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Investing.com -- Barclays (LON:BARC) downgraded Norwegian Air Shuttle ASA (OL:NAS) to “equal weight” from “overweight,” citing rising underlying costs that offset a first-quarter earnings beat largely driven by one-off items.
The brokerage maintained its price target at NOK14, noting that while demand remains strong, cost pressures are increasingly weighing on the airline’s outlook.
The downgrade follows Norwegian’s first-quarter earnings report, which showed an EBIT loss of NOK611 million.
However, that figure was buoyed by a NOK589 million one-time gain tied to the purchase of 10 previously leased aircraft.
This technical benefit, combined with favorable foreign exchange movements, distorted the airline’s underlying cost picture, according to analysts at Barclays.
Without the impact of the aircraft deal and FX gains, non-fuel unit costs appear to be growing faster than suggested.
While the company guided for mid-single digit increases in non-fuel unit costs, Barclays analysts noted that this level was only achieved through accounting benefits, pointing instead to underlying growth in high single to low double digits.
They flagged rising airport and air traffic control fees, as well as increased labor expenses following a costly pilot deal and maintenance labor agreements in 2024.
Although Norwegian confirmed strong summer bookings, up 7% year-over-year, and April unit revenues rose 18%, Barclays expressed concern that inflation could erode any benefits from declining fuel prices and a strengthening Norwegian krone. The bank said these cost dynamics are likely to cap the airline’s mid-term profitability.
The brokerage acknowledged some positive developments. Norwegian’s new Program X initiative, aimed at improving profitability by NOK1 billion by 2026, received modest praise.
Barclays flagged the airline’s plans to expand its distribution platform alongside Widerøe and build an independent loyalty program.
However, the broader performance plan was described as a collection of typical airline cost-cutting strategies, including productivity gains, digital tools and artificial intelligence, which analysts said are unlikely to deliver major surprises.
Barclays raised its 2025 EBIT estimate for Norwegian by 11% to NOK2.1 billion but lowered forecasts for 2026 and 2027 by 8% and 2%, respectively.
The bank cited slower growth, cost inflation and reduced optimism around some restructuring efforts as reasons for the downward revisions.
The brokerage’s NOK14 price target remains unchanged, and with the stock already trading near that level after a 26% year-to-date gain, the rating was reduced to reflect more limited upside.
Barclays analysts said they could revisit their position depending on how effectively the company executes its cost plan, how yields develop over time and the future direction of fuel prices and the krone-dollar exchange rate.