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July 17, 2024
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Despite a strong Q4, SAS is not happy with how 2019 has panned out, the Scandinavian airline said at its FY2019-results presentation on December 5. SAS confirmed its intention to seek additional cost savings and efficiencies while looking at the replacement of part of its 120-150 seater fleet.

The net result for Q4 was SEK 861 million compared to 623 million the same period last year. Revenues increased to SEK 13.463 billion from 12.678 billion despite lower capacity. However, the full-year result from November 2018 to October 2019 shows a different picture. Net income was SEK 621 million, down from 1.595 billion last year. Revenues were up to SEK 46.736 billion from 44.718 billion.

CEO Rickard Gustafson calls 2019 an ‘’unsatisfactory year”, blaming the lower result on higher fuel costs, currency costs and the seven-day strike in May (costs SEK 185 million). He is happy with improved unit revenues and passenger yields but they were not enough to offset higher costs. Return on investment is ‘’a disappointing’ 8 percent.

During Q4, SAS realized SEK 230 million in efficiency improvements. At the Q3-results presentation last August, SAS announced it was seeking additional savings after 2020 to improve profitability and efficiency. This includes speeding up of automation of administrative tasks, for which SEK 120 million has been set aside in restructuring costs. A different way of crew-utilization should bring SEK 75 million in cost savings already next year and even more once it has been fully implemented by 2022/23. Gustafson did not announce any redundancies that come with the restructuring costs.

A major part of improving efficiency is moving towards a single-type medium-haul fleet. For this, SAS has 80 Airbus A320neo’s and three A321LR’s on order and will replace its 16-strong A330/A340-fleet with 17 A330/A350s. The airline is 34 percent done of its replacements with 20 new aircraft coming in in 2020. SAS has moved to single-type operations in Copenhagen and will introduce this in Stockholm next year which initially will impact productivity. Oslo is to become an all-Airbus hub in 2023.

Replacing the 120-150 seaters
That leaves a question mark about how to replace some 25 aging 120-150 seater Boeing 737NGs that operate on 20 percent of the SAS network. Gustafson said SAS hasn’t made up its mind yet about how to fill this gap. Any new purchase is conditional on that it benefits the current system of single-fleet operations, allows to right-size the network, and brings a 10-15 percent reduction in CO2 emissions, a most urgent need in SAS’ policy given the climate debate that is especially critical in Sweden. Another factor is that SAS wants proven technology on its new aircraft.
In our opinion, this leaves SAS with very few options where to look: it could buy the A319neo for optimum fleet-standardization or alternatively select the A220-100 that is a different aircraft with minimal crew conversion training.

All efficiency measures should bring cost savings of SEK 1.5 to 2 billion by 2023 and beyond, of which 600 million should be realized in 2020. This is conditional on how traffic develops as SAS sees a weakening of the economy and a continued weaker Swedish and Norwegian Kroner against the US dollar. This will result in “significantly lower growth” (-5 percent lower capacity) and a loss in Q1 2020 due to the introduction of new aircraft, training, and the implementation of IFRS16 accounting procedures. EBIT margin for 2020 should be 3 to 5 percent.

Update: on January 30, 2020, SAS disclosed the final results for FY18/19. The airline group recorded a net loss of SEK -1.387 billion compared to a 1.086 billion profit the previous year. Revenues were SEK 44.981 billion versus 43.047 billion. The operating income was SEK 643 million, down from SEK 2.347 billion.

author avatar
Richard Schuurman
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.

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