“During the autumn, market conditions have become more demanding and the industry continues its rapid pace of change. At the same time, the Scandinavian air travel market and demand for more long-haul routes and European leisure routes is on the rise. A lower cost structure and increased profitability is required,” SAS president and CEO Rickard Gustafson said on a Dec. 13 earnings call.
SAS is therefore increasing its cost-savings target from SEK0.8 billion to SEK1.5 billion in 2017-2019 and making structural changes to bring the group’s unit costs in line with its younger competitors.
Revenue for November 2015 to October 2016 fell 0.5% to SEK39.5 billion, while expenses increased 0.2% to SEK24.6. This produced an operating profit of SEK1.9 billion, down 15% from a SEK2.2 billion in the prior-year period.
The results include SEK364 million in exceptional items, including negative impacts from the divestment of some Bombardier CRJ900s, provisions for new Chinese VAT rules and SEK31 million in restructuring costs, but this was partly offset by a SEK57 million gain.
Traffic rose 9.6% to 33.5 billion RPKs on a 10% increase in capacity to 45 billion ASKs, producing a load factor of 74.5%, down 0.2 of a point. Yield dipped 7.7% to 0.91 cents as RASK lowered 8% to 0.68 cents. Unit revenues declined 8% at constant currency, while ex-fuel unit costs fell 4.1%.
Yields are under intense pressure because of increased competition and capacity. The situation has been further amplified by a new Norwegian aviation tax that was introduced in June 2016, which SAS has been unable to pass on to customers.
“We estimate that it has had a full-year negative effect of SEK400 million,” Gustafson said. “They are talking about doing a similar thing in Sweden. If that comes, I believe it will be at the end of 2017, or the beginning of 2018. I don’t see that we will have any better chance of fighting it off in Sweden than we had in Norway, so that will create further yield pressure.”
In 2016-17, SAS is forecasting 6%-8% capacity growth, as it feels the full effect of its recent long-haul expansion and introduces its Airbus A320neos, which have more seats than the aircraft they are replacing. The group has already received two A320neos and will take another two before year-end, to be followed by another 12 in 2017.
Gustafson said SAS plans to cut unit costs through the additional SEK700 million in savings. “We should be able to deliver a positive result before tax and non-recurring items [in 2016-17],” he said.
However, he added the group’s first-quarter results were likely to be weaker than the prior-year quarter because of the higher price of jet fuel and the deterioration of the Swedish Kroner against the US dollar.
(Victoria Moores - ATWOnline News)