Analysts mixed over keeping SAS aloft

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The jury is out on whether Scandinavian Airlines (SAS) will survive in its present form, after the long-troubled carrier reported another round of heavy losses and looming job cuts this week. New long-haul flights direct from Oslo are on the drawing board, however, and aircraft crews have dodged more cuts for now.

At SAS it's suddenly a feeling of "up, up and away," after a tough period of historic turbulence. Norwegians seem more than ready to fly. PHOTO: SAS

Scandinavian Airlines (SAS) is suddenly facing more financial turbulence, with analysts divided over how or whether the airline can keep flying high. PHOTO: SAS

Everyone wearing an SAS uniform on board its flights “is saved,” reported newspaper Aftenposten on Thursday, the morning after SAS executives announced lower total revenues in its second quarter and a pre-tax loss that was three times the size of last year’s in the same period. The disappointing financial results mean SAS will need to eliminate another 300 jobs.

Most of the job cuts will be made within SAS’ administration, however. Top SAS executive Eivind Roald, the airline’s Norwegian director of sales and marketing, said he can’t rule out layoffs in administration also in Norway, with more details due after the summer holidays.

‘More headwind,’ new routes
Cabin and cockpit crews, however, can feel relatively secure, at least for now, and Roald seemed to downplay the current financial turbulence. “We have a bit more headwind and need to adjust our course,” Roald told Aftenposten. “Therefore we have a need for more cost savings that also will be in the billion-kroner class. We’ll come back to that in the autumn.”

The airline also intends, however, to introduce new intercontinental non-stop routes to the US and Asia from Oslo and Stockholm. “Where these routes will go, won’t be decided until after the summer,” Roald said. “They will probably be entirely new routes that SAS doesn’t offer today from any of the Scandinavian capitals.”

One of the analysts who follows SAS most closely, Jacob Pedersen of Sydbank in Denmark, told Aftenposten that he doesn’t think SAS is in any acute crisis but isn’t fully convinced SAS’ new initiatives will make the company profitable in the future. Others are more pessimistic, not least after SAS CEO Rickard Gustafson indicated he was unprepared for a new billion-kroner loss.

Worse than expected
“I knew the beginning of the year would be weak (in revenues) but didn’t think it would last,” Gustafson told newspaper Dagens Næringsliv (DN).  “When we saw how the market for airfares was developing in March and April, it was clear the situation was worsening.” SAS’ only comfort is that arch-rival Norwegian Air also experienced even weaker margins in its latest quarter.

Analyst Lars Heindorff of ABG Sundal Collier thus told DN that SAS only has two to four years left to increase profitability if it’s to survive in Europe’s highly competitive and crowded airline market with high capacity of available seats. The airline, according to Heindorff, can never cut costs enough and therefore must hope for industry consolidation and market allowance to charge higher fares.

Kenneth Sivertsen of Arctic Securites added that SAS “has to be able to charge higher fares, otherwise it won’t make it. It’s a tough situation.”

SAS’ signals about wanting to further increase capacity by adding new routes worry analyst Hans-Erik Jacobsen of Swedbank First Securities. “They should rather accept a loss of market share and ensure that their flights are fuller,” he told DN.

Passenger Odd-Arne Kleveland, a partner in the Kyllingstad Klevland law firm, said while checking in for a flight from Stavanger to Oslo that he hopes SAS is still around five years from now, but doesn’t think the airline will be in its present form.  “The airline is a victim of developments in the industry, combined with strong labour unions,” Kleveland told DN. “I hope it will still exist in five years, but hardly in the form we know today.”

newsinenglish.no/Nina Berglund