Norwegian Air Shuttle ASA (NWARF ) Q4 2022 Earnings Call Transcript

Norwegian Air Shuttle ASA (OTCPK:NWARF) Q4 2022 Earnings Conference Call February 16, 2023 2:30 AM ET

Company Participants

Jesper Hatletveit - Vice President-Investor Relations

Geir Karlsen - Chief Executive Officer

Hans-Jørgen Wibstad - Chief Financial Officer

Conference Call Participants

Kenneth Sivertsen - Pareto

Hans Jørgen Elnæs - Winair

Jesper Hatletveit

Good morning and welcome to the Fourth Quarter Presentation for Norwegian Air Shuttle. My name is Jesper Hatletveit and I'm the VP of Investor Relations here at Norwegian. Today's presentation will be held by our CEO, Geir Karlsen; and our CFO, Hans-Jørgen Wibstad. It will be followed by Q&A from the audience and the web. Please go ahead Geir.

Geir Karlsen

Thank you. Good morning, everyone. So let's get going on the fourth quarter presentation. 2022 was another special year. I think we did relatively well. We're not happy with everything but we are happy with a lot of things that we did in 2022.

We are currently, as we all know in a what we call a low season, but we are getting closer and closer every day into a new high season and the summer season. We are these days very much working on ramping up for let's say an increased activity for the months to come. And that has been the main focus now for the last month at least. But coming out of 2022, we are seeing strong bookings into 2023. We are planning the fleet for the summer coming up. We are planning to fly 81 aircraft this summer. And we did originally plan for 85 aircraft but due to the delays from Boeing we have to accept that we will have a slightly fewer aircraft into the summer.

2022 came out with an EBIT of NOK 1.5 billion in profit, which we're happy about. If you look at the fourth quarter, we had a loss – EBIT loss of NOK 39 million. But we are continuing to keep the strong cash balance, we came out of 2022 with NOK 7.8 billion in cash. Looking at the cash position as per today it's in that area still which is a good thing.

We are continuing also to be very punctual. That is something that we have been working very hard to achieve and we are continuing doing that. Very happy of that. I think that's also very important for the period going forward, where we can build the trust both from the leisure travelers as well as for the corporate travelers.

We're continuing also to win awards. This company has been winning a lot of awards over the years and it doesn't stop here. And we are very happy that we had a couple of wins in the GTA Awards, which is then awards given by the tourist industry. We have been talking a lot about sustainability over the last let's say 18 months at least. We are continuing that work as well, and I'll come back to that in a little bit more details.

Close to 4.6 million passengers in Q4 with 85 point – 81.4% load. And we have as we have always – as we have been telling many times as well been able to reduce the capacity into the low season. We have been between 20% and 30% lower capacity compared to what we were flying back in October. As per today, we are probably more than 30% less capacity in the air compared to then October.

If you look at let's say the capacity as I mentioned, this shows that we are actually doing exactly what we have been telling meaning reducing capacity. And if you had looked at the crew situation during the fourth quarter and have a look at kind of the demand compared to the supply, we have really managed in my opinion to be able to get the flexibility also on the crew side into the operation, meaning that we have the crew needed in the fourth quarter and that's also the situation in the first quarter of 2023. And then we will ramp up into the summer season. This is extremely important in order to create a good cash flow generation in the company on a 12 months rolling basis.

It is a balance though, when you take down the capacity this much to make sure that you keep the market share and we do think that we've actually achieved that, even if we are seeing the closest competitors, flying more capacity than what we are doing.

If I look at the February numbers, I think the January there is a low point. I think you can expect in February higher load, higher yield, and more passengers than what we had in January that is some kind of guiding at least in the short-term.

So, as you can see here, we have been able to keep a steady load close to 80% as well as a yield that is probably not good enough, but it's steady and where we have expected it to be.

Looking at the bookings. This is very encouraging I have to say. We had the New Year's sales campaign. We were selling this -- we were selling more than 1 million tickets in two weeks. This is more than double than what we did last year.

