Welcome to Norwegian's Q4 presentation, this time in our interim headquarters at Fornebu. The presentation will be live-streamed. Just like we did on the Q3 presentation, we will open up for questions both from the audience and from those of you who view the live stream through emails to investor.relations@norwegian.com. I have CEO Bjørn Kjos and interim CFO Tore Østby to present the presentation. Let's go ahead.
Morning, everybody. Welcome to the last quarter of 2017. Finally finished with 2017. As you have seen, it's the third year we have been in loss so far as we have been operating. I'll just go and look at the headlines. We have received one 737-800 and two Dreamliners that we have set in operation. Started the fourth quarter with the combination of UKEF and JOLCO financing, very preferable financing. We have got an agreement with our pilot unions in Scandinavia for three more years. In Argentina, we got concessions of 152 routes. We have launched more routes over the transatlantic. We're going to fly Amsterdam, Madrid, and Milan. One celebration is actually worth to notice. That's Norwegian Reward, 10 years. We have won a lot of prizes also this year. Best Low-Cost Airline in Europe by AirlineRatings.com.
We have a NOK 900 million loss on EBITDA on the fourth quarter. Put a lot of new capacity in, 30%. We have the same with the RPK. We have managed to fill the airplanes, stable load. That we are satisfied with in Q4. We've been flying 12% more passengers, 8.1 million. You can see that we have passed 33 million passengers on a 12 months rolling basis. Continued growth at all the major airports. We have also grown in market share on three of them, namely Oslo, Stockholm, and Helsinki. Grown with 1 million passengers over Oslo. It's been growth on all the key airports that we fly in and out of. Interesting to see where the revenues come from. As you will see, Norway is naturally the largest part of revenue stream.
We had 17% growth of revenue in the Nordics and 78% revenue growth in Spain. If you split the revenue by region, you will see that U.S. is now number two, with 15% larger than both Spain, Sweden, and U.K. and Denmark. That is because of the transatlantic flights we have set into action. The underlying RASK is unchanged. That is due to the flying distance that increased by 14%. It's minus two. That goes up with the increased distance. One thing we are pleased of is that ancillaries increasing 18%, coming more back to that, because of new ancillary streams. Cargo is really taking a place now in our operation. Increase to 137%, up to NOK 180 million in the fourth quarter. We are flying 60 intercontinental routes.
I think we are the one that, throughout the year, that will have most flights or alliance or flying to most cities in Europe out of U.S. and vice versa. We are starting to get a very good coverage. We have actually opened more or less what we want to have on the long haul. Now it's more of actually putting more higher frequencies into place. I will come back to that. This year will be, of course, the tough year on the long haul. We will be more or less finished with actually the ramp-up of the long haul by the summer. That has, of course, taken a large toll for us on the fourth quarter. Due to the ramp-up, we need to train all the pilots and our cabin attendants, and we need to front-load.
That takes a lot of cost of course. In 2018, we get the two last [total hundred NGs ] and 12 MAXes. We are phasing out some of the oldest 800 that we leased in the startup phase. The ramp up actually on the narrow body will be not that much this year. It will be around 10 aircraft, but we will send six aircraft into Argentina.
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More and more interesting and been a great asset for many airlines since they are also scaling it up. We are setting it up in a separate and dedicated business now. We have about 50 partners. Of course, the growth that we have now in the Norwegian Reward program is more and more attractive for more and more big players, not at least international. It will be even more effective going forward. If you see the ramp up on the Norwegian Reward program, it's really spiking now. We have passed 7 million members, and we'll be easily past 8 million, and we are highly likely close to 9 million in 2018. One thing one should note is that 50% of the CashPoints are actually earned through the partners. If you think about it's a really strong concept.
The highest growth is actually we have in the U.S. and the U.K. That's where we actually have just more or less started now with certain partners. It's going to be very interesting to see what our Norwegian Reward program can do in 2018 and beyond. Finances. Today, we call the finances. You can continue.
Thank you, Bjørn. Good morning. I will continue with the financial results and some comments to that. Excuse me. Fourth quarter, we saw that revenue grew by 30%, as Bjørn has touched upon. Unit revenue fell by 2%. That was offset by a stronger than expected growth in cargo. We've seen quite good momentum for our cargo business. If you look on EBITDA. EBITDA fell to a loss of NOK 652 million. The main drivers of that was jet fuel, driven by a 23% price increase. The ramp up and personnel cost related to the strong growth we have in our 787 operation. Also into 2018. We have to prepare for that in 2017, as we have told the market before. We have had increasing costs related to security into the U.S., which has had an extra resulted in an extra cost of NOK 111 million in this quarter.
