SAS Cautiously Optimistic After Fiscal First-Half Loss

Photo: @ SAS

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Scandinavian Airlines (SAS) still expects to turn in a pre-tax profit for its 2016-2017 financial year despite a sharp increase in losses in the fiscal year’s first half.

The airline turned in a net loss of SEK876 million ($101 million) for the six months ending Apr. 30 2017, compared to a net loss of SEK75 million a year previously. The loss was made on revenue of SEK18.8 billion compared to SEK17.2 billion for the year-ago period.

The financial year’s second quarter “trended in line with our expectations,” president and CEO Rickard Gustafson said. The most positive news was an increase of more than 300,000 passengers compared to the corresponding quarter last year. This resulted in increased revenue and a year-over-year (YOY) improvement in income before tax and nonrecurring items. “However, profitability remains too low and must be raised,” he said. As a result, the airline intends to double its target for efficiency savings to SEK3 billion in the 2017-2020 timeframe.

“Even if we can see that our product and our product investments are appreciated and strengthen SAS’s competitiveness, market conditions in our operating environment remain challenging,” Gustafson said. During the quarter, currency-adjusted yield fell 7.5% and jet-fuel prices were 40% higher than the year-ago period.

SAS said that demand in the Swedish market was generally strong in the first six months. The Norwegian and Danish markets also had positive growth, but a new Norwegian aviation tax had eroded the carrier’s earnings and was mostly absorbed in the form of lower yield.

Gustafson added that he viewed a proposed Swedish aviation tax “with some concern,” adding, “The aviation tax will generate minimal environmental effects and will undermine the profitability of Scandinavian airlines, which are already under intense international pressure. Furthermore, an aviation tax would negatively impact the Swedish economy, resulting in effects such as more international passengers not choosing to come to Sweden.”

At 13.5 million, SAS’s passenger numbers for the first half were up 6.8% on the year-ago figure of 12.7 million. Capacity, measured in ASKs, rose 9.7% to 23.4 billion, while RPK jumped 15.6% to 17 billion. Load factor rose 3.7 percentage points to 72.5%

In its efforts to increase profits outside the high-cost Scandinavian region, Gustafson said, SAS was establishing new bases in London, UK and Malaga, Spain: “When the measures have been completed and the bases established, I expect SAS to be a more flexible and productive airline with a broadened revenue base. Our aim is to continue providing a premium product together with a more differentiated customer offering, which will deliver us the preconditions to profitably leverage the growth in leisure travel.”

SAS expects capacity will increase in Scandinavia in 2016/2017, but slightly more slowly than in the last fiscal year. Competition and yield pressure is expected to continue, however. At the same time, jet-fuel costs will increase.

Despite market uncertainty and the weak start to the fiscal year, SAS expects to deliver a positive income before tax and nonrecurring items for 2016-17 fiscal year, although this is dependent on no unexpected events occurring.