SAS remains cautious despite its first profit since 2019 |

SAS Scandinavian Airlines ended the busy summer July quarter with its first profit since Q4 FY19, reporting a SEK 461 million net profit for Q3. This is a clear sign that the airline is on the right track to recovery, said President and CEO Anko van der Werff on September 1. “But one swallow doesn’t make a summer.” He stressed that much work needs to be done after SAS exits US Chapter 11 bankruptcy protection before the year’s end and receives regulatory approval in 2024. SAS remains cautious despite its first profit since 2019. SAS carried almost seven million passengers between May and July, which is its third quarter of FY23. This is the highest number since the pandemic and is up by 36.8 percent year on year thanks to increased capacity as thirty new routes were launched. At 85 percent, capacity was up 36 percent year on year but still below 2019 levels. One should remember that last year’s Q3 was affected by the pilot strike in July 2022 which cost the airline SEK 1.351 billion. But this Q3 was affected by ATC capacity issues at its Copenhagen hub, strikes, challenging weather, and other operating problems that had a severe impact on operations and on-time performance. Total revenues recovered to within two percent of 2019 levels and increased to SEK 13.173 billion from SEK 8.580 billion last year, mainly thanks to higher production and increased capacity. Intercontinental generated the best results. The higher load factor of 81.5 percent generated SEK 416 million in additional revenues, but they were offset by SEK 281 million in lower yields per passenger. Last year, revenues also included a SEK 1.1 billion provision for customer compensation claims. Cargo revenues were down to SEK 270 million from SEK 323 million. Operating expenses increased to SEK 11.596 billion from SEK 9.728 billion due to higher production, like higher costs for staffing, ATC, and SEK 359 million in Chapter 11 administrative costs. Fuel costs were nine percent lower to SEK 2.743 billion. The airline also suffered much from negative exchange rates caused by the devaluation of the Swedish Kroner against the US dollar, which has had an impact of SEK 271 million. Yet, as SAS continued its focus on cost reductions, Q3 was the first quarter in a year when expenses were lower than revenues. SAS ended the quarter with an operating profit or EBIT of SEK 1.577 billion compared to SEK -1.148 billion last year. The EBIT margin improved to a positive 12 percent from -13.4 percent. The airline generated SEK 1.542 billion in cash flow from operating activities versus SEK -992 million last year. The net profit after tax was SEK 461 million, a significant improvement over last year’s SEK -1.848 billion. For the first nine months of FY23 (November-July), revenues were SEK 30.024 billion (FY22: SEK 21.173 billion), EBIT SEK -2.043 billion (SEK -3.240 billion), and the net profit after tax SEK -3.773 billion (SEK -5.810 billion). SAS ended July with SEK 6.463 billion in cash. Interest-bearing liabilities were SEK 40.766 billion, down by SEK 4.754 billion since the start of FY23. Financial net debt stood at SEK 30.450 billion, mainly because of positive cash flow, currency revaluations, and the rejections of lease contracts under Chapter 11. Life after Chapter 11 On the Chapter 11 restructuring and SAS FORWARD transformation plan, Van der Werff said that progress is made toward completing the restructuring that was launched in July last year after SAS filed for bankruptcy protection in the US. Numerous lease contracts have been restructured or rejected with the aim of reducing costs, although some remain subject to court approval. Negotiations with unions on new collective labor agreements continue, but Van der Werff was unwilling to discuss details. SAS is seeing “substantial interest” from potential investors to participate in the equity solicitation process that was launched in May, with the aim of securing some SEK 9.5 billion in fresh equity, reducing net debt by some SEK 20 billion to SEK 17 billion, and reducing structural costs by SEK 7.5 billion from FY24. Despite inflation, this reduction target remains unchanged for now. The solicitation procedure will conclude in September. The original timeline to exit Chapter 11 has slipped from this autumn to the end of the year. After that, a few more months will be needed to complete the required regulatory approval and procedures. Asked how SAS will come out of Chapter 11 and how it will fare against the competition, Van der Werff stressed that the SAS FORWARD restructuring runs for a few more years until FY26, so a lot of work remains to be done. “We started our restructuring late and therefore, if you look at where we stand right now, we have work to do and make sure that all the deals are implemented. We then have to get all the pilots back. The ramp-up this summer meant we had to factor in more external capacity than any other European airline, as we didn’t want to give up our position. We are profitable in this quarter with a few heavy stones around our neck.” “We will always have competition. But when you look at the competitive landscape from pre-Covid to now, I don’t see drastic changes. It is something we can deal with and will make us stronger. That is the reason we are doing SAS FORWARD as a whole and again, this program hasn’t finished.” Van der Werff said it is too early to understand how the projected acquisition of Wideroe by Norwegian will affect SAS on the key market in Norway. But he expects that SAS will be able to continue into smaller airports that are now primarily served by Wideroe, so SAS should keep its high 40s to 50 percent market share. Growing capacity, reducing the wet-leased fleet Van der Werff is optimistic about Q4 until November as forward booking trends continue to be strong. SAS will add capacity for the autumn and winter period and launch new routes. This includes Copenhagen to Bangkok and a return to Africa after many decades, with a seasonal service until March to Adagir (Morocco) that is scheduled from Copenhagen and Stockholm in November. Another aggressive ramp-up is planned for summer 2024. For the full year, SAS reiterates its April guidance and expects revenues to exceed SEK 40 billion and an income before tax (EBT) of SEK -4 to -5 billion. The carrier is not hedged for fuel this year. The carrier should produce a positive EBT next year and generate SEK 5 to 6 billion in FY26 when revenues are expected to reach SEK 58 billion. Earlier this week, the CEO of Norwegian airport handler Avinor said that traffic will not recover to pre-pandemic levels until 2026-2027 at the earliest. Van der Werff didn’t confirm this outlook, but said that “it confirms that the industry still struggles to regain momentum.” SAS ended the quarter with 143 aircraft in operation, up nine from Q2. There were 41 aircraft on wet-lease contracts, up from 28 in the previous quarter, which cost SEK 256 million. They include eight Airbus A320s, three A220s, three Boeing 737NGs, and one A330 that entered service for SAS during the summer quarter. One reason for the high number of wet leases is the need to train pilots who are in the transition program from the 737NG to the A320neo family, but this has been affected by the ATC restrictions in Copenhagen earlier this summer. Add to that the after-effects of last year’s pilot strike, and SAS didn’t have enough pilots to fly its own planes. Van der Werff said he definitely wants to reduce the number of wet leases next summer to reduce costs, “so we don’t have to pay for someone else’s margin.” The airline has unfilled orders for nineteen Airbus A320neo family aircraft and two A350-900s, plus three used Embraers E195s. Three A320neo’s and two Embraers should join this financial year, followed by eleven A320neo’s in FY24, plus six A320neo’s and two A350s in FY25. While Van der Werff said some time ago that SAS has too many widebodies, he said today that it might need a few more to fill the long-haul requirements. “When we looked at the summer performance, we had to source in a widebody through wet-lease, but that is not the intention for next summer. We will probably also over the years in the SAS FORWARD plan build out the widebodies a bit more.”

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