Final Project Week 3 Norwegian Air Shuttle Cimber Sterling

Final Project Week 3norwegian Air Shuttle Cimber Sterlingbackground O

Analyze the financial performance and strategic positioning of Norwegian Air Shuttle (NAS) and Cimber Sterling by examining their company backgrounds, market segments, financial statements, investment and financing activities, and corporate governance practices, comparing their approaches and strategies in the context of the competitive airline industry.

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Introduction

The airline industry is characterized by intense competition, high operational costs, and a complex regulatory environment, which require strategic agility and effective financial management for survival and growth. Norwegian Air Shuttle (NAS) and Cimber Sterling exemplify contrasting yet interrelated strategies and financial behaviors within this competitive landscape. Analyzing their company backgrounds, market segments, financial performances, investment and financing activities, and governance practices provides insights into their strategic positioning and operational effectiveness.

Company Backgrounds and Market Segments

Norwegian Air Shuttle (NAS), established in 1993, originated from regional Norwegian airline services, evolving into a prominent low-cost carrier with international reach. NAS has expanded its operations by establishing subsidiaries in various countries, such as Polish and Swedish branches, and diversifying into ancillary services like online banking through Bank Norwegian. Its strategic focus is on European point-to-point routes, leisure and business travelers, and affordable travel options, competing primarily with other low-cost carriers and legacy airlines such as SAS and Finnair.

Cimber Sterling, founded in 1950, operated primarily as a regional Danish airline serving domestic and European routes, with a focus on leisure travelers and short-haul flights. Its strategic positioning involved targeting profitable niche markets in Scandinavia and Europe, competing with larger carriers like SAS and Finnair. By 2010, Cimber Sterling transported over 2.6 million passengers, maintaining a market niche with a combination of domestic and European destinations.

Financial Performance Analysis

Comparing the financials of NAS and Cimber Sterling reveals differences shaped by their operational scopes and strategic priorities. NAS's total assets increased significantly between 2009 and 2010, with an 80 million unit rise, reflecting expansion through aircraft acquisitions and operational investments. Its liabilities also grew, indicating leveraged growth strategies aimed at expanding fleet capacity. Conversely, Cimber Sterling's total assets decreased over the same period, and liabilities increased, suggesting a focus on asset streamlining and debt management.

Profitability metrics further differentiate the companies, with NAS posting a profit loss of nearly 906,000, whereas Cimber Sterling experienced a smaller but notable loss of approximately 213,000. These figures highlight NAS's aggressive expansion and revenue generation challenges, while Cimber Sterling's narrower market focus translated into more limited growth but also facing operational constraints.

Investment and Financing Strategies

Both companies’ investing activities reflect their strategic priorities. NAS's primary investments involved prepayments for aircraft purchases, totaling over 2.1 million, and the acquisition of tangible assets, aligning with its goal of enlarging and modernizing its fleet. Cimber Sterling’s investments included disposals of property, plant, and equipment, as well as acquisitions, indicating efforts to optimize asset utilization and reduce excess capacity.

In financing activities, NAS and Cimber Sterling adopted contrasting approaches. NAS focused on raising long-term liabilities, with nearly 2 million in new liabilities, and actively paid down existing debts, emphasizing debt-driven expansion. Cimber Sterling issued shares, raising over 260,000, and reduced its bank debts, suggesting a shift toward equity financing to strengthen financial stability and reduce leverage.

Strategic and Governance Considerations

Strategic strategies differed markedly. NAS aimed at acquiring long-term tangible assets to establish a robust fleet capable of supporting extensive route networks, reflecting a growth-oriented approach. Cimber Sterling prioritized streamlining operations through asset disposals and recalibrating its fleet, focusing on maintaining profitability and financial stability in a competitive environment.

Corporate governance practices also differed in structure and emphasis. NAS’s governance included an independent board with a focus on audit and risk management, ensuring accountability and transparency aligned with public company standards. Its governance structure supports strategic decision-making, risk mitigation, and stakeholder interests, vital for sustaining investor confidence.

Cimber Sterling's governance involved managing directors in subsidiaries without a managing board, with responsibilities centered on operational control and compliance. Both companies emphasized budget approval, financial monitoring, and risk management, but NAS’s independent board structure might better facilitate strategic oversight and long-term planning.

Conclusion

In conclusion, NAS and Cimber Sterling exemplify varying strategic orientations within the airline industry: NAS pursuing aggressive growth through fleet expansion and international diversification, and Cimber Sterling focusing on asset optimization and stability. Their financial activities reflect these strategies, with NAS leveraging debt to fund acquisitions and Cimber Sterling emphasizing asset disposals and equity financing. Effective corporate governance in both firms underpins their operational decisions, risk management, and stakeholder trust. An understanding of these dynamics is essential for evaluating their future prospects in a highly competitive and volatile industry.

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  • Norwegian Air Shuttle ASA. (2014). Annual Report. Retrieved from https://www.norwegian.com
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