And even more important we are selling it at 23% higher yield compared to last year very encouraging. And even more encouraging is that the sales activities has continued after the New Year's sales campaign. And looking at where our passengers are booking, it's across the network. It's not only due to the -- down to the kind of leisure destinations for the summer. It's across the network both city, domestic, and also the beach destinations.

If you're looking today at what we are booking for the summer, we have a higher load than we had on the same time last year and we have certainly a higher yield in the area between 20% and 25% higher than 2022. So, it's very, very encouraging what we are seeing these days.

We have also been following the NPS scores, meaning that what our passengers and others think about the company. And we're happy to say that we are still the most loved and trusted company in Norway amongst our peers. So, that's very encouraging as well.

And if you look at the seven-day rolling sales, this is passengers you can also see the development throughout the Christmas or the New Year's sales campaign and the fact that it has continued even after that campaign.

Then into the fleet. Here we have some challenges mostly due to the fact that Boeing and Airbus are starting to deliver aircraft these days. That's why we are very happy that we were able to sign up six MAXs into the summer. It's no secret that these are the same MAXs as fleet we are flying.

We are very happy that we have been able to reach a very attractive deal on these aircraft. And these aircraft will be ready for the summer season. This means that we will then have 81 aircraft in operation this summer and then it will take it down to 77 by the end of 2023. This is due to the fact that we are starting to redeliver the leased aircraft that we have in our fleet.

The six MAXs will have a fixed lease rate. There's no escalations for the remaining 11 years of the contract. And that means that it's very, very attractive. There are no maintenance reserves that will be paid in during the period until redelivery which is also very attractive. It does show that Norwegian today has a pretty solid credit standing also amongst the leasing community.

We have paid in NOK2.9 billion into the new build program and this is aircraft that we start to deliver in 2025. But looking at the delivery schedule today we will not be surprised if you have some delays at least.

So, what we are doing these days is to consider to extend leased aircraft that we are currently flying past kind of the delivery days just to make sure that we have the fleet we need for at least for the next two to three years.

Then over to the financials Hans-Jørgen.

Hans-Jørgen Wibstad

Thank you, Geir and good morning everyone. I will as usual go through the figures for the fourth quarter of 2022 as well as the full year 2022. I will start with some key numbers on revenues. The unit revenue came in at NOK0.64 for the quarter naturally down due to seasonal impact like Geir mentioned. It is however up 20% compared with last year.

We're quite happy with the unit revenue taking into account where we are in the cycle. Passenger traffic came in at 5.6 billion, which is down 28% compared with the quarter and is a reflection of our ability to take down capacity when demand is coming down, which is really one of the key reasons why we're able to deliver a loss, which is quite limited compared with what we have typically delivered in the fourth quarter.

Looking at the profits. The earnings before tax was minus NOK 80 million as kind of historically quite a good number for the quarter, reflecting again our ability to take down capacity and manage cost. The result and I will revert to that in a minute is also impacted by expiration of some CashPoints. So I will take -- bring a few comments to that later in the presentation.

The CASK for the quarter came in at NOK 0.47. For the year it came in at NOK 0.44. We are targeting a reduction for 2023 of between 5% and 10%. And I think that is also a reflection of what we're able to -- we will scale up our capacity next year. We had some special events in 2022 that we are not expecting in 2023, including some additional wet leases. There were some disruptions in the production during the summer in particular due to the European kind of issues in airports, et cetera. And of course, we're driving cost continuously down and we have a lot of focus on that as we're moving into kind of a more normalized situation.

The CASK figure comparing that with the level of Q3 is also impacted naturally due to seasonal impact by issues such as de-icing and also some third-party costs related to our distribution, which was at a higher level than what we had wanted it --

Balance sheet. As Geir mentioned a strong balance sheet. We've been able to conserve cash during the year and also during the quarter coming out of the quarter with NOK 7.8 billion. We're about the same level as we speak. And happy to see that we're continuing the important work of conserving liquidity, which is very, very important for our ability to ramp up and develop the company as we move forward.

Just to mention also we've been able to optimize our capital structure in the first quarter by repurchasing NOK 485 million of bonds the retained bond -- retained claims bond. That is a -- that was repurchased at a price of 72.5% of par. Really good deal. We're making a small profit just less than NOK 10 million as a one-off, but on a running basis we will be saving net about NOK 30 million per year just by virtue of lower interest expenses. And that's the way to utilize our balance sheet and optimizing our capital structure given that we have a very strong and solid cash position.