You can also see, as we have touched upon earlier this year, that lease costs have increased as much as NOK 360 million in fourth quarter versus fourth quarter last year. If you look on the pre-tax profit, we report a loss of NOK 1.4 billion. I have to note that included in that is net finance cost of over NOK 430 million versus NOK 87 million last year. The change of NOK 330 million is mainly driven by FX and with non-cash effect. Included in EBITDA and the pre-tax is also other gains of NOK 248 million in the quarter. It's worth noting that we reported NOK 924 million in fourth quarter a year ago, a swing of NOK 680 million, which is the main explanation of the change in our results. For the full year 2017, we report an EBITDA slightly positive with NOK 60 million.
The main drivers have been a 19% growth in revenue to NOK 31 billion for the full year. 6% lower unit cost year-on-year, also, as I said, with the strong momentum for cargo and increasing ancillary per passenger. The EBITDA have been affected by an extra fuel bill of NOK 2.3 billion for the full year and a ramp-up of personnel, as we touched on, of an increasing per cost related to personnel of NOK 1.4 billion versus 2016. That is due to close to 40% increase in full-time employees to 9,500 employees at the year-end. Around a little bit short of NOK 300 million is related to the ramp-up of the 787 operation. Just personnel cost training and of course, all the costs related to the recruitment. Lease costs have increased NOK 1,150 million year-over-year, or sorry, NOK 1 billion year-over-year.
Included in that is wet lease cost of NOK 677 million, which is in line with what we indicated this summer of what we said, around NOK 650 million. We have had some wet lease cost in fourth quarter that is mainly related to weather conditions and irregularities. Included in the full year results, we have a positive hedge gain over NOK 432 million versus NOK 678 million in 2016. If you look on the bridge of the EBITDA for the fourth quarter versus last year, you can see the increased fuel price have had a negative impact of NOK 237 million. We have weaker yields year-on-year, which have a negative impact of roughly NOK 100 million, NOK 106 million. Slightly lower load factor which impact NOK 34 million. The extra security measures, which have a negative cost or a cost in the fourth quarter of NOK 111 million versus last year.
Other extra cost is related to wet lease and passenger compensations mainly, which bridge the result of NOK 250 million underlying EBITDA loss versus NOK 900 million versus NOK 250 a year ago. If you look on the unit cost ex-fuel, we report a 6% increase unit cost ex-fuel. Adjusted for currency, the increase is 5%, that is mainly related to the items I've touched on. If you look on the different cost elements, you can see that the fuel cost increased by 11% per ASK due to the price increase of 22%, slightly offset by a weaker dollar in the quarter. Also 2% reduction in CO2 spend per ASK. The personnel cost is increasing by 5% per ASK, driven by the ramp-up of the 787 operations ahead of the growth in 2016. Handling cost is 5% higher than last year.
Included in that is the NOK 183 million related to the extra security, which is an increase from NOK 72 million a year ago. We also have higher passenger compensation costs due to some lagging costs, which were incurred in fourth quarter, but also due to the weather conditions in the fourth quarter. Leasing cost is increasing because we have a higher share of leased aircraft. We've done 32 sale-leasebacks over the last 14 months. We have a higher share of leased aircraft versus last year. As you can see, the depreciation is down 17% per ASK. We have lower airport charges, 6% lower because of longer flights. The cost per ASK is lower on the long-haul operation. Technical is the same as we have seen in the previous quarters.
An increase in maintenance cost of 6% per ASK, mainly driven by price increases, but also due to maintenance deals for the 787s and the MAXes where we have outsourced maintenance. All the maintenance cost is incurred under technical costs. If you look on the cash flow, we have a negative cash flow in the fourth quarter of NOK 850 million from operations. That is due to the items we've touched on. CapEx from investments or from new aircraft of NOK 2.4 billion, which are externally financed with NOK 1.7 billion, resulting in a net change in cash of NOK 1.5 billion negative. A very strong cash balance at the end of the year, a cash position of NOK 4 billion at the year-end.
