Welcome to Norwegian's Q3 presentation. My name is Stine Klund, and I am responsible for Norwegian's investor relations. Today's session will be live-streamed. We will start off with a presentation by our CEO, Bjørn Kjos, and our acting CFO, Tore Østby. After that, we will open up for questions both from the audience and from the rest of the world through emails to investor.relations@norwegian.com. We will send around the microphone as we used to for the questions from the audience. I'll hand it over to Bjørn and Tore.
Hello, everybody. I'll take the first bulk. Tore will go to the financials. What happened in the third quarter, actually 15 years since the start-up. This quarter, we launched 14 intercontinental routes. We started up Singapore, Denver, and Seattle out of London, added four MAXes, one A300, and five Dreamliners altogether. We have a lot of aircraft now up and flying, also on the long haul. By the end of this year, we will have 21 Dreamliners up and flying. We have received the final approval by U.S. Department of Transportation, which gives us flexibility on our U.K. operation. Launched a partnership with easyJet. We have carried out the fourth humanitarian flight for UNICEF, this time down to Djibouti for refugees in Yemen, and had an EBITDA of NOK 2 billion.
We have close to 10 million passengers this quarter, 9.8 million, 14% up. We have put up 25% ASK into the operation and got the 26% growth in RPK. The load increased to close to 92% this quarter, 91.7%. If we go into the different airports, we have a growth on all the airports, growth on overall load close to 1 million passengers. Especially in London, that's only growth of long haul, close to half a million passengers. That's by far our biggest hub now for long-haul operation. Altogether, most passenger growth is in Spain. If we look at where our passengers are coming from and where we have the largest growth, it's nice to see that Americans are embracing us. We have a 79% growth out of U.S., and followed by Spain on 25%.
You can see there's fairly many passengers now starting to come out of U.S. on the same size as Finland and soon overtaking U.K. Our top line grew with 21%. We have a RASK decrease of 5%, down to NOK 0.40. 4%, if you take away the currency and if you take away the flying distance that increased with 10%, our RASK is down around 2.5%. A 10% growth in ancillary revenues. We flew around close to 10 million passengers this quarter. We have launched altogether a bunch of new routes, of course, the last year. Over the Atlantic, we have now 55 routes for sail and in operation, and a total of 65 intercontinental routes altogether. We're starting to serve U.S. fairly well from different cities in Europe. Our next city that we start operation of, actually in next month, will be Rome.
Last one we started operation of was Barcelona. We have a huge increase, of course, especially on the long haul. We are setting nine Dreamliners into operation this year and 17 NGs, six MAXes, and redelivering four older NGs. By the end of this year, we will have 144 in operation, and we have leased out five 320s to HK Express. It has been a huge ramp-up this summer, especially on long-haul. The ramp-up, as you will see, will continue also into 2018. By the third quarter next year, we will more or less finalize the ramp-up of the long-haul, then we go over into a more stable situation. Into these figures, we haven't taken into consideration what we need to do when we start up Argentina. I am coming back to that later on.
For now, I give the word over to Tore. Tore, you can come and take the financials.
Thank you, Bjørn, and good morning. If you look on our third quarter results, our revenue line increased by 21% versus last year. The main drivers of that, of course, was higher ancillary sales per passenger, 10% increase per passenger, but also other revenue grew a significant 39% year-over-year. Total revenue was excuse me, roughly NOK 10 billion. If you look on our EBITDA for the quarter was NOK 2 billion, an increase from NOK 1.7 billion last year. The main driver of that was the ramp-up of production, offset by higher costs related to wet lease this summer. We have also included the positive gains from hedging in our EBITDA. Pre-tax profit of NOK 1.3 billion, versus NOK 1.2 billion last year. It's a small increase. Included in our EBT is a negative impact of NOK 70 million, related to impairment of aircraft sold.
That was announced earlier this summer, in the second quarter. The impairment was related to the exchange rate of U.S. dollar versus Norwegian krone, which fell during the quarter, and some small changes related to the length of the leases. Please also note that share of results from associated company also is reduced, as we have sold 2.5% of our shares in Bank Norwegian Finans Holding. The result impact of the share price increase or the value increase of Bank Norwegian is recorded directly to our equity with NOK 450 million, included in our comprehensive income statement, but doesn't hit our P&L. Net profit for the quarter was NOK 1 billion for our third quarter. If we break down our EBITDA of NOK 1.9 billion, you can see that we have NOK 486 million gains related to our hedging in the quarter.
