Scandinavian airline SAS is to start services with its ‘low-cost’ offspring SAS Connect and SAS Link out of Copenhagen from early 2022. The carrier is evaluating options to expand Connect to Oslo and Stockholm during the year, it said at if FY21 results presentation on November 30. With an enhanced operating model, SAS wants to be prepared for the changes in the market. SAS to launch new ‘low cost’ brand Connect early 2022.
Until now, the airline has not publicly communicated much on SAS Connect and SAS Link. In September, the management informed unions that it would establish the two new subsidiaries, which would have their own Airline Operating Certificates (AOC). SAS Connect will be based on SAS Ireland. SAS’ fleet status per October 31 shows that the parent airline has so far placed nine Airbus A320neo family aircraft with Connect, out seventy in the fleet. SAS Link will reportedly operate Embraer E190s.
SAS Connect and SAS Link will be part of four production platforms, with the existing SAS Scandinavia and its wet-lease activities as the other two. Most importantly, Connect and Link will employ staff under different (cheaper) contracts. Earlier this year, the airline and unions negotiated a new contract that targets higher productivity and lower costs. Unions have been most critical of the latest plans. Van der Werff confirmed that SAS remains in further discussions with them but wasn’t willing to share details except saying that the Danish mechanics union has signed up to the new conditions. New staff will reportedly only be hired through the new subsidiaries.
Van der Werff said that Connect and Link are part of the airline’s revised strategy that enhances its operating model. SAS wants to improve its competitiveness and respond to changes in the market, with the 70/30 split between leisure and business travel changing to 80/20. “The objective of enhancing the operating model is to make sure that SAS has the possibility to profitably expand operations as the market is reopening”, said Van der Werff. “The operating model will provide further flexibility while reducing complexity and increase accountability in each independent platform, with an increased cost and efficiency focus. Above all, it is a necessary change to secure the future of SAS as Scandinavia’s leading airline.”
He added: “We have to transform our business. We are all operating in a seasonal business, meaning that during a peak we need to ramp up and in other times we need to ramp down, and quickly, in both ways. Flexibility will therefore remain a key issue, which is one of the main reasons for introducing the operating platforms.”
While using four platforms might seem confusing for customers, Van der Werff explained that won’t be the case: “We don’t intend at this moment to commercialize the different labels. It is all under the SAS brand. It’s the same as what you see on the wet-lease constructions. There is no room for confusion. When you look at for instance KLM and KLM Cityhopper or Iberia and Iberia Express, there is a logic. People get the hang of that.”
Full-year loss but improved Q4 results
SAS reported its FY21 results today, announcing a SEK 6.523 billion net loss compared to SEK -9.232 billion in 2020. Income before tax (EBT) was SEK -6.525 billion versus -10.097 billion last year. Revenues were down to SEK 13.958 billion from SEK 20.513 billion for the November-October period.
The fourth quarter (August-October) produced a SEK 744 million net loss compared to SEK -2.556 billion, with EBT at SEK -945 billion versus -3.252 billion. But the carrier improved its revenues to SEK 5.762 billion from SEK 3.035 billion, thanks to carrying 3.6 million passengers, 1.7 million more than in the same quarter last year.
Notably, October saw a huge increase in passenger numbers at 1.394 million or over a third of Q4, predominantly coming from leisure travel although corporate travel has started to pick up. “This made Q4 our strongest quarter since Q4 in 2019, with double-digit numbers. Then again you should remember that last year was at a very low base and certainly not like anything we have seen in the pre-pandemic years”, Van der Werff said. Since Q2, passenger numbers have quadrupled while capacity increased from 2.3 million to almost six million seats from Q2 to Q4.
While expenses still outpaced revenues (SEK 6.2 versus 5.8 billion), the gap has grown smaller. Costs grew by 38 percent versus revenues by 152 percent. SAS has now had positive cash flow for the past two quarters, with SEK 1.0 billion in Q4, “which at least means we are moving in the right direction.” The Scandinavian airline ended the quarter with SEK 4.3 billion in liquidity compared to 4.4 billion in the previous quarter. Its revolving credit facility of SEK 3.0 billion still is undrawn, so the airline has no immediate needs and plans to raise additional capital. SAS can no longer rely on furlough schemes and support packages as they have ended. Net debt was SEK 26.6 billion, up to SEK 7.9 billion since October 2020 due to negative cash flow before financing activities.
Decision on new aircraft early next year
Van der Werff said that SAS will announce updated fleet plans early next year, including an order for new aircraft. These are meant to handle the thinner flows of passengers within the network. “We are near the end of our analysis on that and we will come out probably early 2022. We will start those conversations (with OEM’s and lessors) fairly soon. It will definitely be along the lines of newer technology, making sure that they are again very fuel-efficient but also something that will really fit our future network needs. It can be different sizes as it has to fit the new markets.” The new aircraft will most likely be placed with SAS Connect and Link.
Without referring to any types this could mean that SAS is looking at new regional jets. However, at the Airbus Summit in Toulouse in September, SAS’ Head of Sustainability, Lars Andersen Resare, confirmed that his airline is keen to operate (hybrid)electric aircraft on short-haul routes. Longer-term, the airline is also interested in the Airbus ZEROe 100-seater hydrogen turboprop. SAS is committed to reducing its carbon emissions by 25 percent by 2025. It recently announced plans with Vattenfal and LanzaTech to produce green sustainable aviation fuels in Sweden, with more details to come in the next few months.
SAS currently has a fleet of 129 aircraft. In 2022, it will take delivery of one A321LR and thirteen A320neo family aircraft, twelve of these in 2023, six in 2024, and four in FY25. It has done an initial draw-down on pre-delivery payments for ten Neo’s recently that will be delivered in Q2 2023. The final two A350-900s will join the airline in FY24. At a rate of one per month, the carrier will retire its last eighteen Boeing 737NGs until the end of 2022.
Outlook optimistic and cautious
SAS plans to operate on 150 routes to 90 destinations this winter, including more routes to the US. While bookings are up, they remain close-in. The carrier isn’t seeing an effect yet from the Omicron virus mutation on demand, although customers remain uncertain. Keeping costs under control remains a key target of the airline. “We still have quite an optimistic view on the summer of 2022 and are hoping, of course, that market conditions are getting back to where they were within the next coming years.” As CFO Magnus Ornberg said, the carrier will keep a close eye on balancing capacity and demand to maximize revenues and reduce costs. The launch of the new ‘low-cost’ brand Connect is part of this.
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.
Richard, SAS has reached new lows with its wet lease charters replacing SAS aircraft on European connections. Just endured a near 4 hour flight between Palma and Stockholm on an unmarked ageing cramped 320. Had booked SAS Plus supposedly a premium product and I was served uneatable food on a dirty tray table with poor service overall. Have requested a refund.