2019 was significantly affected by the business model. In the airline industry, cost pandemic with government-imposed travel In 2019, the capacity, in terms of available implementation of IFRS 16, leading to efficiency and carbon efficiency go hand in restrictions and abrupt drop in demand seat kilometers, was one percent higher substantially increased lease liabilities and hand. Norwegian’s fleet, with an average forced the Company to cancel most of its than the previous year; a little over the right of use assets compared to the age of 4.6 years, delivered a carbon flights, ground all but a few aircraft and previously announced zero growth. The financial position as reported prior to 2019. efficiency of 70 grams CO2 per passenger furlough approximately 95 percent of its production growth (ASK) was reduced The financial position is also affected by an kilometer in 2019, corresponding to an workforce. compared to previous years, driven by appreciation of USD against NOK of 1.1 improvement of 3.6 percent from 2018.