That is a net of NOK 700 million positive gains from fuel hedging, offset by NOK 220 million losses related to currency. That is currency movements related to our working capital that have to be recorded under our results. EBITDA, excluding all the gains and losses, was NOK 1.5 billion this quarter versus NOK 1.9 billion last year. Our wet lease this summer was NOK 386 million, which is an extraordinary item related to the pilot situation that we had to lease extra capacity but also delayed aircraft deliveries as the MAXs came a bit later than expected. Adjusted for our wet lease this summer, we had NOK 1.9 billion in underlying results from operations. Of course, our results reflect that we're in a strong ramp-up phase. If we include all investments in the build-up of our long-haul operations, the underlying profits are looking much better than our total results reflect.
If you bridge the results from our third quarter last year to the third quarter this year, you can see that the main hit was from increasing fuel prices with NOK 90 million. That is just the price impact on fuel. We had a NOK 450 million negative impact from lower yields, reflecting that we have a very strong growth currently, but also that weaker sales ahead of the summer or weaker pricing ahead of the summer related to strong competition this spring. We have some small positive load changes as we increase our load factor this quarter to close to 92% and a 10% increase in ancillary sales per passenger. If you look on our currency exposure, you can see that two-thirds of our cost is in U.S. dollar, 65% for the current quarter.
We have 16% of our cost in EUR, which pretty much balance out our exposure revenue versus NOK. Our U.S. dollar revenue has now increased to 70% share of our revenues, but Norwegian market still remains our most important market with a bit more than one third of our revenue. If we look on our unit cost performance, we can see that our total unit cost was up by 6%, both including fuel and the same impact ex-fuel. The main reason or the main explanation for that is roughly NOK 620 million in extra cost this summer, including the wet lease cost, the NOK 386 million wet lease cost, extra days bought or extra cost related to pilot salaries as we bought spare days off to cover our flights. We also had some extra irregularity cost, NOK 128 million in the quarter.
If you look on the total impact of those special items, that is roughly NOK 0.03 per ASK, and the main explanation why our unit cost ex-fuel increased versus last year. As you can see, the impact of fuel increased our cost per ASK from NOK 0.09 to NOK 0.10 per ASK. If we dig deeper into our cost, you can see that the higher fuel cost. The fuel cost was up 7% per passenger kilometer. The main explanation for that is an 8% price increase for fuel versus the same quarter last year, offset by a weaker U.S. dollar. An explanation that might surprise some is, of course, that because of the wet lease, we had extra fuel cost related to leased aircraft, which don't have the same efficiencies as our own aircraft.
Still, looking on the total fleet and the total fuel spend, we had a 2% efficiency gain on fuel per passenger kilometer. If you look on personnel costs, we had a 10% increase per passenger kilometer. This is, as we have explained in previous quarters, due to the ramp-up, especially of long-haul. Norwegian hired 2,500 extra full-time employees versus the same quarter last year, an increase of 47% year-on-year. That is the main driver. This is to be prepared for the growth in fourth quarter and going into 2018 for our long-haul operation. We also bought days off, as I explained on the previous slide, roughly NOK 60 million in the quarter. Leasing cost increased by 12% per passenger kilometer. The main driver for that is the wet lease. It is NOK 368 million wet lease cost in the quarter, but also because of a higher lease ratio.
We have sold and leased back 30 aircraft over the last 12 months, of course that hit leasing cost or increased the share of leasing with the opposite impact on depreciation. The lease ratio or the number, if you look on the fleet, 54% of fleet is now leased versus 41% a year-ago. Airport fees and handling cost fell by 11.1% this quarter versus last year. The main driver for that is that we are flying more long-haul operation, with a lower share of handling cost and airport charges per passenger kilometer. Technical cost increased by 21%. They are related to the higher lease ratio, but also that we record technical cost for our Dreamliners direct under technicals. If you look on our short-haul fleet, we do a lot of maintenance ourselves and then of course have personnel cost and other cost items instead of technical cost.