If you look on the full year, you can see that cash flow from operations is almost as strong as last year, at NOK 2.9 billion for the full year versus NOK 3.1 billion a year ago. The main driver of that is a strong uptick in air traffic settlement, which means strong pre-sales of tickets. CapEx for the full year is NOK 3.6 billion, much lower than what we indicated a year ago, both due to sale leaseback of several aircraft, but also due to the sale of 11 aircraft in the second quarter, which was completed in third quarter 2017. As I said, a strong cash position at the year-end of NOK 4 billion. Looking on the balance sheet, we can see that net debt has changed by NOK 1 billion since fourth quarter 2016.
We report a net debt of NOK 22.3 billion versus NOK 21.2 billion in 2016. Total balance of aircraft of NOK 26 billion, which are externally financed with NOK 20.4 billion. The cash of NOK 4 billion, and as you can see, equity at the end of the year of NOK 4.1 billion. As we showed in fourth quarter 2016, we have also updated the funding side of Norwegian to provide some visibility on that. As you can see, the debt maturity profile, we have around NOK 2 billion in installments of our long-term debt per year going forward. Of course, we have PDP financing on top of that and unsecured bonds, which are used as PDP financing, which will be converted into long-term financing as the aircraft arrives. Financing is on track. We have gross CapEx commitments of $1.9 billion for 2018.
This is a reduction from the previous indication of $2.1 billion. We have also showed the gross CapEx commitment for 2019, which is around $2.6 billion. We expect net CapEx to be lower than the gross CapEx estimate for 2018 and 2019. We are in the middle of a fleet renewal process. We have initiated process to sell older aircraft and reduce our total CapEx commitment as we started in 2017, and we will continue that now. We are in discussions. We have indications by interested parties for our positions and for our older aircraft. On the financing side, we have external PDP financing for 787s. We're working continuously on PDP financing externally for those aircraft. We have, as we have said before, sold and leased back the two last 737-800s. The last one will be delivered next week, which will be the final 737-800.
We tapped into our unsecured bond with EUR 65 million last week in January and increased that to $250 million. We have an undrawn credit facility of NOK 300 million. If you look on the long-term financing, we have committed UKEF and JOLCO financing for the two first 787s arriving now in the first half in Q1. We're working on closing the long-term financing for the aircraft arriving from May and onward. We will mainly use AFIC financing, which is a similar structure as we used last year with the MAXs. We will also use export credit financing. Moving into outlook. For 2018, we will have the same picture as we showed for 2017, that the main growth will be on increased frequency. 64% of our ASK growth, both in narrow-body and our wide-body operations, will be in increased frequency on existing routes.
As you can see, we have discontinued some routes into the Caribbean, but also some short-haul routes to optimize our route portfolio and to make sure that we optimize revenue per flight. 70% of the growth in 2018 will be from our long-haul operations. As we did in Q3, we have showed some visibility in our booking situation. We have reported our January figures. For February, we're a little bit short of capacity adjusted bookings versus last year. Overall, from March and onward, we are well ahead of last year, both on volume and pricing per seat. If you look on the Easter impact, you can see that March and April are impacted by Easter. If you look on March and April in combination, we are roughly 1.4% ahead of last year in terms of bookings on better pricing.
We see stable and positive markets in the Nordics. We have a very strong ramp-up in our long-haul operations. As I said, sales going forward are looking good. Capacity adjusted booking volumes are ahead of last year. Our estimated production growth of 40% is unchanged from the guidance we provided early in January, when we raised it from 35% to 40%. We will see an increased distance due to the growth in long-haul of roughly 15%, 16% versus last year, depending on the final route program. We've provided some insight into our quarterly growth rates to give that visibility to the market. The growth in our wide-body operations will be around 90%, while our narrow-body operations will grow by roughly 20%. We have hedged 37% of our volumes at $499 per ton for the first half of 2018.
We're now increasing our hedging going into 2019, starting hedging now at levels below $600 per ton. We keep our unit cost guidance for the full year 2018 unchanged. We also provided unit cost guidance for ex-fuel. Based on the midpoint of our guidance, we expect unit cost ex-fuel to be between $0.29 and $0.295, which is a 12% reduction from 2017. Assumptions are unchanged. An average fuel price of $575 per ton and 7.75 FX rate versus dollar at 7.75. With that, I will leave the board back to you, Bjørn, to sum up.
As you have seen, the bookings for 2018. 2018 actually looks good. Strong bookings to family, the higher prices all over. Also the new routes that we have launched are looking very good. We started Buenos Aires yesterday with the full flights, that looks very good. Also to notice, we have very strong growth in the cargo. Actually, amazing growth on the cargo side. We have lifted up the target. We expect a target now for 20% on ancillary, especially driven by the long-haul and new products and services and third-party revenue streams. We are preparing for, of course, we are starting the new first flight yesterday, went on the larger premium cabin. Full flights. All our deliveries now for the 787 is going to be delivered with 56 seats, up from 35. They're in especially high demand out of London.
