Budget airlines impact on SAS

Bookmark and Share

Scandinavian Airlines (SAS) has felt the pinch from increased competition in the airline market, forcing it to sharply drop ticket prices and cut ground crew costs. On Tuesday analysts said the plummeting prices could be a “catastrophe” for SAS and recommended people hold off buying shares ahead of next week’s half-yearly results, while the Danish Finance Minister has demanded a report on SAS’ use of cheaper foreign subcontractors.

SAS and Norwegian jets park side-by-side at Oslo's main airport at Gardermoen, but are fierce rivals with huge differences in costs, not least those involving executive pay. PHOTO: newsinenglish.no

SAS and Norwegian Air planes side by side at Oslo’s Gardermoen airport. Competition with budget airlines like Norwegian has forced SAS to sharply drop its ticket prices. It meant an increase in passenger numbers last month was unlikely to yield any positive results in next week’s half-yearly results. SAS’ cargo crew cost-cutting measures drew the ire of Danish authorities, who’ve demanded a report into the airline’s use of foreign workers through subcontractors. PHOTO: newsinenglish.no

SAS has faced stiff competition from budget airlines, including the ever-growing dominance of its Scandinavian rival Norwegian Air. SAS released its May traffic figures on Monday, and despite flying 185,000 more passengers than in May 2013, it has not seen profits soar. In the year to April 2014 SAS passenger prices have on average fallen by 17.6 percent, reported Danish business news website Erhverv På Nettet.

“The worst for SAS right now is that the prices have fallen as sharply as they have,” Sydbank senior analyst Jacob Pedersen told Danish newspaper Jyllands-Posten. “When they fall so powerfully and at the same time you don’t get considerably more people in the planes, then it’s a challenge.”

“The decline is compounded by the fact that Easter was in April this year,” Pedersen explained. “During Easter there is more holiday travel which is cheaper than business travel. If the decline continues at this level it will be a catastrophe for SAS. There are probably not many airlines that have the possibility to cut their costs at such a rate.”

Pedersen recommended potential investors wait until SAS’ half-yearly results were released next week before buying shares in the airline. He predicted SAS would also re-launch its EuroBonus loyalty program in a bid to increase profits, which it already overhauled earlier this year and has considered selling off.

“Regardless of what SAS presents, they have problems with proving they can make SAS a profitable business,” Pedersen said.

Danish investigation
SAS’ attempts to cut costs have led to claims of social dumping through the use of cargo subcontractors hiring cheaper foreign labour. Its low-cost competitor Norwegian Air has also faced social dumping accusations and strike action over cost-cutting measures in recent months. Danish Finance Minister Bjarne Corydon has asked SAS for a report on the accusations. SAS said it wanted to pay high wages and secure jobs, but its hands were tied by the market conditions.

“We have a competition situation where our competitors, which also fly from Copenhagen, use international transport companies,” SAS press manager Trine Kromann-Mikkelsen told Danish news agency Ritzau. She said if the airline could not stay competitive, it would be driven out of the industry.

newsinenglish.no/Emily Woodgate