The underlying price escalation for heavy technical maintenance is between 5%-6%. That is the key driver. That is the underlying increase for technical cost. Then, of course, lower depreciation fell by 25% per ASK due to the lease ratio that we have sold and leased back aircraft. If you look on our total unit cost, including depreciation, we have a quite strong competitive position. We have included AirAsia here, which is one of our sharpest competitors when you look on the cost at NOK 0.26 converted into Norwegian krone. Wizz and Ryanair are still a bit ahead of us, but we still compare quite strong to most of our European peers and also the U.S. peers. We still need to work on our unit cost, but remember that this cost also include the full impact of ramp-up operations.
If you look on the cash flow, we had NOK 1 billion cash flow from operations this quarter. We have had quite strong pre-sales, but of course, seasonally, air traffic settlements liabilities fall during third quarter as they have the highest level as we enter summer season. The cash flow is quite strong compared to last year, which was negative by NOK 400 million and NOK 1 billion positive cash from operations this quarter. In addition to that, we have a much lower CapEx this quarter as we have done several sale-leasebacks and completed 9 of the 11 aircraft transaction that we announced on the second quarter. Total cash at the end of the quarter of NOK 5.6 billion. A record level for Norwegian, following the sale-leaseback transactions and sale of aircraft.
Two of the 11 aircraft we announced that we were selling this summer, have not been paid at the end of third quarter. One transaction was completed in October. The last one will be finalized next week. We have announced that we expect CapEx for the full year much unchanged. For 2018, our gross CapEx will be $2.1 billion, that is before any potential sale of aircraft. We have contracted a total of 34 sale-leasebacks over the last 12 months. That is including two aircraft, the two final Boeing 737-800s that will be delivered in Q1 2018. 28 aircraft have been sold on leaseback during 2017. We paid down one unsecured bond that went into maturity in the 3rd of July of NOK 1 billion because of the strong cash situation.
We have an undrawn credit facility of NOK 325 million as an extra potential liquidity that we could draw, which is a facility of total NOK 1 billion. Our long-term financing is on track. We have added 6 Boeing 737 MAX and 3 A320neos that are leased out to HK Express. The total net debt at the end of the quarter was NOK 18.3 billion, cut from NOK 19.3 billion in the previous quarter. The equity ratio at the end of the quarter was 11%. You can see the strong cash position of NOK 5.6 billion and equity of NOK 4.8 billion. We'll move into outlook. If you look on our bookings, the booking ratios for the fourth quarter are ahead of last year on volumes. Of course, you can see that most of October is sold. We have a few days left.
We have quite strong booking for November and December, well ahead of last year. The markets are positive and stable in the Nordics, with a positive yield trend in most markets and segments. If you look on capacity adjusted bookings, volumes are ahead of last year. Remember, this quarter at the same time last year, we had a quite negative booking trend following last year's summer events. Our fuel hedging is at 53% for the fourth quarter and 25% for full year 2018 at $4.94 per ton. Our unit cost estimate for the full year remains unchanged at NOK 0.42 ex depreciation. Based on the same assumption as we have based our guidance on previously. If you look on 2018, we have now complete our route set up for the full year, but we have not included any impact from potential startup in Argentina.
We estimate a production growth of 35% in terms of passenger kilometers. We will have roughly 90% growth for our long-haul operations and 10% growth for our narrow-body operations, including the MAXs. If you look on the markets, we would like to just warn that might have a negative impact in the Swedish market if a passenger tax is introduced in that market. Our unit cost estimate for the full year 2018 will be in the range of NOK 0.38-0.39, based on a fuel price of $525 per ton, and a US dollar Norwegian exchange rate of 7.75. If we include depreciation, the estimate will be NOK 0.4-0.41. We have included that just to improve visibility. This is based on the current route 2018. That is two Boeing 737-800s, the last two of our order in Q1.
We have 12 737 MAXs, mainly arriving from May and onward, which will bring our fleet of 737 MAXs up to 18 by the end of next year. We have 11 787-9s, including six leased and five on balance aircraft. With that, I'll leave it to you, Bjørn, to sum up.
