Combatants shape up for confrontation in a tough Scandinavian market
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SAS yesterday faced a critical analyst downgrade, as Standard and Poor’s ratings lowered its credit outlook from stable to “negative”. This week’s tragic Madrid crash of an aircraft of wholly owned subsidiary, Spanair, was only part of the reason. Deteriorating trading conditions, a downward trend in premium traffic and volatile fuel prices added to the ugly mix. To cap it off, S&P noted SAS’ own failures, to offset rising costs and delays to cost saving initiatives.
Meanwhile, one of its largest competitors in the Scandinavian market, Sterling Airlines, is pruning costs and refinancing to make itself a tougher fighting outfit. Sterling is part of the Northern Travel Holdings (NTH) group, now wholly-owned by the aggressive Icelander, Palmi Haraldsson. Haraldsson was one of the sponsors of Icelandic investment group, Fons Eignarhaldsfelag, which bought Sterling in 2005 and quickly went on to add Maersk Air to the portfolio.
Mr Haraldsson has now taken over as sole owner of NTH, which also owns Iceland Express, whose entry to the Iceland market disturbed Icelandair's local monopoly. Despite the difficult economic conditions, NTH looks prepared to take on SAS in what promises to be a fierce Nordic confrontation.
So, while SAS struggles with its political and industrial constraints, NTH is girding its loins for battle. Mr Haraldsson's takeover of full ownership of NTH promptly led to the departure of recently-appointed CEO, Reza Taleghani, to be replaced by Almar Örn Hilmarsson, who had been CEO and President from 2005 until Mar-08. A few other senior heads rolled too, as NTH refocuses Sterling's future.
Shaping up against SAS a step further, Sterling Airlines and Norwegian Air Shuttle have just entered a codeshare agreement covering the Oslo-Copenhagen and Stockholm-Copenhagen routes, effective 15-Sep-08. And, from the end of Oct-08, the agreement will be extended to a number of international routes from Oslo and Stockholm. Sterling is directly targeting many of SAS' European markets.
Sterling Airlines capacity (seats) by destination
Source: Centre for Asia Pacific Aviation & OAG
Sterling itself is meanwhile cutting back on staff and capacity, to the tune of a 14% network reduction (or at least it was, before Mr Haraldsson took centre stage), and in Jun-08 announced plans to close four staff bases, in Aalborg, Billund, Malmö and Gothenburg from 01-Jan-09, to focus operations around three staff bases at Copenhagen, Stockholm and Oslo - now head to head with SAS.
Mr Haraldsson cut his teeth in the highly competitive UK retail market, took on Icelandair on home territory and won; he is unlikely now to see himself as a loser in the coming battle.