SAS Scandinavian Airlines plans deeper cuts and further restructuring measures to arrest rising losses in a tough market.

Despite cutting costs by SKr3.6 billion ($500 million) in 2003, the SAS Group saw its operating loss grow threefold to SKr2.2 billion. Its overall cost-cutting target is SKr14 billion by 2005. SAS chief executive Jorgen Lindegaard says the year-end result reflects a "disastrous" first quarter, when operating losses peaked at SKr1.9 billion.

A strict emphasis on cost control will continue at SAS to restore the carrier to profitabilty in the next financial year, says Lindegaard. However, an early blow has been dealt to its ambitions after industrial action caused disruption to operations in January and February.

Negotiations with unions resolved the dispute that froze the pay of flight technicians, mechanics and baggage handlers at 2003 levels. However, "elements of the planned savings for 2004 were lost", as the deal contained compromises on work terms, says SAS.

SAS continues to study ways to cut costs by restructuring various parts of the business. Much of the focus is on its Scandinavian operations, where there is increasing competition from low-cost carriers. One possibility is the integration of its Norwegian operations - Braathens and Scandinavian Airlines - into a single unit. Its regional affiliate Widerøe is not included in the proposal.

The new organisation, which could see a joint company serving the entire Norwegian market, is dependant on staff agreement to reduced salaries and work terms and greater productivity. Talks are under way between management at both carriers and unions. There will also be major changes in the Danish and Swedish home markets to "form a competitive low-cost platform", but these will be carried out under the framework of current carriers.

In traffic terms, the carrier's intercontinental operations were a bright spot in the second half of 2003 with a rise of 4%, but overall revenues were down by 11.1%, mainly due to substantial falls in yield. During 2003, the airline introduced reduced fares and saw a shift from economy to business class travel and increased competition.

Source: Airline Business