Yeah. As Tore explained, we have solid bookings for going ahead for the fourth quarter. It also looks good for 2018. Bookings are ahead of last year. We won the CAPA Awards last year for the Airline of the Year. We have focused, as you see, on the global expansion. We have opened a lot of new routes. We will not open that many new routes and destinations next year. We will receive 11 aircraft, long-haul wide-body. They will be used mainly on existing routes with higher frequency. We have a strong liquidity going into 2018. We are fully financed. We have also concluded the finance for the first quarter. We don't expect any problems to finance the rest of the aircraft that we receive in 2018. It will be slower. Of course, we have more ASK into production in 2018.
That will be mainly due to long-haul, not that much on short-haul that hit our performance this year. We are working on our partnership with easyJet. Yesterday we got the news from Argentina. We have applied for 156 routes. We got the concessions on 153 routes by Argentinian Civil Aviation Authority yesterday. They are not included in our forecasts. Of course, we are in the process of setting up the AOC that will be completed this year, we anticipate, next two, three months. Then we will start setting up the sale-leaseback. That will take us another two, three months. Before summer, we will have the routes we are going to fly up and running. We will, of course, not start at once at 153 routes because that require a lot of aircraft.
With that, just say that finishing this off, it's not a good summer for us. We had a lot of trouble this summer. On the short-haul, wet lease is not the way it should be sold. Do we get it next year? We don't think so, especially due to the collapse of Air Berlin and the other two airlines. We have actually been able, just for the last 14 days, we have contracted around 100 pilots. If nothing new should happen for the next year, we anticipate that we will have enough short-haul pilots for the next summer. We shouldn't have these problems that we had this summer. With these final words, I leave the floor to you. Questions? Janet?
Regarding the balance sheet, it seems like pre-bookings and presales are up by some 35% year-over-year. However, given that you will take 11 Dreamliners next year, the mix seems a little bit low, perhaps. If you could explain us if there's some routes in the long Dreamliner that is not introduced or start selling tickets, or how is the mix between short-haul and long-haul into 2018?
On long-haul, I can answer that there is, of course, we have ramped up the frequency. There is a lot of tickets still that need to be out for sale. We haven't set it out for sale, and the reason for that is actually we don't know exactly the slots that we get, and that will be confirmed within the end of November. Then we will set out the rest for sale. That is for the long haul. For the short haul, as we speak, we are looking at how we deploy the MAX operation. That's not set up for sale. We should actually cover some operations that we want to fly with a narrow-body to other countries that we have not set up for sale.
The simple reason for that is that we do not want to set up for sale if we are not sure that we have enough short-haul pilots. In the last 14 days, we have around 100 more short-haul pilots.
Right
entered into a contract with us. We should cover these areas. As soon as we get the slots set up, you will see more coming up for sale.
If I may follow up with your cost side. You have mentioned that 2017 and 2018 should be regarded as quite expansion years, so reflected in your costs. The longer-term target, is it still unchanged? If you could comment on that.
Of course, we have a build-up now. We have a build-up in, as we explained, this is especially on long haul. We have a build-up now that goes for a period of 12 to 18 months. We have to be able to have all the employees when we start the ramp-up of the long haul, because the largest ramp-up will actually come the first half year. By the end of next year, we will be up to 32 wide bodies, and then we will more or less are set because we have only five wide bodies coming in 2019. The ramp-up actually that we see taking place in 2017, it will continue throughout the winter, and then we will have more or less the ramp-up set.
I can add, Kenneth. If you look on, of course, the full-time employees, we increased by 47% with a 21% revenue growth. That explains pretty much where we're standing right now. We're preparing for the growth into 2018.
One final question from me. With the approval of the U.K. license to the U.S., could we expect to see some changes in your number of AOCs, and perhaps a better fleet utilization?
What we are actually striving for is actually to have the crew swap between the different AOCs. That should be doable, but we can't count on that as we speak. This is the regulatory authorities that decides when we can do that. That is the whole setup of Norwegian is to have the crews to flow between different AOCs. Now we have an AOC covering the EU traffic rights, and we have also an AOC operating license covering the Brexit, the U.K., and also Nordic, Norway. We need one in Argentina that we are in the process of setting up. We should be fairly well covered from Europe and out. We don't foresee any new AOCs except for Argentina. More questions?
