Scandinavian airline SAS is preparing a new strategy that better aligns with the post-Covid world, reconnects with its customers, and should make it profitable again. A new plan is currently being formulated under the new CEO Anko van der Werff and should be presented in three months from now during the Q4-results presentation, he said on September 1. Van der Werff brings fresh ideas to SAS. Van der Werff has barely been in office for six weeks, having started in mid-July. He was appointed successor to Rickard Gustafson in April. The 45-year-old Dutchman has joined SAS from Avianca, where he has been CEO since July 2019. He was directly involved in the Chapter 11 procedure which Avianca hopes to exit this month. Before Avianca, Van der Werff was five years with AeroMexico as Executive Vice President and Chief Commercial Officer between May 2014 and May 2019. He also worked for four years at Qatar Airways and ten years with KLM, including four in Sweden. Anko van der Werff brings new ideas to SAS, which he thinks has been a bit introspective. (SAS) Back in April, Chairman of the Board Carsten Dilling said Van der Werff had been appointed because “Anko has deep knowledge of the airline industry and long experience from different international carriers. This will be important tackling the challenges SAS will be facing in the years to come, in an unpredictable post-Covid-19 recovery period.” That’s exactly what has been his prime focus since starting with SAS in July. During the Q3-results webcast, Van der Werff said that he and the board are doing a lot of soul-searching on how the Scandinavian airline can get stronger. “SAS is an old airline with a great history of 75 years, but to me, SAS has been inward-looking. That’s where I will bring new ideas and new views from the outside in, having worked at different airlines, having seen the restructuring and transformation work in other parts of the world, and that is what I will bring to SAS.” Reconnect with the customer The board is looking at four areas where to improve. One of them is the customer as Van der Werff feels there is a lot to gain from reconnecting to the SAS client with a revamped, digital product: “Who is our customer, how can we be competitive for our customer? The customer is changing, so we have no other option. The plan is not ready yet, you will see that rolling out in the coming months, but you will see elements of further digitalization, further de-complexing. How can we be frictionless and touchless which then of course drives efficiency throughout the organization.” “We have seen during the pandemic that clients want to be served digitally. Not just in the airline industry, but everywhere. With that, it is only a short step to further being more aggressive in our fare structures, making sure that you really have the building blocks through ancillary revenues to personalize and customize your trips. I have seen that it works in other airlines”, Van der Werff said. While SAS needs to reinvent itself, it’s not all bad, the new CEO says: “Let’s not talk ourselves completely in a ditch. We have a strong position, we have a strong brand, we have the loyalty of seven million people in our bonus program. We do see that people like and want to fly with us. But there has to be a sense of urgency and a push that people really have to wake up and say ‘he guys, we need to do things differently.’ From FY21 to FY25, SAS will get 35 more A320neo's. (SAS) Competitive landscape in Scandinavia has changed Van der Werff is fully aware of the changing competitive landscape in Scandinavia, which used to be dominated by SAS and Finnair. Then Norwegian entered the scene and almost entered insolvency, but took on a deep restructuring that has made it leaner. Flyr and Norse Atlantic try to partly fill the void left by Norwegian and compete head-on with SAS and so do Ryanair, easyjet, airBaltic, and Wizz Air, although the Hungarians have dropped plans to operate a domestic network in Norway. And let’s not forget Finnair, which will launch long-haul services to the US and Asia right on SAS’ doorstep at Stockholm Arlanda. “This is where the market is heading for, this is a new environment, a new playing field out there”, says Van der Werff. “It is a reality, but we will also have our own defense walls and I want us to make sure that we also get on the attack as well. Digitalization, unbundling, fighting for passengers that were not necessarily ours. We do have to expand in that area.” SAS needs to reduce its debt Another concern to the SAS management is its financial position. During the webcast, an analyst recalled that SAS's interest-bearing debt is SEK 33.1 billion (€32.4 billion) whereas Norwegian has restructured its debt to NOK 1.728 billion (€1.652 billion). “We have to service our debt, there is no doubt about that. The number 1 priority is to stop the bleeding”, admitted CFO Magnus Ornberg. “We need to get a capital structure that supports our growth. The number one priority is to become profitable again. We have the support now from major shareholders and the states, but in the end, we need to work on the business model, set up where we are competitive, and start to earn money.” SAS reported a SEK 1.355 billion net loss from April to June, the third quarter in its financial year 2021. This compares to SEK -2.365 billion in the same period last year. The operating loss was SEK -876 million versus SEK -2.729 billion. Revenues were SEK 3.982 billion, up from SEK 2.507 billion. Capacity was up 94 percent and the number of passengers carried by 144 percent compared to the previous quarter. Leisure is leading the recovery while corporate travel is coming back but at a much slower rate. During the first nine months of FY21, SAS recorded a SEK 5.838 billion net loss (SEK -6.696 billion) with revenues of SEK 8.196 billion (SEK 17.478 billion). While the airline was cash positive (SEK 0.5 billion) for the first time in eighteen months again and hopes to continue like this in its final quarter, the outlook is blurred. Covid-cases and travel restrictions continue to dominate operations and make it impossible to offer guidance even for the rest of FY21. “The uncertainties surrounding the Covid-19 pandemic are far from over. Efforts to transform SAS’ entire business must continue to offset lower demand with lower costs”, Van der Werff said. “Productivity increase is a must and we are working on that”, said Ornberg. He also targets more cost reductions, although in Q3 these were SEK 0.8 billion higher than in Q2. A number of initiatives have generated SEK 4.9 billion so far. SAS had SEK 4.4 billion in liquidity available, about the same as at the end of Q2. The airline has a SEK 3.0 billion credit line available that was signed by the Danish and Swedish governments and can be utilized until the end of 2022. Van der Werff has a good look at electric aircraft SAS fleet plans are up to date. The airline currently has 137 aircraft and will take delivery of 39 more until and including FY25, of which 35 will be Airbus A320neo’s, two A321LRs (arriving this year), and two A350s. It made a pre-delivery payment of $100 million to Airbus for ten A320neo’s that will be delivered in FY23 when twelve are scheduled to join the airline. A new sale and leaseback for one A350 was completed in Q3. Part of its strategy re-think is about how SAS can become the most sustainable airline in the world. Anko van der Werff said that this includes looking at electric aircraft for short and medium routes, a segment on which it now operates twenty Bombardier CRJs and six ATR 72s. Finnair has teamed up with Gothenburg-based Heart Aerospace when it signed a Letter of Intent for twenty electric 19-seaters for entry into service in 2026. Wideroe in Norway has partnered with Rolls-Royce to develop an electric airliner that should also be ready in 2026, a year that Scandinavia plans to go electric. SAS wants to be the first Scandinavian airline with electric aircraft. Like the Heart that could join Finnair. (Heart Aerospace) SAS has also high ambitions, Van der Werff confirmed. Without making any reference to Heart, he said: “We want to be the most sustainable airline out there. I would very much like us to be the first big airline in Norway and Sweden to fly with electrical aircraft. I am spending some of my time also on that already in the first weeks but which I leave until things are settled. If this is something that all of us believe in and in Scandinavia many are convinced that we need to do something about the environment, we need to feed that into the customer proposition. I have some ideas about that and we are trying that out right now, but you won’t see that possibly in another three months. But we are testing if those concepts actually fly.” So stay tuned for more on this in a few months’ time.