So a little bit more on the earnings. Top line operating revenue four point -- nearly NOK 5 billion NOK 4,969 million. We are ending up with as Geir said an EBIT of minus NOK 39 million and a profit before tax of NOK 80 million. Then we have a small tax expense this year -- this quarter, but overall quite a good result.

I will -- just a few comments on that. You will see that other revenue is up it's NOK 493 million and that has again has to do with the void of CashPoints, which is part of our accounting principles and relating to CashPoints that were earned in 2018 and 2019. So that's kind of part of the business. And -- but a lot of that of course as they expire was taken in the fourth quarter.

Fuel is still at an elevated level, but still it's been coming down about $100 per ton compared with the third quarter and also 200 -- more than $200 compared with the second quarter. So it's moving in the right direction. I'll come back. We've done some hedging as well that we're very happy with.

Other than that on the operating expense side, I mentioned, it's up the other operating expenses is up from NOK 515 million to NOK 563 million that's largely due to kind of seasonal effects like de-icing.

On a full year basis NOK 18.9 billion of revenues -- billion -- quite a good result. There are a couple of things to observe there in particular that are kind of things to note. One thing is the aviation fuel, which is very, very high compared with what we saw when we planned 2022 at the end of 2021. So that's impacting the result by more than NOK 2 billion negative.

On the other hand, we did this very, very good deal with Boeing in the second quarter, which had a – which created a reversal of previously paid prepayments of NOK 2.1 billion, which runs in a positive direction.

A little bit further into deep diving on the cost level. We have a lot of focus on that. And as we – we will – Geir also will mention later, we are targeting a reduction of 5% to 10% for the year for 2023. We're happy to see that fuel level has come down. Fuel cost has come down but still at a much higher level than we've seen historically. And we've been also able to hedge 25% of expected consumption in 2023 at quite attractive rates $880 per ton on average.

We're also seeing that the spot rate has come down. So it's in the – low 900s at the moment but that's of course fluctuating a lot day-by-day and wee-by-week. And for those very interested we're using hedge accounting when we're accounting for the hedges the positions that we have there.

Other elements in the CASK development, which ended up at NOK 0.47 for the quarter. I mentioned of our scale is an important part. We're flying significantly less than we did in the third quarter. And then we have these kind of special things I mentioned de-icing some distribution cost. And there are also some elements of periodic effects in particular on the personnel side in the quarter.

Balance sheet. I've talked quite a bit about that. We're quite happy with the balance sheet. The main movements on the balance sheet this quarter from last quarter is the change in the US dollar exchange rate. The dollar is still high but at a lower level than the second quarter. And then that is recorded. Of course, our aircraft as well as our debt is largely denominated in dollars so that's impacting the total amount there.

And we're very happy to see that the holdback which has been a really, really big topic for us is down to 39%. And that level was above 100% when we started the year. And that's also a reflection of our better credit standing that we're actually able to negotiate with their major acquirers, better terms. And we've seen that ratio coming down. And that is of course one of the key explanations why we've been able to conserve cash during the year.

Net interest bearing down – interest-bearing debt is down by NOK 346 million or has improved by NOK 346 million, again reflecting a lower US dollar rate, which again has an impact on our debt. So – but we're happy to see that being at a very moderate level even especially without the aircraft financing but also including the aircraft financing and the way that is recorded. And that gives us kind of a good confidence going into 2023 about our financial robustness.

I mentioned the bonds, which will have a positive impact. First of all we're able to acquire them at attractive rates, we believe, recording a small profit. But then we're also on a run rate basis we're reducing our interest expenses and thus improving our EPS as we move forward. And we're able to do that as we are – that's the way to optimizing the balance sheet and utilizing some of the strong cash position that we are in at the moment.

