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Based in Stockholm, Scandinavian Airline System (SAS) is the national airline of three Scandinavian States; Denmark, Norway and Sweden, operating three primary hubs at Copenhagen-Kastrup Airport, Stockholm-Arlanda Airport and Oslo Gardermoen Airport. SAS’ network consists of extensive regional services within Scandinavia and Europe as well as international services to Asia and North America. SAS is member of the Star Alliance.
Location of SAS main hub (Copenhagen Kastrup Airport)
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SAS made a bigger profit in 3QFY2013 (May-Jul) than in the same period a year ago, building on the positive momentum developed in 2Q, when it narrowed its losses after reporting wider losses in 1Q. Its ‘4Excellence Next Generation’ restructuring plan delivered further savings in the quarter and SAS has made good progress with most of the key savings and liquidity measures identified in the plan. It has confidently reiterated its FY2013 target of positive earnings.
SAS has also announced plans to order new long-haul aircraft and should complete the sale of Wideroe and the outsourcing of ground-handling in the near future. Focusing the network around the needs of frequent flyers and investing in cabin refurbishment should provide some differentiation from, and appeal relative to, LCC competitors on both short-haul and long-haul. Nevertheless, SAS is still a high-cost carrier and remains vulnerable to price-based competition.
This is the second in a three part series of reports on the Southeast Asia-Western Europe market. The first part analysed the position of Southeast Asian carriers as Philippine Airlines (PAL) and Garuda Indonesia prepare to join four peers in operating non-stop flights to Europe. This part looks at the position of European carriers, where there also has been a new entry along with expansion by some of the existing carriers.
Norwegian became the eighth European carrier and first LCC to serve the Southeast Asian market in Jun-2013, when it launched services to Bangkok from Oslo and Stockholm. Norwegian brings a return of low-cost services to the Asia-Europe market following the withdrawal of AirAsia X, which dropped its A340-operated London and Paris routes in Mar-2011. AirAsia X is now focusing on routes within the Asia-Pacific region and flights of less than nine hours, using A330-300s.
Norwegian has big ambitions for Southeast Asia and is preparing to open a base at Bangkok which could support additional flights to Europe. But for now Norwegian's main focus is on more rapid expansion in the North Atlantic, where flights are shorter and potentially more conducive to the long-haul low-cost model.
In 2QFY2013 (Nov-2012 to Apr-2013), SAS has turned around pre-tax losses to report a profit (before non-recurring items) and reversed the pattern of 1QFY2013, when its losses widened. It has made progress with cost reduction and looks to be on track to achieve its FY2013 financial targets. It has also recently agreed to sell its Wideroe subsidiary and made further progress in its fleet modernisation programme.
SAS' recent launch of new fare classes SAS Go and SAS Plus scarcely looks to be the “new service concept” that it claims, but at least the Nordic region’s largest carrier is attempting to differentiate itself from its many and growing competitors. In 2012, President and CEO Rickard Gustafson said the restructuring plan was a “final call” for SAS. It seems that, at least for now, the group has not yet missed the flight.
Singapore Airlines (SIA) continues to be on the lookout for new partnership opportunities, including potential equity stakes in airlines from key emerging markets such as China and India. While the SIA Group has undergone a dramatic strategic shift over the last two years, the partnership component of its new long-term strategy remains largely unwritten.
Close tie-ups with Virgin Australia, which includes an equity stake which was recently increased to 19.9%, and SAS could be followed by new partnerships with Asian carriers. The SAS and Virgin Australia partnerships, both of which have come under the leadership of SIA Group CEO Goh Choon Phong, are noteworthy but neither carrier serves Singapore or operates from a growth market.
SIA needs a larger portfolio of robust partnerships. But it can make a difficult bedfellow. Forging the right partnerships could prove to be the most challenging aspect of the new SIA strategy.
European airline margins have underperformed other regions for years. There are many reasons for this, but our analysis suggests that Europe’s relative lack of consolidation may be a significant one, since margins appear to be correlated with market concentration. Even after a number of significant deals over the past decade, the European market is less concentrated than North America, where consolidation has gone further, to the benefit of margins. Europe is also less concentrated than Asia-Pacific (analysed as its sub-regions), whose margins have consistently been the highest.
If consolidation brings structural benefits, are there still European deals that can make a difference? Europe has a long tail of small carriers, which are unlikely to have a significant impact, but comparison with North America points to the potential for further combinations among the top five. Nevertheless, there are hurdles to such deals, not least of which are the ongoing restructuring programmes at Europe’s Big Three and the incompatibility of LCC/FSC mergers, but some second tier groups could be targets.
This analysis updates CAPA's previous study of European airlines’ labour productivity ("European airlines’ labour productivity. Oxymoron for some, Vueling and Ryanair excel on costs") to reflect the most recent financial results and adds four carriers not included in the original article (Wizz Air, Aegean Airlines and the two IAG subsidiaries British Airways and Iberia).
The contrasting performance of LCCs and legacy carriers is clear, although there are some notable exceptions to the pattern. BA and Iberia’s different labour cost productivity is significant, while Air France-KLM and SAS are weak performers.
We introduce an overall CAPA European airline labour productivity ranking, revealing the carrier with Europe’s most productive workforce, based on six measures.
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