SAS Group has a weak 1Q2014 as predicted, in spite of cost cuts. Is it time for capacity cuts?
When it announced a return to profit for FY2013 in Dec-2013, SAS warned that 1QFY2014 would be "extremely weak". Its prediction has proved correct. The SAS Group's 1Q pre-tax loss (before non-recurring items) widened by 57%. It continued to make good progress with its 4Excellence Next Generation (4XNG) cost reduction plan, but highly competitive market conditions weighed heavily on unit revenues.
SAS President and CEO Rickard Gustafson commented that the quarter was "marked by overcapacity and lower growth, which put pressure on margins across the entire market." In this respect, SAS may be contributing to its own problems as it plans faster growth than the market this summer.
Its cost cutting and product improvement credentials are strengthening with each passing quarter, but its capacity growth is clearly not being absorbed profitably by the market.
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