Sorry. That was a bit quick. So just a final couple of words on the cash flow. I mentioned a strong cash position from the quarter. We had NOK 8.2 billion going into the quarter or ending last quarter. We've had reasonably moderate changes since then. Of course, the holdback again has an impact, good impact, as well as our ability to conserve cash and take down capacity. So the operating activities is plus NOK 56 million. Investing activities is very limited at NOK 27 million. And then we have of course the repayment of the leasing debt of NOK 450 million.

And as I mentioned, we are – we're coming out of the year with a slightly higher cash balance than we started the year, despite having paid in NOK 825 million of cash to Boeing. So again, underlying how we are able to conserve cash and build for and be prepared for a solid future for Norwegian. Thank you.

Geir Karlsen

Okay. The way forward. I just want to spend a couple of minutes on sustainability, which is a very high focus area for Norwegian. It has been for a while. Here you can see the main areas. We have set the target to reduce emissions as you all know by 45% up to 2030. In-flight waste is an area. It's not the most important area that will bring us or to make us able to reach that target. But the sustainable aviation fuel is. So the only way as we see it we can reach that target is to get production of SAF going. And that's why we are also spending a lot of time in Norwegian towards the politicians, towards companies that are actually exploring this opportunity both in Norway and outside of the Norway to make sure that we can find solution together with the potential producers, governments, politicians and the airlines to get going to produce this type of fuel.

We are currently in I would say negotiations, both on, let's say on offtake agreements on SAF, as well as exploring how we can help to incentivize these companies to start the production of this type of fuel. This is extremely important. We are seeing also EU taking measures on this area.

First of all the three quotas that we have currently will be reduced to zero by 2026. And then the only way we can make sure that we can have a sustainable operation with the fuel prices that are on let's say livable levels, we need to start to produce SAF for the years to come. So that's a very, very, very important area for Norwegian.

We have also been working lately on -- to get a better rating. So we have been rated by this carbon disclosure project, which is an independent institution, one of the big ones that are doing assessments of companies in different industries. I think they've done assessments for let's say between 20,000 and 25,000 companies recently. And we had a D score. That's not good. Today we have a B- score and we will continue to try to even improve that, so sustainability is important.

If you go further and then you look at how we are -- where we are spending our time these days. We are spending the time in lots of areas. One of them is to make sure that we are even more attractive for the corporate travelers. This is an area that we have been focusing on during the last 12 months and we are now starting to see -- to really see the results.

The share of total revenue coming now from the corporate market has increased by 52% over the last quarter, which we're very happy to see. Why? I think we have a better product than before. I think we have -- certainly have the punctuality and the reliability as these corporate travelers would expect. And we are beating our competitors on these areas and we have been doing that for a while now. So very happy to see that.

We have also been talking to many, many, many big corporates over the last months and we are now seeing that more and more of them are now saying that more than 50% of their employees are now flying with Norwegian.

We are continuing to develop the relationship with Vidra [ph] and we are getting closer and closer to starting to see results of that cooperation-ship. And I think we should expect even more coming out of that relationship for the months to come. And do remember that we are the most loved and trusted airline in Norway. Very important.

That's why we have also been looking into the frequent traveler program, Norwegian Reward. This is a great program. It has been developed over many, many years. And now we are planning to take it to the next level. This is something that, I have been promising in the room for a while, and now it's here. So we are planning to launch some news during the next very few weeks, to the left side there, where we are bringing in new benefits. I think that, the reward program in Norwegian is undersold. It's not understood by many enough. And now we are going to do something about that.

So we're bringing in new rewards in addition to what we already have. Even more importantly, we are now bringing in the top level. We have not named it yet. That will be done very soon. This is for the frequent travelers, meaning travelers that are flying more than 32 flights a year.

And we are now throwing in all the benefits to these travelers in addition to new benefits that we are now bringing in. This is to make sure that, the frequent travelers will have an even more seamless journey. It will have a more better customer experience, when they're flying with Norwegian from the time when they book their tickets, until they have arrived to the destination.

And I'm not going to go through the details, because this is supposed to be some kind of a teaser, but it will be launched during this quarter. Then we have been planning this for more like a year now and we are also planning, to bring this reward and loyalty program also to the next level. So what the ambition is now is to create the best loyalty program in the Nordics, independent of industry. And we're going to build a multi-partner loyalty program, consisting of many more partners and many more services that we're going to bring into this. This is not something that we have been figuring out the last week. We have been working on this for the last – for the next – for the last year.

