CEO interview with SAS, CEO & President, Anko van der Werff

Transcript

John Strickland:

Welcome everybody to this CAPA Live December CEO session and I'm delighted today that I have as my guest. Anko van der Werff, CEO of SAS. Anko, welcome to CAPA Live.

Anko van der Werff:

Thank you. Good to see you, John. Thank you. Thanks for having me.

John Strickland:

Of course, you are pretty recently new to the hot seat at SAS, you're a Dutchman, you started your airline career at an airline where we've both worked in the past and you've gained significant global experience at Qatar Airways, Aeromexico, more recently, Avianca, how was it that you found yourself coming back to Europe and to SAS in particular?

Anko van der Werff:

Yeah, culture shock, obviously, when you move countries again, always. This time, it was a bit different because we'd lived here before, I think you know that, right?

John Strickland:

Uh-huh (affirmative).

Anko van der Werff:

So about 15 years ago, 12 years ago, we actually left, so 2005 to 2009, we lived here and I say culture shop because this week it's actually minus 17 in Stockholm so that's quite different from the sunshine and of course, in Latin America. Very happy to be here, honestly, it's a beautiful part of the world, lovely in the summer and stunning really also in winter, as I said, that minus 17. Happy to be here and of course, a fantastic airline, which we'll talk more about.

John Strickland:

Well, let's discuss that because I was going to say, SAS is an airline with a long and illustrious heritage, but arguably is not an airline you would create today. It was formed with involvement from the three governments, it still has, and a point we'll touch on very much the involvement of two governments today, which can bring all sorts of complications equally as you know from your time at [KLM 00:02:00], the Scandinavian market is a very important market into terms of revenue potential. But how did you weigh that up in terms of accepting your position? Is it a concern that it is in some ways an oddball airline by structure?

Anko van der Werff:

Yeah. I'm not so sure whether I agree with that, in one way you could say that they were far ahead of their time. When you look at airline groups today, IAG, Air France [inaudible 00:02:27], Lufthansa group, they all have multiple AOCs over multiple jurisdictions if you'd like, and that is exactly what SAS was all about, but the government said, well, hold on, multiple governments, coming together, forming an airline group in a way. Yeah, so I think at the start, it was probably more about having almost like an open skies between them and knowing that these countries were not big enough, no Germany, no France, no UK, in terms of size, they had to team up. So I think, yeah, I don't necessarily see just the complexity, which I think was underlying in your question. I also see the innovation in it and I see the forward thinking of it. And that is definitely what I think Scandinavia is about.

John Strickland:

Well, we'll explore that more in a few moments, Anko. Of course, we're all grappling with the ongoing pandemic, which has been with us now getting off for two years and as we speak, we're dealing with the new variant, which at the present time, we don't know exactly, scientifically, what it means for the impact, but it's having an immediate impact in terms of the government restrictions. How have you been coping overall in the period of the pandemic and how do you see that the current twist in this strange story that we're all having to take part in?

Anko van der Werff:

Yeah, a tale of at least two cities and potentially now, I don't know how many, three, four, five cities. Look, 2020, I think we can be very clear about it, for any airline in the world, the most difficult year, probably in history. 2021 for us has been, until Omicron really, a steady rise back up. Every single month from roughly March, April, we put capacity back. The summer was okay-ish. And then I think the big question was, well, what is actually going to happen with demand after the summer, also corporate demand. And we saw that all come back, so our countries opened up in September, first Denmark, 10th of September, Sweden, the 20th and Norway, the 29th of September, or something, it doesn't really matter. And throughout August, September, October, November, every month, again, you saw the demand go up and therefore, of course also we put capacity back.

Anko van der Werff:

Now we really have to see whether there's a new trend. Clearly there is some softness, clearly there is a need, as you alluded to, more government restrictions again, than there were in place a few weeks and months ago. So we really have to see what that means now for the winter, I remain quite optimistic for the summer of 2022, because what we really did see, and I think that was my main conclusion of our fourth quarter results, when there're no restrictions in place, and when the governments do lift everything, demand is really back, both leisure and business. So I'm still very much looking forward to next summer.

