A steep decline in business traffic has prompted SAS Scandinavian Airlines to introduce an enhanced economy-class product to help it return to profitability on its European network.

SAS has launched a third class on its short-haul services targeted at business travellers that often book flights through corporate travel agencies, but can no longer choose business class. "We want corporates to rewrite their travel policies to include Economy Flex," says Thomas Wandahl, director customer and distribution strategy.

SAS says its new Economy Flex class offers many of the benefits of business class such as free rebooking, refunds, priority check-in and fast-track security at some airports. Tickets will be priced at 80-90% of business-class fares. Economy class tickets will cost 10-35% of business- class fares at rates often competitive with low-cost carriers, says Wandahl.

SAS has seen a dramatic fall in its traditionally strong business-class market in Europe. Over the past five years, business traveller numbers have fallen by half to 15% of total passengers carried and are still dropping, says Wandahl. "SAS has suffered more than most," he says, as it relies heavily on its European short-haul routes that generate 80-85% of its revenue. The carrier hopes its new products will arrest the fall and enable it to retain around 10-15% of traffic in business.

"We want to develop a product for each segment that can stand alone and be profitable," says Wandahl. If it is not, the product could be taken away. Today, business class is profitable, although economy is not, he adds. "Economy will become profitable in 2005 when our Turnaround plan is fully effective."

SAS has removed business class altogether from its intra-Scandinavian services as low-cost competition means it cannot achieve a price premium in these markets.

Economy Flex will be fully implemented by the second quarter of 2005. The concept has been developed after extensive market research with 4,000 flyers. This told SAS that although price is the main driver on European short-haul routes, there are opportunities to differentiate products and charge a price premium, says Wandahl. Research showed that for 40% of business travellers the choice was all about price, but that 60% were prepared to pay a "moderate to significant" premium for enhanced service.

In the leisure segment, SAS found that 50-60% of flyers concentrated on price, but that 15-20% were prepared to pay a small premium of €10-15 ($13-19) for a branded product or to fly to a primary airport, says Wandahl. Around a quarter said they would pay €50-60 for a more comfortable product. Snowflake, the low-fare carrier started by SAS to take on Ryanair and easyJet, will virtually cease to be a standalone carrier and revert to being a low-fare brand.

The revamped European product should help SAS return to profitability in 2005, says Soren Belin, SAS Group executive vice-president, although it will make a loss this year. The carrier's falling cost base - down by 26% since early 2003, with more to come - and a slowdown in yield erosion are two reasons for Belin's optimism.



Source: Airline Business