And this will take a little bit more time to launch, but I really hope that we can launch it and share much more news about this during the second quarter of 2023. This is very exciting and something very new and we are now building something kind of a little bit outside of the airline, where we are going to use the digital currency the CashPoints that we have in Norwegian. Very excited about it.

So just to sum up, we feel that we are very well positioned in 2023. I think, the results for 2022 shows that the solid financial position that, we have in Norwegian today and we are very much looking forward to the rest of 2023. We're doing some kind of guiding today. We're guiding on ASK 33 billion kilometers which is ASK up 24% from last year. We are guiding a higher unit revenue than what you have seen in 2022. We are not exact in the number, but we are certainly guiding higher unit revenue.

As Hans-Jørgen said, we had a CASK in Q4 of NOK 0.47. We are definitely not happy with that. We have to realize that we have a pressure, I would say on the cost side of this business as all other airlines also have. So we just need to make sure that, we do whatever we can to keep the cost down. That's why we have set the target which we believe is realistic to reduce the CASK in 2023 by 5% to 10% compared to 2022. This is very, very important. But I think we have to realize that due to the inflation, due to the increased interest rates and not at least due to the higher oil price and thereby the jet fuel price and a relatively weak Norwegian kroner compared to especially dollars, we are under pressure. But that applies to everyone and we just have to make sure that we do the best out of it. This is resulting in higher ticket prices unfortunately for our customers. But we will do whatever we can and the target is now set 5% to 10% reduction compared to 2022.

So by that, I think we will end the presentation Jesper. And if there are any questions, we are more than happy to answer.

Question-and-Answer Session

A - Jesper Hatletveit

Okay. We open up with questions from the audience.

Kenneth Sivertsen

Thank you. Kenneth Sivertsen from Pareto. Actually, a long list of questions, but I will limit them for you. First of all, the business focus you are now introducing in -- you are not afraid that this will come on the expense of the cost and the cost position and thereby also making Norwegian more land locked to the Nordics going forward, or could you utilize digital tools to solve these kind of issues? That's the one.

Geir Karlsen

I think when you see what kind of benefits we are bringing in to attract even more of the corporate travelers, I think you see that, it doesn't necessary drive cost, which has been an ambition when we have been doing the thinking about this. So I don't really think so.

Kenneth Sivertsen

I agree with you. So I think that net effect should be highly positive. But secondly, on the reward, you mentioned that, the reward -- the new reward you mentioned bringing external partners. Is that also on the thinking on the ownership of this program?

Geir Karlsen

Yes.

Kenneth Sivertsen

Perfect. And on the market side, I guess the number speaks for itself on the booking and also -- but could you allude a bit on the various Nordic markets around, how they're developing on a competitive suggestion?

Geir Karlsen

Yes. I think, if you look at -- let's say Norwegian market is working well. So is the Danish market. Sweden and Finland, a little bit more challenging. Beach destinations are working very well these days. And if you look at -- you could almost say that where are we putting the capacity -- new capacity? We're bringing in 11 new aircraft for this summer. They will mostly be split between Norwegian and -- sorry, Norway and Denmark, not so much in Sweden and Finland. We have though been focusing a lot on Finland lately. We have actually reduced the capacity, but that is now starting to give results on the bottom line. So I think -- and if you look at the capacity we are putting in, it's kind of -- it's a mix between kind of new destinations and the new destinations could be -- will be split between let's say 50% city and 50% leisure. And the cities will mostly be kind of around the Mediterranean. So Denmark, Norway working very well. We need to do some work in Sweden and Finland.

Kenneth Sivertsen

Okay. And one final question here. On the sustainable push that you also now see increasing going forward to '26, looking at your fleet, it seems like, you should be well positioned relatively to other airlines. Any thoughts around this one, given the less fuel burn you have?

