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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)
SAS Group share price
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SAS has had a relatively good year by comparison with its troubled past. In the year to Oct-2015 its net result returned to profit, and its operating margin was its best for at least a decade. It also managed to reverse a multi-year trend of declining unit revenue. This was partly due to favourable currency movements, but also reflected tight capacity management and SAS' focus on enhancing its product for frequent flyers.
On a less positive note, SAS' unit cost also increased, in spite of lower fuel prices. This increase was partly currency-related, but ex fuel currency adjusted unit cost also rose. Moreover, although FY2015 produced a high margin by its standards, SAS remains less profitable than the airline industry as a whole.
Looking ahead to FY2016, SAS plans to expand its long haul network, where ASKs will grow by 25%, driving an overall ASK increase of 10%. This growth should help to lower CASK, but will also have a negative effect on RASK. The trade-off between these two variables will determine whether or not SAS can further improve its profitability in FY2016.
Although North America is Copenhagen Airport's single largest long haul market, eastwards traffic to the Middle East and Asia is collectively larger. And much Gulf carrier traffic is connecting onwards to Southeast Asia. Copenhagen will be the first destination for Emirates' 615 seat, two class A380. On the same week in Dec-2015 that Emirates begins service with the world's most densely configured A380, Qatar Airways will bring its Doha-Copenhagen service to double daily. Etihad does not serve Scandinavia, but is probably laying the groundwork via a partnership with SAS.
Copenhagen's next developments could be from Cathay Pacific, which has flagged possible service. Copenhagen discussed growth developments at CAPA's LCC Airports Congress in Bangkok, and World Routes in Durban. Asian growth may not necessarily come at the expense of incumbents. Copenhagen expects Singapore Airlines to increase flights from five times weekly to daily. Pressure may be mounting on Thai Airways, but Copenhagen is reportedly its best performing European point. Meanwhile North America capacity is growing as SAS and Norwegian add services.
In late Aug-2015, Norwegian signed an agreement for two additional Boeing 787-9 orders. This brings its total on order for the variant to 11, to add to the eight 787-8 aircraft already in its wide body fleet. Its long haul network is strongly skewed towards the US, with five destinations and eight routes, versus one destination (Bangkok) and three routes in the rest of the world. In spite of the delay in receiving a US foreign carrier permit for its Ireland-based subsidiary Norwegian Air International, its long haul focus looks set to remain in the US. Indeed, this may now be because of the delay.
Meanwhile, SAS remains the largest carrier between Scandinavia and the US and has actually grown its North Atlantic network since Norwegian's entry in 2013. The losers on Scandinavia-US have been United and Delta, a situation highlighted by United's recent decision to join Delta in serving this market on a seasonal summer basis only. Both SAS and Norwegian plan new US routes from Scandinavia in what has become a near duopoly with clearly differentiated participants.
Scandinavian airline flag SAS followed up on its reduced operating loss in 1H2015 with a healthy increase in profit in 3Q2015. This was sufficient to take its 9M2015 operating result back into profit after making a loss a year earlier. As in 1H2015, SAS' yield benefited from a better balance of supply and demand compared with last year. This helped unit revenue to grow faster than unit cost, in spite of a significant currency headwind on costs.
SAS' capacity cuts this year, led by charter operations and the long haul network, seem to have had a beneficial effect on unit revenue in spite of falling load factor. Long haul expansion, starting this autumn with a new Stockholm-Hong Kong route and continuing in 2016 with three new US routes, will lead to ASK growth next year and this may put some downward pressure on unit revenue.
SAS narrowed its underlying loss in 2QFY2015, after stripping out the gain on the sale of two slot pairs at London Heathrow. The Scandinavian airline is enjoying a more benign capacity environment this year, particularly in short and medium-haul markets, and is cutting its own capacity. This allowed it to grow its unit revenue at a faster pace than its unit cost, prompting a modestly more positive outlook for FY2015.
Although SAS has invested in product improvements and is growing its revenues from members of its Eurobonus scheme, low cost competition in Europe is making short-haul markets increasingly price-based. FY2015's positive unit revenue conditions may not last, especially within Europe.
Looking into 2016, SAS is planning to return to capacity growth, through long-haul expansion. It is looking at adding further long-haul aircraft to its fleet, beyond the four A330s and eight A350s currently on order. However, competition on long-haul markets is also fierce.
In Part 1 of this CAPA report on Norwegian Air International's application for a US foreign carrier permit, we discussed the policy debate that this has unleashed. We suggested that those opposing NAI were motivated by a desire to raise anti-competitive barriers against a new and more efficient business model.
This second part of our report looks at Norwegian's impact on the incumbents' traffic on its US routes, particularly on the five city pairs where there is at least one direct competitor that is calling on the US Department of Transportation (DOT) to deny NAI's application. Two thirds of Norwegian's US routes, accounting for almost half of its US seats and frequencies, are new markets.
Our analysis of data from OAG Traffic Analyser suggest that, on Norwegian's New York routes from the three Scandinavian capitals, it has both taken traffic from existing participants and stimulated market growth. On London to New York and Los Angeles, its smaller size and a market contraction make its impact less clear, but it is probably also attracting new traffic in addition to starting to take market share.