SAS Toughs It Out

By David Armstrong, Contributing Editor

Scandinavian Airlines President and Chief Executive Officer Rickard Gustafson recently flew to San Francisco on SAS’ new Copenhagen-San Francisco service. The dual purpose of his trip: to promote the route and demonstrate the carrier’s determination to grow, even in challenging times.

And challenging times they are. SAS reported a loss of 630 SEK (about $100 million) from November 2012 through January 2013, as it struggled with the high fuel costs and business downturn that have buffeted aviation. Additionally, SAS is grappling with other high operating costs.

This is a photograph of Rickard Gustafson, president and chief executive officer of Scandinavian Airlines

SAS also has an ungainly public/private ownership structure. The 67-year-old airline is 24 per cent owned by the government of Sweden, 14 per cent by the government of Denmark and 14 per cent by the government of Norway.

Another 7 per cent is held by a private foundation. Multiple private investors hold the remaining 41 per cent of the company, whose shares are traded on the Copenhagen, Oslo and Stockholm stock exchanges.

“We (Scandinavian countries) don’t have Chapter 11, like in the United States,” Gustafson noted in an interview with www.AirlinesAndDestinations.com in San Francisco.

Nevertheless, SAS is pursuing an agenda similar to what U.S. airlines do when they park in Chapter 11 for bankruptcy reorganization.

The longest-range aircraft in the Scandinavian Airlines fleet is the Airbus A340-300, which is powered by four CFM International CFM56-5C engines

“We are renegotiating our labor contracts,” Gustafson said, “moving away from fixed-benefits. We are outsourcing ground capacity at our main hubs, reducing and centralizing our administration and selling assets.”

All these moves are designed to reduce expenses and streamline operations, he said.

SAS, headquartered at Stockholm-Arlanda Airport (IATA code ARN), operates major hubs at Copenhagen Airport (CPH), Oslo Airport Gardermoen (OSL) and Stockholm Arlanda. SAS offers flights in northern, eastern and western Europe, to North America and to Asia, as well as connectivity with fellow Star Alliance members.

“This is absolutely vital for us – connectivity through Star Alliance, especially United,” said the 58-year-old Gustafson, a Swedish executive who ascended to the top job at SAS in February 2011. (United operates a major hub at San Francisco International Airport.)

Scandinavian Airlines is a member of the Star Alliance. Here, a new SAS Boeing 737-800 painted in the Star Alliance livery taxis at Boeing Field in Seattle prior to delivery

In November 2012, SAS initiated a sweeping reorganization plan aimed at reducing operating costs by 19 billion SEK and unit costs by 3 to 5 per cent a year. In line with this, SAS sold an 80 per cent interest in its Norway-based regional-airline subsidiary Widerøe on May 3.

Previously, in March, SAS signed a letter of intent to create a joint venture to outsource ground operations to Swissport International Ltd.

In addition to striving to turn a profit, SAS is trying to strengthen its hand against nimble, aggressive rivals such as Norwegian Air Shuttle.

Norwegian earned a profit of 69 million NOK ($11.91 million) in the first quarter of 2013. Moreover, the upstart, 20-year-old low-cost carrier placed orders last year for up to 222 Boeing 737-family aircraft and up to 150 Airbus A320neo-family jets. Together the two orders represented the largest commitment ever made by a European airline for new aircraft.

Scandinavian Airlines operates a long-haul fleet of four Airbus A330-300s and seven A340-300s

Gustafson didn’t mention Norwegian or other rivals by name, but said restructuring will position SAS better to compete.

San Francisco International Airport (SFO) is the fourth U.S. destination for SAS, joining New York JFK, Chicago O’Hare and Washington Dulles International Airport. SAS formerly flew to Seattle-Tacoma International Airport as well, but abandoned that market during the Great Recession.

For more from SAS CEO Rickard Gustafson, see Page 2