Geir Karlsen

I think you're right. You're right. I think looking at the MAX, it's -- we are saying 14% less fuel burn, I think it's actually higher than that. I think, it's closer to 16%, 17% based on the measurements that we have done. So that's a factor. I think that, when we are bringing in MAXs and if you look at -- no it doesn't show. There's a gray kind of thing on that graph showing the number of MAXs that we will have going forward and that is increasing rapidly over the next years.

And I think that if we -- I think to be the most sustainable airline or the sustainable option, alternative is something that we need to, try to get to because I think that's going to be a competitive advantage as well. So I think the fact that you have -- I mean you have new aircraft which is good for the passengers, but it's also good for sustainability. And I think that's going to be a competitive advantage and that's what we will try to aim for, for the years to come.

Kenneth Sivertsen

Thank you.

Hans Jørgen Elnæs

Hans Jørgen Elnæs at Winair. A couple of questions for me. Your main point of sales for the summer 2023 campaign you answered a little bit on that. Can you elaborate a little more on what is the main markets? And how much of your campaign is driven from point of sale outside of the Nordics so from Europe inbound to the Nordics? And what is the fair levels that you have sold so far better than last year in that respect how much better?

Geir Karlsen

If we look at the New Year's sales campaign as I mentioned, we sold more than one million tickets in two days -- in two weeks. Looking at the yields, there are as I said between 20% and 25% higher than what we did last year and we sold more than doubled a number of tickets in that campaign.

If you look at -- and the good thing with what we sold is that it's pretty spread all over the network really. It's not only to the typical leisure destinations. If you look at the sales, in general, coming out of the New Year's campaign and into let's say rest of January and now into February, we are approximately 20% higher on yield this year compared to the same period last year. And the load is also higher -- significantly higher I would say compared to the same period last year.

And -- but the point of sale and the -- is by far majority in let's say in the Nordics. And I mentioned based on countries was the strongest markets. So, Norway Denmark is where we are doing best.

Hans Jørgen Elnæs

Okay. And the last one on sustainability. As the ETS and the incentives of CO2 emissions will end in 2026, do you have any plans on hedging on CO2 emission going forward?

Geir Karlsen

Well, we have been considering it. I think you will also see us be a little bit more upfront actually buying quotas. We are -- I have as per today considering to buy kind of forward. We have not done any hedging on ETS quotas yet. We are considering it.

And we are kind of a little bit curious. We have seen what comes out of EU as their plans both on reducing the free quotas by 2026 but also how they're going to kind of build in a structure where you can -- if you have sufficient initiatives in order to reduce emissions, they could be willing to kind of cover the difference between SAF and fossil fuel if you meet the criteria. So, that's kind of where we are putting the focus these days.

Hans Jørgen Elnæs

I think the issue here is will we have -- how much SAF do we actually going to receive for use in the aviation industry? And with particular only big markets in Denmark in Copenhagen, Kastrup, they are very careful in predicting the supply of SAF going forward. That's why the CO2 emission, the quotas will probably increase quite a lot going forward.

Geir Karlsen

I think if you see what we have been pushing for not only in Norwegian, but led through NHO towards the government and what we need to see happen and what we would like to see is that the tax that we are paying whether it's a passenger tax or CO2 tax and so on, the government should turn around and then try to incentivize production of SAF. And I think – and we have said it many times, we think we create hundreds of jobs even in Norway. And we know that there are projects on its way in Norway to start production on this.

And I have to say, being a little bit negative towards our own government but what EU is now doing is actually pretty much what we have been pushing for towards the Norwegian government. So we really hope that we can get going in, unless we get going on it. And as you say Hans again the quantum of SAF produced today is nothing or is close to nothing. And it's not that far away to 2030.

Jesper Hatletveit

Okay. We can then open up from some questions from the web. We'll start with Achal Kumar from HSBC. First question is regarding liquidity. How much more liquidity does management expect from the unfolding of credit card holdbacks so reduced holdback? You're having comparatively strong liquidity and do you have any plans for usage of this cash? Any plans of inorganic growth?

Hans-Jørgen Wibstad

I think in terms of our – how we have been able to reduce the holdback has been as I said a very important thing for us in 2022. We expect that ratio to improve somewhat during 2023, but gradual process to get the acquirers comfortable with our position given where we were back in 2021. So that will – but we will be able to release liquidity on that basis during 2023, but not to the extent that we have seen a big shift from 2021, during 2022.

