SAS launches cost-cutting program to deal with COVID and shift to leisure travel
Scandinavian airline SAS has announced plans for a “full transformation” of its business as it grapples with the effects of the COVID-19 pandemic and changing travel patterns.
SAS has traditionally secured half of its business from corporate travelers, but with leisure travel now accounting for more of the travel market, plus increased competition from rivals in the region including Norwegian, Finnair and others, the airline said it needs “a new start”.
The airline said it has been burdened by “an uncompetitive cost structure” for many years. It therefore wants to negotiate new labor agreements, revamp its fleet, deleverage its balance sheet and then raise new money via a capital increase.
The program, dubbed SAS Forward, aims to reduce annual costs by SEK7.5 billion ($801 million), the airline announced on February 22, 2022.
“We want to be competitive, we need to be profitable, and now we have taken a clear stance on what the post-COVID direction of this company is, and that is forward,” chief executive Anko van der Werff said in an online press conference.
SAS has already set up a new unit, SAS Connect, out of Copenhagen, which had drawn ire from unions who see it as a way to bypass existing collective labor agreements.
Van der Werff said the company needed all stakeholders, including employees, unions, investors, lessors and shareholders, to be on board with the transformation plan.
“This plan is designed so that people understand this is the best alternative and that the other alternative will be worse. We want to make this very consensual,” he explained.
“New money will not come in if they don’t have clear visibility and guarantees that the core structure will be different…It requires labor, lessors, many other stakeholders to say ‘yes, we are going forward’. It requires that to happen and then we can go for a capital raise.”
SAS is not the only European airline looking to raise money via issuing new capital. Air France-KLM said on February 17, 2022 that it was looking at measures to strengthen its balance sheet, including a capital increase.
SAS did not provide exact details of its fleet restructuring plan other than saying it would use “mid-size aircraft” on smaller routes. It has previously said it needed to look at how to handle lower passenger numbers on its routes.
The airline is due to start commercial service with the A321LR on long-haul routes to the United States in March 2022. It said the number of new destinations it can add from its Scandinavian bases using that aircraft is “quite extensive”.
SAS unveiled the transformation plan as it reported financial results for the first quarter of its 2021-2022 financial year. In the three months to January 31, 2022, revenue improved 143% to SEK 5.5 billion. However, pre-tax losses widened by 34% to a loss of SEK2.6 billion as the Omicron wave of COVID-19 hit demand while it was ramping up operations.
“Lately on a more positive note we have seen ticket sales accelerating which is promising for times ahead,” the airline added.
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