One from Hello? Yeah. From James Hollins, Exane. Why are you assuming fuel for remainder of 2017 at $500 per ton against current spot price of close to 560 per ton?
I think that is to help out to show how our underlying cost performance is. Analysts can make their own assumptions on the quarter. Remember that the dollar exchange rate, dollar to Norwegian kroner, is offsetting some of the price increase that we've seen lately in the spot price, and we're still early in the quarter. We have based our guidance on the same currency and the same fuel price per ton systematically to show the underlying cost performance.
Petter Nystrøm from ABG. First question, how do you see the competitive landscape in Argentina, and how many aircraft should we expect to be used in 2018 and 2019?
The competitive landscape in Argentina is actually very interesting. So far, they have one legacy carrier that's a good carrier and one that's not that efficient, that have to be very much more efficient. You can say it's one very old legacy carrier and one new legacy carrier. There are concessions in Argentina, and that means that there are restrictions on the competition landscape. How many aircraft are we able to set in? Of course, if we have to fly the 153 routes that we have concessions on, it requires between 60 and 70 aircraft. You will, of course, not start up with 60 to 70 aircraft. You have a build-up phase. It also require around 20 long-haul aircraft.
Second question, what is the latest development in the pilot negotiations? Is the deadline the 31st of October?
I think it's fair to say that we have a good discussion with our pilot units. We're in the process of that, and very good discussions. We expect to continue with that during fourth quarter. No other comments to that.
Last question. There is a pilot shortage in Europe. Are you seeing pressure on salaries?
There will be pressure on salaries, I think it's more that the pilots, they don't want to move around. They want to have a fixed base. They more like stability, and they more like a career. Say, go into short-haul, can we then continue into fly Dreamliners? Norwegian has been quite attractive in that. There will be a shortage, we anticipate, all over in 2018. It depends on how many pilots will come out of Alitalia, and we know how many pilots have come out of Monarch and Air Berlin. Most of the Monarch pilots, a lot of them have gone to Norwegian, and we are very happy for that because they are very experienced pilots. That's why we don't foresee for ourself that we will have a shortage of pilots next year, as we speak.
Since I've been into this game, there have always been up and down. Sometimes we've been an overflow of pilots. Today, it is a shortage of pilots. That's good for the pilots, not as good for especially those who set in a lot of new capacity. We are not setting in a lot of new capacity in 2018. Actually, we are setting in 14 narrow bodies, but we are also taking out four narrow bodies. A lot of these narrow bodies will also go on long-haul or transatlantic. We do not at all have that ramp up that we had this summer.
Martin Stensrud, Danske Bank. Regarding financing, you commented that you are fully financed also for Q1 next year. Could you please comment a bit more on the different financing sources? Sale-leaseback, ECA, and the other sources you have used previously, and what we could expect then in terms of financing for Q2 2018, also the remaining part of 2018. Thank you.
We have secured financing for our Dreamliners. Two deliveries in Q1. With the U.K. export credits, UKEF. Financing the same financing as we've done in third quarter, and will do in fourth quarter in 2017. We have secured the same financing for the next couple of Dreamliners into 2017. UKEF don't grant financing for more than six months out. That's why we haven't finalized anything more for the rest of the year. We're working on for the Dreamliners, both with EXIM, with UKEF, but also AFIC, the insurance structure, which all are interested in financing those aircraft. It's some sort of export credit financing or a similar structure for the Dreamliners. For our 737-800s, we have contracted sale-leasebacks for deliver remaining two.
We're now working on the MAX deliveries, which will start in May next year, to work both with EXIM and AFIC for financing those aircraft. I think we're very comfortable when it comes to long-term financing and working well with both export credit institutes and, of course, AFIC.
Any consideration regarding floating fixed interest rates? What are you thinking about that for 2018, also on the long-term financing?
Today, we have 95% of our financing is on fixed rates. The average financing rate will fall this year versus the previous year. We see that we're able to attract long-term financing at attractive levels. We don't see any big changes to that into next year.
Thank you.
Hans-Erik Jacobsen, Nordea. Given all the start-up costs that you have encountered this year and also last year, what are the chances that you're going to slow down growth somewhat compared to the 35% ASK guidance on 2018?