John Strickland:

You talked there, Anko, about the demand coming back, and certainly many airlines have seen this pent up demand, but particularly, as you also alluded there, in the leisure and the VFR things and relations segment, that SAS historically, has been a high cost structuring company, but has very much relied on high margin, corporate travel, both within Scandinavia and into Europe and indeed long haul. You say you've seen corporate traffic coming back, but how much and is that more a question volume, but not necessarily yield? Because, for myself, certainly I do wonder how much of a structural shift we might see in the higher margin business traffic in the years ahead.

Anko van der Werff:

Yeah, I think two things here, first of all, we do want to make sure that, of course, our stronghold remains our stronghold. So business traffic, the critical infrastructure that we offer Scandinavia and not only connecting the three individual countries with the world, but also of course, very clearly between them. I mean, it's really, when you look at Norway for instance also, domestic markets, which domestic markets, these are large countries, so aviation will play a future role. So I think in that sense, business, here to stay and will indeed bounce back. I do think that relatively speaking, we have to realise that the Nordics were already, or Scandinavia was already very much a leisure market, it was already 75% leisure and 25% business and I think that's probably going to change somewhat. So also for SAS the need for us to, of course, transform, transition ourselves and really pivot towards a more leisure based future, that's only logical.

Anko van der Werff:

And also when you see of course competition coming in, et cetera, we do want to play a game there and we have to become more relevant. So again, you'll see some of the things we have done already, a more leisure based network, very much more focused on sun destinations. We are already up over our 2019 capacity to, for instance, south of Europe and we accompany that by having far more aggressive fares, [our go light fares 00:07:41] as we call them, so they have now really rolled out across our network. So really, one, business remains our stronghold and in this part of the world, there will be a need for business traffic simply because the country's geographically are so large, but secondly, we will pivot towards relatively more leisure.

John Strickland:

The market, nevertheless has become very much more competitive and we're seeing different responses from airlines throughout this pandemic. Some have been very cash rich, including some of the competitors that you face, for example, Ryanair, who's very active in Scandinavia. Others have been completely restructured, Norwegian, which is an airline that many people wondered if it was even going to survive at all, has dropped its long haul activity, but stayed or come back close to home again on a short haul basis. But it's really a new airline having cleared away it's debt amount and really started off with a clean balance sheet. Now, how does tough that make it for you to succeed in your home market? One, that there's more competition, two, that they are in those strong cash positions you have, of course, had support financially fund the Swedish and the Danish the governments.

Anko van der Werff:

Yeah. So I think first of all, indeed, the pandemic has hit most airlines pretty badly. I think for some actually it was quite helpful, because they indeed were probably not functioning as well as they would be maybe now for the future but they have indeed restructured and therefore are set for potentially an easier ride, in a way, ramping up again also. So for us, there's really one way, and that is just, we have to transition ourselves, we have to transform, we have to make sure that we of course can compete. Now that's two things, it's just textbook, but very simply, we have to take on that cost, we have to become competitive.

Anko van der Werff:

And secondly, hey, your RASK of course has to still outperform, that premium that we're known for, yeah people are willing to pay for it. When you look at it, 7 million people in our loyalty database, we have, of course still strong capacity shares, market shares. November data just came out, 1.3 million people still flew with us, yeah, that's still low compared to 2019, but we're very much still an anchor of aviation in Scandinavia. So I think for that, we've got a lot going for us.

John Strickland:

Well, we've talked there a bit about the competitive environment and particularly the short haul focus where you do have very aggressive competition for those who [have their 00:10:20] travellers around Europe. But SAS in some respects is an airline that is a type of a partially a hub airline given your activity in Copenhagen, but it's in some ways a short haul airline with long haul costs and it's competing in some very powerful hubs around Europe. You know better than most from your KLM history, KLM, Lufthansa, British Airways, all suck enormous amounts of their transfer traffic out of Scandinavia, now they're into the Gulf carriers flying into the main Scandinavian cities as well. What does that mean for the structure between and the balance between long haul and short haul and your ability to sustain any kind of meaningful hub activity for the future?

