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SAS ponders overseas bases as part of structural changes

SAS is to evaluate establishing airline operations outside of Scandinavia, as it considers a range of structural measures to tackle competitive disadvantages versus lower-cost rivals.

The Scandinavian carrier has today disclosed it made a pre-tax profit before one-off costs of SKr941 million ($103 million) in the year ended 31 October. This was down on the SKr1.17 billion posted in the previous year, though pre-tax profits were roughly on a par with 2014-15, and its net profit improved by SKr365 million to SKr1.32 billion.

But the Star Alliance carrier pointed to a toughening market climate – both through higher costs and lower yields. While the airline still expects to be profitable for its coming financial year as a whole, it has warned that first-quarter earnings will be significantly lower than the previous year. The airline more than halved its pre-tax loss to SKr309 million last year.

"The deterioration in market conditions – together with maturing borrowings and the aircraft financing need – all underline the importance of maintaining a high and ambitious pace of change," states SAS chief executive Rickard Gustafson.

The airline will almost double to SKr1.5 billion its efficiency enhancements target for the period 2017-19. It says it has identified additional opportunities for these savings, covering a range of initiatives in flight operations, ground handling, maintenance and administration.

"However, we need to do more," says Gustafson. "We are therefore planning further further structural actions."

The first steps cover a new organisational structure to create "increased ownership [and] smaller and faster units". The company says: "We will thereby increase transparency, which will facilitate the implementation of further efficiency enhancements, over and above the reduction of 1,000 FTEs in our administration by, among other measures, outsourcing."

It also says it has initiated a review of its customer offering. "We will therefore have to continuously adapt the product to customer demands, lower distribution costs, streamline the organisation and repriortise resources," the company says.

The third area of efficiencies will be sought in the areas of ground handling, technical maintenance and flight operations. That includes being more flexible and increasing productivity of its flight operations.

"To leverage the market potential, we have to create the conditions to compete on equal terms with our competitors," the airline says. "Therefore, we are considering changing the focus for parts of our production by establishing airline operations based outside of Scandinavia."

Notably, rival Nordic carrier Norwegian has established bases and operations outside of Scandinavia, and recently secured US approval – after much opposition from US carriers and unions – for its controversial application to operate transatlantic services through its Irish subsidiary Norwegian Air International.

"While our 70-year history has contributed to our strong position, it also means structures have been built that are no longer competitive," notes Gustafson. "To leverage the market opportunities, we have to to address the structural disadvantages that result in SAS having a higher unit cost than newly established competitors."

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