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SAS loses, Norwegian cruises, Finnair 'lapps' up Asian passengers


With three Nordic airlines releasing financials for 3Q2010, results were a mixed bag. Norwegian Air Shuttle surged with a complete set of positive results while Finnair made its first operating profit in seven quarters. But SAS is still cause for some concern despite continuing to reduce its labour costs, with competition and the attendant price pressures set to rise still further.

SAS has been running a cost-cutting campaign as it tries to find an effective response to the growing number of LCCs operating within the region, including Ryanair, Transavia and home-grown Norwegian Air Shuttle, which is now active in all three of the Nordic markets and which has thrived, relatively speaking, in the global downturn. Ryanair is rumoured to be considering further expansion within Sweden and Norway, possibly at primary airports and therefore in direct competition with SAS.

In FY2009, SAS’s revenue was down by 15% to EUR4.45 billion, with the biggest reduction attributed to Scandinavian Airlines itself. The operating loss came in at –EUR305.5 million (2008, –EUR69 million) with Scandinavian Airlines again responsible for the bulk of that loss. Wideroe, a well regarded regional airline, actually made a small profit of EUR3.4 million (+3%) and it remains the best performer in the most recent quarterly results.

The result of the cost cutting is clear with a reduction in SAS’s labour costs of more than 20% in the most recent quarter and there are signs that the market is beginning to recover in the region, despite a 3.5% reduction in revenues. SAS has managed to cut more than EUR675 million in costs since the beginning of 2009, with a further EUR840 million to come from the current round. However, price pressure is expected to continue.

Table 1: SAS financial/traffic highlights, three months ended 30-Sep-2010 (all financial figures in EUR million, based on the conversion rate at EUR1 = SEK9.27637)


Amount EUR million

Variation %













Operating costs






SAS Operating costs



(SAS Labour)



Fuel costs











Cf with a loss of EUR3.7 million in pcp

(Wideroe EBITDAR)



Operating profit (loss)


Cf a profit of EUR27.9 million in p-c-p



Cf a loss of EUR57.2 million in p-c-p

Profit (loss) before tax


Cf a profit of EUR12.3 million in p-c-p

Net profit (loss)


Cf a profit of EUR16.4 million in p-c-p

Passenger numbers

6.7 million



5.7 million


Load factor


+2.2 ppts



+2.3 ppts

Yield (SAS)



Revenue per ASK (SAS)



Cost per ASK (SAS)



Total assets


+2.1% when compared with the period ended 31-Dec-2009

Cash and cash equivalents


+29.6% when compared with the period ended 31-Dec-2009

Total liabilities


-5.7% when compared with the period ended 31-Dec-2009.

Not a fine time to receive two fines

The company's attempts to cut costs were undermined by an EU fine of EUR70 million for cartel activity connected to its cargo operations, which sucked it to a pre-tax loss of EUR110 million for the quarter. Unusually, SAS opted to take the hit straight away, but to have done so in 4Q2010 might have looked even worse. Analysts had been expecting a net profit of SEK283 million (EUR30.3 million), according to a poll of polls compiled by Bloomberg. At least the airline is in good company, with the EU dishing out fines totalling almost EUR800 million to 11 airlines in all.

Then, on top of that, the carrier was instructed to pay Norwegian EUR19.8 million in the same quarter for "corporate espionage".

But even when adjusted for these costs and restructuring the figures still disappoint and with further overcapacity anticipated in the Nordic market next year – the expansion of Norwegian, Iceland Express and the anticipated arrival of Feel Air for example – operators will have to lower ticket prices further and that will offset the cost cuts that SAS is making.

SAS insists that ‘core SAS’ (ie what it has retrenched to) is proceeding according to plan and most targets have been achieved”. The markets are not convinced. In immediate trading, SAS shares fell by 7.5%, the steepest decline since mid-May, bringing its loss this year to 52%

In the long term, SAS is unlikely to survive as an independent company, though an ownership change is not on the cards in the short term as the main airlines driving consolidation in Europe – Lufthansa, Air France-KLM and British Airways – are otherwise occupied integrating previously or newly acquired operations or mergers.

In the interim, SAS has entered into a partnership agreement with high-flying Icelandair – whose financials for this quarter are not yet published – that includes codesharing and reciprocal frequent flyer benefits. It reached an agreement in Sep-2010 with the Estonian Government that will result in SAS divesting its 49% stake in Estonian Air.

Norwegian cruises to a EUR65m net profit

Norwegian, Scandinavia’s second largest airline and Europe’s third largest LCC, is notable in 3Q2010 for presenting a set of financial highlights that are consistently positive (passenger numbers, revenue, EBITDAR, EBITDA, EBIT and net profit), despite operating costs (fuel and labour) continuing to rise too. Its yield and revenue per ASK continue to fall. EBITDA margin is 22%, a fairly constant figure over the past 12 months.

