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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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2,036 total articles
CAPA: SAS’ focus on Scandinavian frequent travelers increases 'differentiation from LCC competitors'
119 total articles
One swallow does not make a spring and nor does a rash of aviation strike news guarantee a turning point for the aviation industry. But the signs are ominous. In the month of Jun-2016 (to 20-Jun-2016), there have been 136 articles on CAPA's website mentioning the word 'strike'. This compares with 81 for the first 20 days of Jun-2015. For 2016 so far (1-Jan-2016 to 20-Jun-2016), the 's' word has occurred in 594 articles – about 20% more than in the same period in each of the past two years. If this rate continues, 2016 could be the biggest year for strike-related articles since before the global financial crisis.
The vast majority of the Jun-2016 articles – 80% – relate to Europe. A significant source is air traffic control disputes, particularly French ATC. There have also been strikes and/or strike threats involving airport workers and ground handlers. Among European airlines, Air France has generated the most coverage for its ongoing dispute with its pilots, and it may also face a cabin crew strike. Lufthansa has not yet faced a strike by its employees this year, but has not yet reached new agreements with pilots or cabin crew after industrial action last year.
History tells us that labour's demands grow as profits rise. The apparent increase in industrial action this year could be a signal of an approaching peak in the airline profit cycle. There are other causes of unrest, such as impending French labour legislation, but the correlation reflects some history.
SAS: 2Q losses widen after six quarters of improving results. LCCs & SAS growth depress unit revenue
After improving its underlying profit in FY2015 and narrowing its losses in the seasonally weak 1Q2016, SAS suffered a widening of losses in 2Q2016. This was the first year-on-year deterioration in its underlying result for six quarters. It benefited from lower fuel prices and from its own cost savings programme, but experienced plummeting unit revenue.
This reflects the ongoing growth of LCC competition in short haul markets, but is also the result of its own capacity increase. SAS' growth is led by rapid expansion on long haul, where Norwegian is also providing LCC competition. SAS is investing in its network and product and growing its revenue from higher-yielding loyalty scheme members, but these measures do not appear to be giving sufficient support to unit revenue.
These trends are unlikely to dissipate any time soon, and there is now the real prospect that its FY2015 result represented a cyclical peak for SAS. The company recognises the need for further change in order to improve its competitiveness. Strategies to seek labour cost reform can be expected, in spite of a strike call by Swedish pilots.
Numerous media reports have speculated that Lufthansa may be on the acquisition trail. Group CEO Carsten Spohr told Bloomberg that consolidation in Europe is needed and that Lufthansa wants to be a part of it (Bloomberg, 22-Apr-2016), but did not identify specific targets. Moreover, Mr Spohr said the Group was concentrating on making sure that its LCC platform Eurowings worked first.
Interestingly, however, the reports have specified three possible acquisitions, in each case suggesting that they could be used as part of the Eurowings project. The three are SAS, Brussels Airlines and Condor Flugdienst (part of the Thomas Cook Group). In all three cases, there are historical and/or cultural reasons to suggest that some form of closer cooperation, including the possibility of acquisition (or partial acquisition), could feasibly be up for discussion.
Lufthansa's partnership with SAS goes back to the time before they were both involved in setting up the Star Alliance, while Lufthansa is already a minority shareholder in Brussels Airlines and a former shareholder in Condor. Of the three, only Condor could be a realistic candidate to become part of the Eurowings operation. None of these possible Lufthansa acquisitions would significantly change European airline market structure.
Part one of this report on European airline market structure and consolidation highlighted that the top twenty airline groups in Europe hold 75% of seats. This is the same share as the top six groups in North America. This equivalence, in market share terms, between Europe's top 20 and North America's top six underlines the huge gap in consolidation progress between the two regions' airlines. It would take a large number of merger and acquisition deals to recreate North America's market structure in Europe, consolidating 20 into six.
This second part of the report is a kind of fantasy, a hypothetical. It suggests an illustrative series of combinations among Europe's top 20 that would approximately replicate the market shares, in terms of seat share, held by North America's top six.
This would require large merger and acquisition transactions involving pairings between members of Europe's smaller top six of Lufthansa Group, IAG, Ryanair, Air France-KLM, Turkish Airlines and easyJet. It would also mean several deals involving second-tier FSCs and LCCs. However, for now the larger deals in Europe remain relatively unlikely, and there are even hurdles to the smaller deals.
Airline seat growth from Europe is set to accelerate to 8% this summer, up from 6% in summer 2015, according to the latest schedules data from OAG. This will be the highest summer growth rate in six years. With summer 2016 starting in less than three weeks, the data are now fairly solid (although, of course, they are always subject to further change).
Capacity to Africa will fall and Asia Pacific will experience slowing growth from Europe, but every other region will experience an acceleration this summer. Intra-European seats will grow by 8%, with growth led by LCCs (including the low cost subsidiaries of the big legacy groups).The Middle East will continue to have the highest rate of capacity growth from Europe, but there will also be double-digit growth to Latin America and to North America.
This acceleration of capacity growth on the North Atlantic is partly due to the emergence of new competition, but also seems to be the result of incumbents switching capacity from elsewhere. This should perhaps be a source of some concern to the immunised JVs.
Three years ago, CAPA suggested in an analysis report that the Nordic region might be ripe for airline consolidation. This has not happened. The region – Finland, Sweden, Norway and Denmark – remains the only corner of Europe to be home to three significant airlines that are not owned by one of Europe's three major legacy airline groups. SAS, Finnair and Norwegian Air Shuttle have all grown over the past three years and have sharpened the differences between them.
This report analyses seat capacity growth in the Nordic region over the past 10 years. In that time, SAS has retained its capacity leadership in the region, while LCC Norwegian has usurped Finnair's second position. However, overall share of seats in the Nordic region operated by LCCs has been falling since 2013.
Ryanair, in particular, has cut Nordic capacity in recent years although it is growing once more in Denmark, and easyJet has never made a big impression on the region (although Wizz Air is enjoying strong growth in Nordic markets from a low starting point). Norwegian is growing more rapidly in markets elsewhere.