SAS
- 'A Dinosaur In The Process Of Dying'?
Struggling
Scandinavian airline SAS was once a symbol that was about all the
best of the Nordic economic model, with high wages, job security and
generous benefits.
17
November, 2012
After
years of hesitant reform, the state-controlled airline now has to
take a hatchet to costs and embrace a market-based transformation
that has boosted Nordic firms such as Ericsson and Volvo into
competitive world-leaders.
But
many believe it can never compete with harder nosed rivals such as
Norwegian Air Shuttle and Ryanair with no legacy of state ownership
and a steely focus on the lowest prices.
"SAS
has gone from crisis to crisis. What we are now witnessing, is a
state-sponsored dinosaur in the process of dying," said
Norwegian newspaper Adressa this week.
The
dire prediction came after SAS announced on Monday that it aimed to
cut wages by up to 17 percent for some staff and sell off assets to
reduce its headcount to about 9,000 from 15,000.
SAS
was to hold talks with unions in Denmark, Sweden and Norway on
Thursday to persuade them to accept a worsening in work conditions
for staff, which the airline's chief executive says has to be agreed
by Sunday if the company is to survive.
The
crisis mode is in stark contrast to the days SAS was founded in 1951
as a symbol of trans-national cooperation after World War Two, helped
by the region's linguistic similarities.
The
airline was also key in linking the geographically isolated Nordic
region to the rest of Europe, and ensuring air traffic to isolated
spots within the countries themselves.
The
reforms SAS is now undertaking have already been carried out in the
wider economy, where governments have sold off telecoms companies and
submitted others still in state hands to competition. Unions have had
to move with the times too and given up on work practices which
critics deemed inflexible.
"SAS
was in many ways a picture of the Nordic model," said an
editorial by Norwegian public broadcaster NRK.
"It
was SAS we wanted - but maybe we end up getting Ryanair: low wages,
low pensions and limited flights."
A
TALE OF TWO AIRLINES
Much
like the once-relatively self-reliant economies of Sweden, Denmark
and Norway, SAS has faced a world of deregulation, cross-border trade
and increased competition.
Shared
state interests in a company do not help, a lesson learned by
European aerospace giant EADS, when its planned USD$45 billion merger
with Britain's BAE Systems fell through last month.
Political
compromise between the three Nordic countries that own half of SAS's
shares between them has hamstrung the company's ability to meet the
economic challenges.
For
many years SAS planes have had to have nationals from each state on
board, even if that meant they had to travel to work outside their
home base.
SAS
has also only been able to employ pilots based in the Nordic region,
whereas Norwegian - SAS's main rival on regional flights - has kept
its costs lower by hiring outside Scandinavia on contracts with lower
wages.
The
financials of the two companies tell a clear tale. While SAS's 2011
annual report showed its unit costs averaged SEK0.86 Swedish kronor
(USD$0.12) per available seat flown over the year, Norwegian's was
NOK0.45 Norwegian kroner (USD$0.08).
Norwegian,
with just 2,555 staff against SAS's 15,000, made a pre-tax profit of
NOK166.5 million Norwegian kroner in 2011, while SAS made a loss of
SEK1.6 billion Swedish kronor.
SAS,
which has lost SEK12.4 billion Swedish kronor since the start of 2002
and already sold off assets worth SEK80 billion kronor over 12 years,
expects a small loss this year.
Ole
Kirchert Christensen, Danish airline industry consultant at the
TravelBroker consultancy, noted that while SAS has several hundred
people working at Copenhagen airport with a market share of flights
there of 40 percent, Norwegian manages its 15 percent market share
with just 8 staff.
"No
matter what you do in SAS and how much you reduce the salaries for
the Scandinavian-based personnel, you will never reach the same level
as the low cost airlines," he added.
The
airline disputes this, saying its restructuring plan aims to put it
on a completely new platform. "It will enable SAS to compete
effectively in the expanding private travel market, while retaining
its strong position in the important business travel market," it
said on Monday.
It
has some way to go. Norwegian Air this week took out full-page ads in
Swedish newspapers to advertise its new long-haul services out of
Sweden, challenging SAS in yet another market.
The
governments of Sweden, Norway and Denmark face a tough choice between
letting an airline go which employs thousands of people and is
important to airports, and ploughing more money into a group which
has not had an annual profit since 2007.
Some
still hark back to the good old days.
"SAS's
future is about all of us together. About thousands of jobs, about
Scandinavian solidarity, about Denmark's position in the world and
future welfare," said a commentator in Danish newspaper
Politiken this week.
But
Danish finance minister Bjarne Corydon told reporters on Thursday the
three countries' plan, with six banks, to extend a credit facility to
SAS as long as it restructured, was its last chance. "There is
no Plan B," he said.
"Five-year-old
Virgin America, which has had only one profitable quarter in its
history, is ending a breakneck growth streak and plans to
cancel orders for 20 of 30 Airbus jetliners in the hopes of improving
its financial picture by letting its new routes mature,
David Cush, the chief executive officer, said in an interview."
"Fuel
contamination at Johannesburg's main airport has left seven
million litres of their stock unfit for usage, sparking
fears of flight delays at Africa's busiest airport, authorities
said Friday."
"The
British carrier's profits are being almost wiped out by the
performance of Iberia, which is in a 'fight for survival'"
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