Scandinavian Airlines changes it’s business model
Scandinavian Airlines (SAS) is one of the world’s oldest and best-known carriers. Its aircraft, traditionally given Viking names, have been plying the airways since 1946 and the carrier has always had a quiet, unassuming reputation for quality. By fall 2012, however, it was no exaggeration to say that SAS was fighting for its life. A combination of a high cost base, even higher oil prices and increasing inroads by low-cost carriers had brought the famous tri-national carrier to the brink of bankruptcy.
In mid-November 2012, negotiations on collective agreements with several groups of employees to cut salaries and pensions while increasing working hours were in the balance. SAS’s board had stated publicly that staff had to accept the company’s plans to boost productivity in full, otherwise the company’s owners and banks would not grant access to vitally-needed funds.
Three years on, SAS is inching back from the precipice. The first nine months of the company’s current financial year produced a modest net profit of $52 million compared to almost the same amount of deficit for the same period the previous year.
That profit figure is tiny compared to the income currently being raked in by the US majors and the more successful European carriers such as British Airways, but is a welcome change from the sea of red ink that has washed over SAS’s accounts in recent years.
The road back has contained some bumps; as recently as May, Norwegian pilots went on strike for a week over issues including job security and flexibility. But a combination of measures is starting to feed through to the bottom line.
“As you know, this industry is going through a huge transformation,” SAS’s head of media relations in Sweden, Henrik Edström, told Airways. A three-year restructuring program had improved the company’s situation, but more needed to be done, he said.
Flexibility among staff was imperative: “High season for us is during the summer months, so we’re allowed to have pilots work a bit more during the summer and a bit less in the winter.”
Another major plank in the flexibility program is the increasing use of wet-leased aircraft from third-party operators (which often operate SAS liveried aircraft) to fly thinner regional services for which SAS’s mainline aircraft are uneconomic.
In recent years, SAS has engaged several smaller carriers – Jet Time of Denmark, Flybe of the UK and CityJet of Ireland (which last month acquired SAS Finnish subsidiary Blue1) – to operate turboprops or regional jets on a host of Scandinavian and northern European routes. SAS also completed the purchase of Danish independent Cimber in early 2015, turning it into a subsidiary operating CRJ900s.
In the latest move to cut costs, in October it outsourced ground handling services at 14 Norwegian line stations to Norwegian carrier Widerøe. SAS ground staff transferred to the Norwegian company and SAS will buy ground handling services from it in future: “The transfer of the operations at the line stations in Norway to Widerøe is in line with our strategy of focusing on flight operations, while at the same time reducing the company’s fixed costs,” said Gustafson.
LCCs – notably Norwegian Air Shuttle and Ryanair – have eaten into SAS’s short-haul markets in recent years: “Competition is harsh in Europe and Scandinavia in particular,” commented Edström. “All network carriers need to adapt to these new conditions and transform the business model that was previously valid.”
As part of that adaptation and like several legacy European carriers, SAS is increasingly focusing on long-haul services, where it faces less competition from low-cost carriers (although Norwegian’s steadily-expanding fleet of Boeing 787s, which operate on several North Atlantic and Asian routes, may start to bring difficulties to SAS even in this economic redoubt.)
SAS has long operated an extensive route network to North America and Asia and plans to increase it further in 2016, with new routes from both Copenhagen and Oslo to Miami and Stockholm to Los Angeles. It has also recently launched a Stockholm-Los Angeles service and is increasing frequencies on Copenhagen-Shanghai.
Its new flexibility has shown itself recently in the decision to abandon an all-business class-configured Boeing 737 service on the ‘oil route’ between Stavanger and Houston, in the face of slumping traffic caused by the low price of crude. Instead, it is replacing its 44 business-class seats with 20 business and 66 economy seats and reassigning it to the Copenhagen- Newark run.