In terms of our conserving cash, I think being in this industry it's important to have a strong balance sheet. I think history has told us that. And we will utilize that cash in a very sensible way. We have done repurchasing of bonds, which I think is making our balance sheet more efficient and we will save cost and improve our EPS on that basis.

We are also having an aircraft order coming up. We have ordered 50 option 30 aircraft to be delivered 2025 to 2030. We are very comfortable about getting those financed. But on the other hand – but also, it's good to have some cash reserve to optimize also the structure of debt versus cash in the financing of those aircraft. So we're quite comfortable with our current financial position and we will consider that as we move forward over the next couple of years.

Geir Karlsen

No comment to the other part of that question.

Jesper Hatletveit

Okay. Fine. On the network planning side, could you share your growth plans a bit more in details? Like where are you adding capacity? Any new bases? And what does this imply for profitability?

Geir Karlsen

Well, I think we have really covered that question, yes. But I think on new bases we are opening up Barcelona base. It's going to be seasonal at least to start with this year, putting a few aircraft there. We were planning to start a base in Riga, which was meant to be kind of the first step outside of the Nordics again. Unfortunately due to – this is only due to the delivery issues that we have with Boeing, we will postpone that base opening at least for now. But hopefully, we can get going again in 2024.

Jesper Hatletveit

Okay. Okay. Then we move on from -- to questions from Ole Martin Westgaard at DNB Markets. First one on the CASK. What is the main uncertainties on the CASK guidance range for 2023? And what is your key target to achieve your cost savings?

Geir Karlsen

I think we're on a good path when it comes to CASK. We have set the targets here today, 5% to 10% reduction. And that is in an environment, where you have inflations around us between let's say 4% and 10%. So in real terms, it's quite in my opinion relatively aggressive. We don't really see many uncertainties outside kind of the macro environment and the fuel prices. So kind of the cost that we can control will be managed in a good way. But I -- talking to other airlines, I was participating in an event in the US last week, where I met many of the US airlines and they're seeing exactly the same picture. And they are kind of indicating at least in that event, a cost increase in the area of let's say 3% to 10%. So it is a struggle, but it is a struggle for all of us. So -- so, I don't outside that, I think we can manage well.

Jesper Hatletveit

Okay. Going further to the fleets. How many aircraft are you taking delivery from Boeing from here on in 2023? And is there any risk in delays of the 2023 aircraft so that they delay after the summer?

Geir Karlsen

Yes. We have taken delivery one MAX in January. That's already on Garman [ph]. We are taking deliveries of two in February, one in March and one in May. That's all.

Jesper Hatletveit

In addition to the six other ones.

Geir Karlsen

In addition to the six that we have signed up just recently. And then, we might have deliveries into the fall. As we all know, we don't like to have deliveries into the fall. We would like them into the spring. So that is a discussion that we will have with the leasing companies, as well as with Boeing. Will there be risk of delays in 2024? Yes. This is not over in 2023, but continue into 2024. And that's why we are considering to extend the leases that we currently have in order to make sure that we have the fleet we need and the kind of growth that we have been planning for the next two to three years.

Jesper Hatletveit

Okay. Last question from him, regarding competitive landscape. How do you see the competitive landscape post the bankruptcy of [indiscernible]?

Geir Karlsen

Well, I think we don't really see that many changes since last time we were here. What we -- if we are seeing anything, we are seeing probably the closest competitor, SAS is flying more than us in capacity. We have chosen to fly less. We are seeing players like for example Eurowings in Arlanda is not coming in with the capacity that they have been telling they would come in with. We're also seeing that Ryanair is doing what they're doing in Copenhagen. They're not starting up the Copenhagen base this year, which they were planning to do. So, if anything I mean, it's probably less of the competitors coming in, if you compare it to let's say six months ago. So it's a tough market.

Jesper Hatletveit

Yes, definitely. Okay. That was the last question. So if there are no further questions from the audience, we conclude the session.

Hans-Jørgen Wibstad

Thank you.

Geir Karlsen

Thank you.