Table 2: Norwegian Air Shuttle financial/traffic highlights, three months ended 30-Sep-2010 (all financial figures in EUR million, based on the conversion rate at EUR1 = NOK8.15375)


Amount EUR million

Variation %







Operating costs


















Net Profit



Total assets



Total liabilities



Operating cash flow


Cf a positive cash flow of EUR13.9 million in p-c-p

Cash and cash equivalents


-16.1% when compared with period ended 31-Dec-2009

Passenger numbers

3.8 million


Load factor


-2 ppts


EUR6.5 cents


Revenue per ASK

EUR5.27 cents


Cost per ASK



Cost per ASK excl fuel



For the full financial year 2010 Norwegian forecasts a capacity increase of 30% as it builds on its new bases and introduces new long-haul services; and cost per ASK of EUR 5.64 cents. For FY2010, capacity will increase by 20% and cost per ASK is estimated at EUR 5.76 cents. The new base in Helsinki, Finland will host three aircraft and 11 routes (nine of them international) by 2011.

The carrier plans to order widebody aircraft from either Boeing or Airbus in Oct-2010 as it prepares for the launch of its first long-haul routes, choosing between B787 and A350 equipment. It already has 63 B737s on order. Anticipated services include Oslo and Stockholm to Bangkok and New York in 2H2011 and it plans to add around 15 long-haul sectors over the next few years. It is also considering models such as the A330 or B767 on short-term leases to allow it to commence these first long-haul routes. For now it has entered a letter of intent to lease two new B787-8s. The carrier will take delivery of the aircraft from autumn 2012. The lease term for both aircraft is 12 years. With this decision Norwegian has signaled its intention to shift away from its original LCC business model. It currently operates 53 aircraft on 239 routes to 94 destinations.

54% of Finnair’s revenues emanate from Asian services

Finnair presented a much improved set of figures for the same period; the first profitable quarter after seven successive loss-making quarters since 3Q2008, as demand returned, especially among business travellers. As demand increased more quickly than capacity, load factors have improved accordingly.

The pace of the recovery is underlined by the fact that the operating profit of EUR41.9 million not only compares with a loss of EUR32.9 million in the pcp but also with a tiny profit of just EUR2 million in the first nine months of the year. The relative success might be explained by Finnair’s sales and marketing efforts – costs for those activities rose by almost 44% in the quarter.

Table 3: Finnair’s financial highlights, three months ended 30-Sep-2010 (all financial figures in EUR million)


Amount EUR million

Variation %

Operating income



Operating costs









Operating profit


Cf an operating loss of EUR32.9 million in p-c-p

Net profit


Cf a net loss of EUR18.1 million in p-c-p

Adjusted EBITDA


Cf. 15.3 in the pcp.

Total assets



Total liabilities



The number of personnel has shrunk from more than 11,000 in the year 2000 to around 7750 now.

Finnair has harmonised its fleet around Airbus and the long-haul fleet has an average age of less than three years. Another A330 (probably on an operating lease) and two A340s (also on operating leases, from ILFC) will be added before the end of the year to a total of 15 long-haul types. Five new Airbus A321ERs aircraft for leisure traffic will be added in 2012/13, along with three E190s. The largest order is for 11 A350s to be delivered between 2014 and 2016.

The carrier continues to focus on its Europe–Asia air-bridge strategy and its market share in Asian traffic is now 6%, as Asian revenues exceed European revenues.

In fact, in Aug-2010, sales in Japan were greater than in Finland. A significant 57% of its RPKs in the quarter were flown to and from Asia (and 54% of its revenues accrued from those services), compared with 33% in Europe, 7% on the North Atlantic and just 3% domestically. After planned capacity increases Finnair will be flying more than 70 weekly flights to Asia.

Cargo traffic is rising strongly with improving yields.

With cash reserves of EUR540 million, Finnair is confident that funding is ensured for the final part of the investment programme.

The main threat to Finnair seems to come from Norwegian, from easyJet, which has started expanding at Helsinki, and from Latvia’s airBaltic, which advised Finland’s Ministry of Transport’s earlier this year of its plans to establish a hub in Finland and of its interest in the purchase of privately owned Finncomm Airlines, which used to collaborate with Finnair. airBaltic plans to double its operations in Finland in 2011 through a focus on regional markets, and has identified regional airports Oulu, Tampere and Turku as preferred locations for its hub. If the Finncomm deal falls through, airBaltic has stated it may establish its own commuter airline.

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