Anko van der Werff:

Yeah, one of the things I find fun at SAS is actually... A typical airline, you can divide into two groups, it's either hub and spoke or it's low cost, well, point to point low cost, let's say. We're having to play both those games, in those domestic markets, clearly a lot of point to point. When you look at Norway, people commute to work, I mean, really using aviation because of the distances and the [fuel rates 00:11:33], there is not much hubbing in a way and of course, then as a group, we do try and hub in Copenhagen, which is a really great air force. I mean, very efficient, good position geographically as well, taking people out of the west, going to east, or even from the east, of course, going then to the United States, to the west.

Anko van der Werff:

So yeah, I find that very interesting about a proposition and you can build on those, both of those. You can be stronger of course, in that point to point segment where, also secondary cities, we're not talking about the sizes of London, Paris, but we do have, in that sense, relevant secondary cities where we can do much more. I'm quite a hopeful, big fan of the 321LR. Big fan, because it looks good on paper and hopeful because we're starting operations of course, fairly soon, 2022,, and we'll have to see what that aircraft can really do for us, but that would be such a tool that you can then use out of secondary cities and become more relevant.

John Strickland:

And do you think that would help you? I mean, we'll touch on fleet. Do you think that would help you, that type of aircraft, to do more, as you said, secondary cities and maybe more point to point? Because I still wrestle with the ability to sustain a really meaningful hub against these very large European hubs. And as I said, the Gulf carriers taking their chunk out of market as well. But, of course, the 321LR dynamics that everybody is hoping for is that it will support more point to point markets and might have been the case in the past because it's a lower risk profile with less seats and of course it's economics.

Anko van der Werff:

Yeah, so 321LR, again, I'm hopeful. I really think that that can be an aircraft that would be great for us. I, politely, would have to disagree with you on Copenhagen. I think that's a really good hub and that will stay our hub and really mean that we want to, of course, also branch it out and make sure that we, of course, become bigger and better there, and I think we can. There is one thing that you have to understand about Scandinavia, this isn't indeed about size, this is very much about quality. You don't have the population sizes of, once again, Germany or London all packed into one. So we do have to play that game of yeah, thinner [RATs, 00:11:34] smaller RATS, maybe combining all of that. Copenhagen is really a great airport for that.

John Strickland:

On the other hand, I mean, Denmark as a market overall is smaller than Sweden and Sweden, we've seen a big change there in terms of even the last few months, new carriers coming into Stockholm, Ryanair [inaudible 00:14:22], Finnair in part is a function of their own challenges of the Asian market, redeploying some long haul passengers to Stockholm and again, the Lufthansa group putting a base with Eurowings from next spring, does indicate that, and accepting that you are new to the role by only a few months, does it mean that in some way SAS maybe has been a bit late to the game, late to the party exploiting perhaps it's bigger market or through that focus on the hub in Copenhagen that has lost out and other people seen opportunities and snatched them from under your nose in a way?

Anko van der Werff:

And maybe some others are clearly having more appetite for still a shaky environment with better balance sheets. We have to, of course, still make that effort, SAS has to be able to compete and that's been my number one message to, well, internal and external. We do have to make sure that SAS competes and that it will be able to compete, not only just on those commercial tools that I mentioned, but very much so on cost level.

John Strickland:

Doing that again, historically, your predecessor made great inroads in terms of the cost structure of SAS. I know I've looked through numerous, the quarterly investor reports over the years and seen how those cost levels have come down. There's been very challenging, tense union negotiations, that some result in costly strikes, do you believe you can carry your labour groups and unions with you to another step? Is not a risk that people are going to be tired of this? People feel they've done all they can do, indeed, all they need to do, which, of course, is not really the case, but is there a risk that you could face, in your early tenure, of serious union standoffs through that need to respond to the pressure we've just be talking about from competition and switching market dynamics?

Anko van der Werff:

Rallying the troops, John, we have to. Look, there is not really much of a choice there, we have to be competitive. Our customers will, in that sense, not pay extra for something if you can't deliver on that, so we have to be competitive. And yeah, well, look, I've said this internally, as well as externally, that change is hard, but if COVID has taught us a few things, is that one, this airline, this team, is very resilient. We can take that on. And now again with Omicron, it won't get us down. We will not let it get to us. Go on and just pick yourself back up, great. Then two, we have to find that, in a way, new customer within that new market segmentation. I mean, indeed things will be different, we won't go back to 2019.

