The contrast between the interim results of Norwegian and SAS Group could not be greater. For the six months to June 2009 Norwegian posted net profits ofNKr70.6 million ($11.7 million), a sharp turnaround from its 2008 interim net loss. But at SAS the picture was much gloomier. Heavy restructuring costs widened its net losses to SKr1.8 billion ($251 million) and capacity cuts made revenue sink 12.1%.

"We clearly admit our cost structure is too high," says SAS Group head of investor relations Sture Stolen. The sharp long-haul traffic downturn and adverse fuel hedges also took their toll.

In response, SAS has upped the target for its Core SAS restructuring programme to SKr4.5 billion and up to another 1,500 jobs will go under an aggressive new SKr2 billion savings plan. "This is a matter of competing on equal conditions and, ultimately, about the survival of SAS," says chief executive Mats Jansson.

Jacob Pedersen, senior aviation analyst at Sydbank in Denmark, says SAS is doing "better than feared". But he adds: "Even if you exclude restructuring costs, they are not doing very well at the moment and they are in trouble. That's why they want to increase their efficiency measures. "Pedersen notes SAS is "very dependent" on premium traffic.

He thinks Core SAS is "the right strategy", but cautions: "If they don't succeed, they won't be here in the long-term. "SAS has historically had to fight powerful unions, but Pedersen notes: "This time they are ready to take this battle. It is the right time for management to take control over business decisions."

Over at Norwegian, Pedersen believes they have profited from both the SAS capacity cuts and a strong cost advantage. Norwegian chief commercial officer Daniel Skjeldam admits the market is challenging, butis "very happy" with the first half results. "We see that a lot of business customers are not dropping their flights, they are just trading down. It is much more important for business travellers to show they are taking their expenses seriously."

Lower fuel prices and the capacity cuts at SAS have helped Norwegian, but Skjeldam says the strong results were mainly driven by its low cost base, the introduction of more efficient Boeing 737-800s and its innovative product. "Fuel prices certainly played a part in it, but I don't believe that is the key factor," he says.

For more on Norwegian read our recent cover interview with CEO Bjorn Kjos at:

Source: Airline Business