Naturally, for us, we have to take the slots that are available, especially in the New York region. We have always said that if you go two, three years ahead, there won't be any more slots in JFK or New York. That is another reason why we have done this ramp-up. Of course, there has been a soft market due to the problems that some of the Middle East carriers have been facing, and we have been able to grab a lot of Dreamliners on very attractive leases. That is one of the reasons why we have ramped up more than we had intended. For us, it was more a problem, is it possible actually to crew up such a huge ramp-up on the Dreamliners? It's no problem to set it in the market.
That is also the problems that they have encountered in the Middle East market, the Middle East carriers, I mean. There is a lot of pilots that want to come home to Europe. We have been lucky in that sense. We have been able to have enough pilots for the long haul. Actually, it was somewhat a surprise that the short haul hitting that much in last year. That was actually the problem. Everybody can calculate it. It cost us close to NOK 1 billion this summer on these problems with the shortage and the delay of the MAXs. Because of the delay in MAXs, we needed additional short haul airplanes. Additional short haul airplanes, that's very costly if you have to do it in the last phase. That was some of the problems that we have.
The MAX is also now introduced into the market. You will not have these kind of things next year. The Dreamliner is working very well. We have been able to get enough pilots for the Dreamliner. We get the ramp-up. Well, the ramp-up today, yes, we will fly some more destinations than we are covered in Europe, but our ramp-up will now be mainly targeted on actually frequency. We go double daily now from London. It shouldn't be as a big secret that we should go double daily from Paris. That is what we're doing now. We are actually adding more frequencies. We saw when we did that on London, actually, our load factor still remains high 90s, between 93% and 95%, but the yield is going up actually with the increased frequencies.
Karl-Johan Molnes, Norne Securities.
Please English because it's on the web. Yeah.
Sorry. Karl-Johan Molnes, Norne Securities. Yesterday evening, there were new security measures launched for the U.S. market, Delta sent out a request to all the passengers to show up 3 hours before every flight, that the check-in personnel needs to hand out questionnaires, and every passenger needs to answer those questions to complete a security check, which is very strange. Do you feel that the U.S. doesn't want all these passengers coming to visit them? Do you feel welcome?
I think they definitely want the tourists into U.S., one have to understand that they are afraid of the terrors that hit Europe lately, they still, of course, they have the 9/11. They still remember. One have to take that into consideration. Also, the airports in the U.S., they have to do a lot of infrastructure investments in order to get the queues quickly enough through the security section. Yeah, you have already seen it in Europe, actually, this is an item that goes between EASA and the regime takes care of all flights in Europe and U.S. We have to expect more security checks. We have to do that, but you can do it at check-in.
Preben Ascoulson, Carnegie. A quick follow-up on your former answer. I think you said something about yield going up when you increased the frequency. Considering now that all the expansion in long-haul is basically on increased frequency, based on what you can see from your sold tickets already, is it possible to see an increase in the long-haul yield going into next year?
Of course, we haven't actually started selling on all the routes that we are ramping up. It seems to us so far, you can comment on this, but there is also a softening on the transatlantic. Actually, the toughest area to compete in is actually the Nordic area. It's not that tough from out of U.K. and France and Spain that we have started.
I think, just to fill in on that, difference in pricing is much bigger in the transatlantic market. As we now have established a strong brand position and have a bulk of our sales actually in the American market, and the strongest growth in U.S. dollar sales, I think we're now starting to get a good grip on that market. The difference in pricing on that market is much greater than you see in the Nordics, as Bjørn explained. It's a bit early to guide on the market sales for 2018. As you saw the graph, the chart illustrated that sales into 2018 still premature to guide on the market. We're seeing a much more stable market now this fall than we saw a year ago.
One thing for sure, that our cost will go down on the long-haul. Obviously, because we are ramped up now, that's what we set into production next year.
One more question from Petter Nystrøm, ABG. How much will average flying distance increase in 2018?
We've now been for the last quarters, we've seen double-digit growth in distance. I think you will see even stronger increase as 90% of the growth next year or long-haul will grow by 90%, and narrow-body growth will be much lower. It's a bit early to be exact on that, but it will be double-digit and more than 12%-15%, probably. We can be more specific on that as we finalize our route program for next year. If there are no other questions, I will thank you all for showing up, and we'll be around here for some follow-up questions. Thank you.