We are very well set for that competition. We are preparing, of course, the sale for ticket in Argentina now. We have got the route approvals for the 153 routes, we have also received the operating license. As we started up saying, we have reached an agreement with the pilots in the Nordic area, we have also signed collective bargaining agreements with Spanish and Italian pilots. Again, interesting also, we are launching an interline agreement with Widerøe. We will continue fleet renewal and reduce ownership in non-core assets. When we go back to the renewal of the fleet, Tore touched upon that. You will see us phasing out older aircraft this year. We have a lot of interest also in large parts of the fleets that we are not going to use in our future assets.
We have told you earlier that we are in the process of setting up a leasing company alone or together with somebody else. We have a lot of interesting parties that want to participate in this. It's going on schedule and going on track. That is the way we will go forward. 2017, the best thing we can say about 2017. 2017 was actually a quite okay market. We didn't have enough pilots. We got delay on deliveries for the MAX, we really got it out wrong. That kept on going to the start of the fourth quarter, hit us also partly in fourth quarter. First quarter, now we are back on track, the rest of the year, we are quite optimistic on this year. As I asked Tore, how many years have we been in loss?
It was 2004 and 2014, I hope 2017 will be the last year of losses for a long time going forward. All in all, we are very optimistic for 2018. Because of the solid bookings, we know that we have the cost on track. That was what I'm going to say. We can open up for questions.
Can I do one? All right. With regard to cost, it seems like it has been affected by both aspects and also ramp up. You're planning for a huge capacity increase now in 2018. By the end of 2017, how much of your pilots are entering the operation in first half of 2018 was now hired as well?
I can answer on that, especially on the long haul. We are ramping up in around six months period, the same as the total of the long-haul fleet to SAS. You can imagine it's more than the long-haul fleet to SAS. You can imagine all these pilots have to be employed in the fourth quarter. Actually, the third and fourth quarter, because we have to train them. It's a huge ramp-up of 2,000 employees. In addition to that, we had to, of course, come back online with the short-haul operation. We are very well positioned with the pilots now in 2018. We are actually looking up more on the ramping up further for 2018 because we don't have pilot shortage. Something extraordinary might have to happen. We have enough pilots as we speak for 2018.
Secondly, handling cost is increasing, particularly in the U.S. and also the fuel price. I guess this is fairly similar for all airlines operating to the U.S. and also have to fly. We need fuel. How do you think about the ticket prices over at Atlantic now?
We have seen it from previous years, it takes some time before the ticket price ticks up to catch up with the fuel price. It will do because especially most of the airlines are flying the old 747 and a lot of old aircraft, and they can't do it without raising the prices.
Final question from me. I guess with the fuel price giving you some pain on the OpEx side, also assume that new aircraft is more relevant now than it was a year or two years ago. Can you elaborate a little bit about how leasing prices and also perhaps the asset demand seems to be now?
That was one of the bets we took in for two, three years ago when the oil price was very low. There was a huge oversupply for the long haul, especially that was intended to go to the Middle East. We got very good offers that we will not see, and that is why we have this huge ramp up. Obviously, in normal circumstances, we would have taken it slower. You are leasing the aircraft on a 12 years leasing time. Either you take the chance or you do not. We took the chance of the ramp up, and we see we can manage to set the aircraft into operation. Obviously, you get hit when you do it. There is no way that you can have such a huge ramp up without getting hit when you are in the initial process.
I can add to that. If you look on asset pricing, you can see that the market for aircraft and asset pricing is very stable and within a very strong market and good demand for aircraft. Also the 737-800s, definitely the MAXs and the neo. Asset pricing is holding up very well.
You mentioned that cost increase more than. [Inaudible] Also like on the Swedish market, where what they are expecting in the Swedish markets.
Excuse me. If we start with the security cost, of course, the increase from NOK 72 million to NOK 187 million is, sorry, around NOK 180 million, is both driven by our volumes. Also extra security measures. You will see continued higher costs related to security as long as you have the regime with more extra security measures. We should expect that going forward as well. When it comes to Sweden and the bookings, we do see a quite strong and stable Swedish market. We have had very strong growth in the Swedish market over the last few years. The market and bookings are holding up pretty well. We don't, at the moment, see a strong impact on bookings, but we do fear that the extra passenger tax in Sweden will have a negative impact on the market. We're also more cautious adding capacity to the Swedish market.
