Financial Analysis of Norwegian Air Shuttle ASA Amanda Rintakoski Amanda Rintakoski Degree Thesis Bachelor’s Degree in International Business 2018 DEGREE THESIS Arcada Degree Programme: Bachelor’s Degree in International Business Identification number: Author: Amanda Rintakoski Title: Financial Analysis of Norwegian Air Shuttle ASA Supervisor (Arcada): Linda Puukko Commissioned by: Abstract: The aim of the study was to analyze the financial performance of Norwegian Air ASA Shuttle. The objective was to research the company’s finances from 2008 to 2017 and re- alize events that contributed to Norwegian’s financial success and failure. To understand the industry, an investigation into the airline industry was also made. To make the research more practical and establish relationships, comparison between Norwegian, Finnair and SAS Scandinavian was made. The research question was “What has Norwegian's financial performance been like 2008-2017 and why”. The research was conducted by calculating profitability, liquidity and solvency using dif- ferent ratios and margins. The results were compared to two competitors, Finnair and SAS. The data was collected from secondary sources. The most significant sources of data for the research were the Annual Reports of Norwegian Air Shuttle ASA, the Annual Reports of SAS Group and Finnair, as well as the IATA’s Annual Reports. From the airlines Annual Reports, the financial statements from 2008-2017 were mostly used to collect the data and conduct the research. The research results showed that Norwegian’s financial performance was uncertain, com- pared to competing airlines. Although demand led to a decent gross profit, net profit was rather weak because of operational costs. Liquidity and solvency ratios proved that Nor- wegian has been heavily investing in its expanding business through debts, which has re- sulted in an unfavorable liquidity and solvency position. Factor’s such as oil prices, demand and global economic environments in addition to trends and financial management were determined as factors affecting airlines performance in general. Keywords: Financial performance, profitability, liquidity, solvency, air- line Number of pages: 61 Language: English Date of acceptance: EXAMENSARBETE Arcada Utbildningsprogram: Bachelor’s Degree in International Business Identifikationsnummer: Författare: Amanda Rintakoski Arbetets namn: Financial Analysis of Norwegian Air Shuttle ASA Handledare (Arcada): Linda Puukko Uppdragsgivare: Sammandrag: Arbetets syfte var att undersöka Norwegian Air ASA Shuttles ekonomiska utveckling. Arbetet gjordes genom att undersöka Norwegians finansiella rapporter från 2008 till 2017. Målet var att konstatera hur företagets ekonomi har sett ut och hitta anledningar till dess utveckling. Dessutom undersöktes flygbolagsbranschen och Norwegians kon- kurrenter, Finnair och SAS, för att göra arbetet mer praktisk. Undersökningsfrågan var ”Hur har Norwegians ekonomiska utveckling sett ut från 2008 till 2017 och varför”. Undersökningens mål uppnåddes genom att räkna ut Norwegians lönsamhet, likviditet och soliditet. Undersökningen kom till slutsatsen att Norwegians finansiella utveckling har varit rela- tivt osäker, jämfört med konkurrerande flygbolag. Även om bruttovinsten var tillfred- ställande tack vare efterfrågan, var nettovinsten svag på grund av driftskostnader. Likvi- ditets- och soliditetsberäkningar bevisade att Norwegian har investerat mycket i det växande företaget med lån, vilket har lett till att företaget har svag likviditet och solidi- tet. Faktorer som bränslepris, efterfrågan och det globala ekonomiska klimatet, därtill trender och ekonomisk förvaltning fastställdes som orsaker till ett flygbolags finansiella utveckling. Nyckelord: Finansiell utveckling, lönsamhet, likviditet, soliditet, flygbo- lag Sidantal: 61 Språk: Engelska Datum för godkännande: OPINNÄYTE Arcada Koulutusohjelma: Bachelor’s Degree in International Business Tunnistenumero: Tekijä: Amanda Rintakoski Työn nimi: Financial Analysis of Norwegian Air Shuttle ASA Työn ohjaaja (Arcada): Linda Puukko Toimeksiantaja: Tiivistelmä: Opinnäytetyön tavoite oli tutkia Norwegian Air Shuttle ASA:n taloudellista tulosta ja tu- loksen syitä. Norwegianin taloudellista kehitystä tutkittiin laskemalla kannattavuus, mak- suvalmius ja maksukyky yhtiön vuosien 2008-2017 julkaisemien talousraporttien avulla. Sen lisäksi tutkittiin lentoyhtiö-alaa sekä verrattiin Norwegianin tulosta Finnairin ja SAS Scandinavianin tuloksiin. Tutkimuskysymys oli ”Minkälainen Norwegianin taloudellinen kehitys on ollut vuosina 2008-2017 ja miksi”. Tutkimuksen tulos näytti että Norwegianin taloudellinen tulos oli tutkittuna aikana epäva- kaa, kilpailijoihin verrattuna. Vaikka bruttovoitto olikin tyydyttävä kysynnän takia, netto- voitto oli heikko käyttökustannuksien vuoksi. Maksuvalmiuden ja maksukyvyn laskelmat näyttivät että Norwegian on investoinut laajalti lainoilla kasvavaan yritykseensä, mikä on johtanut yrityksen heikkoon maksuvalmiuteen ja maksukykyyn. Muun muassa polttoai- neen hinta, kysyntä ja taloudellinen ympäristö sekä trendit ja taloushallinto määritettiin lentoyhtiön taloudelliseen tulokseen vaikuttaviin syihin. Avainsanat: Taloudellinen tulos, kannattavuus, maksuvalmius, maksu- kyky, lentoyhtiö Sivumäärä: 61 Kieli: Englanti Hyväksymispäivämäärä: CONTENTS 1 Research topic ..................................................................................................... 8 1.1 Introduction .................................................................................................................... 8 1.2 Background ................................................................................................................... 9 1.3 Demarcations and limitations ........................................................................................ 9 1.4 Definitions and abbreviations ........................................................................................ 9 2 Theoretical framework ....................................................................................... 10 2.1 Norwegian Air Shuttle ASA ......................................................................................... 10 2.2 The airline industry ...................................................................................................... 12 2.2.1 Overview .............................................................................................................. 12 2.2.2 Airline business models ....................................................................................... 13 2.2.3 In the Nordics ...................................................................................................... 15 2.2.4 SAS Scandinavian Airlines .................................................................................. 16 2.2.5 Finnair .................................................................................................................. 17 2.3 Financial measures ..................................................................................................... 18 2.3.1 Profitability ........................................................................................................... 18 2.3.2 Liquidity ............................................................................................................... 20 2.3.3 Solvency .............................................................................................................. 22 2.4 Airline industry performance ........................................................................................ 23 2.5 Previous research........................................................................................................ 34 3 Methodology ...................................................................................................... 34 3.1 Research design .......................................................................................................... 34 3.1.1 Material ................................................................................................................ 34 3.1.2 Approach ............................................................................................................. 35 3.1.3 Data collection ..................................................................................................... 35 3.1.4 Data analysis ....................................................................................................... 35 3.1.5 Data interpretation ............................................................................................... 36 3.1.6 Expected results .................................................................................................. 36 4 Research results ................................................................................................ 36 4.1 Performance measurements ....................................................................................... 36 4.1.1 Profitability ratios ................................................................................................. 36 4.1.2 Liquidity ratios ...................................................................................................... 41 4.1.3 Solvency ratios .................................................................................................... 46 4.2 Discussion ................................................................................................................... 52 5 Conclusion ........................................................................................................