We will take that into account when we launch flights, whether they will go out of Norway or Sweden. I think you will not see us be adding a lot of long-haul flights into the Swedish market with APD taxes.
Okay. [Anne-Margrethe Skari, DNB Markets]. You changed your cost guidance and you lowered that significantly and missed it by quite a bit. How confident are you that you will be able to achieve your target level for 2018? Do you have the kind of transparency on cost elements 12 months ahead to make this guiding meaningful?
We changed our guidance in Q2 2017 because a major change in our leased fleet versus our own on-balance fleet. That had a significant impact, but also a reduction in our production volumes. We have now updated the market with new production guidance and actually increased our production guidance in January. We have also provided the market with an ex-fuel guidance, cost guidance. We're fairly confident that we will reach our guided unit cost ex-fuel. Of course, the fuel price have an impact. We don't guess on the fuel price, but we show the impact on our unit cost.
What cost elements will see the highest dilutive effect on capacity growth?
We see that we have a cost benefit on, of course, our overhead costs. We expect the benefit from scale. If you look on negative impact of growing, we are for the moment in the first half. We're still in the ramp-up phase of our 787 operation and should expect higher than normal cost related to personnel. Of course, we are doing extra marketing and also we have lower yields than normal when we launch new routes. Apart from that, we do not expect a massive or a negative dilutive effect from the growth. Our growth is peaking this year, and as we arrive to the back end of the year, you will see the benefit from scale will start to impact our results.
Last question from Caplet. Any news on financing for 2019?
I think we have updated the market with the guidance. We have committed JOLCO financing for our aircraft, giving us a very good position as we arrive into 2018. For the back end of the year, we're working on several sources of financing. We're quite confident with the financing for 2018 and going into 2019. As we said before, we don't get committed financing more than six months out. That's why we cannot provide full visibility on the financing side. We're in a good dialogue, and we have financing in place for most of our aircraft deliveries now.
I can add to that, we haven't even touched the sale leaseback market, and that's very strong.
James Hollins, Exane. Do you expect unit revenue to rise in Q1 2018, and what are unit revenue expectations for the year as a whole?
We have not given a unit revenue guidance. As we've said, we are fairly confident with our booking curve. We've said that average pricing and volumes are ahead of last year. That's the guidance we can provide.
How many aircraft might you sell this year, and which type of aircraft? Will that change the estimated capacity growth into 2019?
I cannot say exactly I can answer that. Needless to say, as we have started to do, we will sell off our older NG 800, that's a narrow body. The whole strategy have been to take in the MAXs with a much better fuel burn and sell off the older NG aircraft. That's what we started with, and we will continue with that.
Production will not be affected in 2018 and 2019.
Petter Nystrøm, ABG. My understanding is that long-haul load was down six to seven percentage points in January. What is driving this, and given higher growth going forward, what do you expect?
Yeah. January and February, partly February on long-haul are the lowest season in the year. So it's expected for us, you can maybe add to that if you have something to add to that.
What we're seeing right now is more than 100% capacity growth in long-haul in the first quarter and going into the second quarter. Of course, a very strong growth. We see quite stable pricing, what we've seen in January and February is that booking volumes are slightly behind last year, but on fairly stable pricing. That is because of very strong growth and several new routes in low season.
Fair to say that we don't see that going forward.
What is the key driver for the fall in unit costs in 2018 ex fuel and depreciation? We will see that materialize in the first half.
For a fourth quarter. That will not happen in 2018. We have enough pilots, it's the production that really drives the cost.
Yes, you're right, Bjørn, I will add to that. Both utilization of crew, aircraft, are key drivers to that. Of course, we had extra costs related to our wet lease operation last year. Ramp-up cost of the 787 operation had a significant impact on our cost in 2017 and will be part of our cost reductions this year. On top of that, you get the benefit of scale.
Yeah, George. To [remind]. What is your strategy in Paris? How will you compete with Level who is operating from Orly?
Well, I think we compete out with Level out of Gatwick, That's a good competitor. We are starting to have a huge or a very large network now out of Paris as we fly five aircraft, five wide-bodies out of Paris this year. Most of it is going out of Charles de Gaulle. We see the bookings and the pricing of that is quite good.
Any more questions for Bjørn?
Okay.
Okay, I think that was it.
Thank you all, and we'll be available for questions afterwards.