Anko van der Werff:

Well, that's also a great opportunity, how can we be a very significant player in that new future? And I think we can. And yeah, the transition, of course, it's hard and people are, I think... Whoever I speak to in whatever airline, colleagues, industry colleagues, former colleagues of mine that I've worked with, everybody's just done with COVID. And I heard someone, I think it was WHO who said, we're done COVID, but COVID's not done with us. Hey, that's the short-medium term that we have to go through and we just have to make sure we build it back for a very successful future.

John Strickland:

I'm just thinking again, in my own experience of working in the KLM group, where I learned about what I would call, Dutch directness, as compared to our rather timid British approach. So is there a risk of a conflict there between your Dutch directness as a new boss and your union colleagues with the Scandinavian concern for social welfare? I'm thinking, even to build on what you were just saying there about what all airlines are going through, last year we saw British Airways in the UK making some very painful decisions early into the crisis, both in terms of size and permanent requirements for change from its labour groups and it resulted in a massive response from some of the unions, certainly not all of them, in an operations campaign talking about BA betrayal, and that management was portrayed as just trying to take advantage of a short term crisis to inflict major change. Of course, as you said, and as the WHO has indicated, this is ongoing, but Scandinavia has that same, well, actually far more, as I said, social ethos and you have strong labour groups, of course, [not least the pilots 00:18:52].

Anko van der Werff:

Yeah. So let's tackle that in and there's a lot of elements in your question. But first I took the Dutch directness, I have actually seen that typically it works. We're not trying to be direct, I guess we are just typical, a bit more direct than average. And it's also very transparent in a way, we really do say what we believe we really do... There's, hey, this is the way things are, I can't make the balance sheet look any better than it does right now. I can't really change X, Y, Z, but we still need to go somewhere else and I really do want to do that together as a team. And I think there's a second element in your question. Look, the Dutch, I think, traditionally, have also been very used and we have all been raised and educated with organised labour, unions, it's a pillar also of Dutch society and people really getting together. Employers, employees and of course the government also making sure that that works.

Anko van der Werff:

So in that sense, yeah, I don't think there is much of a difference, we are focused on making it together out of this crisis. I really do think, and the data shows it, the customers are changing, that market is changing. And when, of course, the customer changes, we only have one option, you have to change with the customer. And again, there's plenty of data around that now and we see it, so relatively speaking, that leisure market is becoming more important then we have to play role there. That means that relatively speaking, our costs will have to come even more down than already we were planning on because that business market is relatively going to be less important. So, it's just very straightforward, it's very, in that sense also, direct and I think it's also very clear and transparent on what the challenge is and how we can get there.

John Strickland:

Again, I mean, as part of that process to reduce cost, even pre pandemic was, the setting up of SAS connect as an Irish base AOC and operating particularly [like 00:21:06] their UK flights. You've talked now about expanding that for a role early next year, out of Copenhagen, possibly following with Oslo and Stockholm too, you've also talked about a new subsidiary called SAS link. How do both those entities fit into this requirement to adapt to structural change in the marketplace?

Anko van der Werff:

Yeah. Well, first of all, what we're doing with connect is, someone used the term the other day, it's called home sourcing, I kind of like that term. We're really bringing it back to Scandinavia, Scandinavian unions, Scandinavian labour terms, Scandinavian collective labour agreements. So, hey, it still very much us, at the same time, it is new agreements, so, yeah, it will be pivotal for us. It will be absolutely critical to make sure, of course, that we lower all that cost around that airline, because, hey, we have discussed it, SAS needs to transform, but that is up to ground agreements, maintenance agreements. There's so much you can do around, of course, that airline to position it at a different cost level.

Anko van der Werff:

Link, you could say, serves again, different market segment also. You could go into those secondary cities, smaller markets, potentially, still about fleet we're unsure what kind of aircraft that would be and how we would set that up. But for now there's a placeholder of [E-ONEs 00:22:37] in there and we have to broaden the scope, we have to see what that really does for us, but we see a good future for multiple platforms and that is something I've also explained very clearly here that is in for every single airline group at the moment. So you already see that everywhere and we are doing the same thing.

John Strickland:

And again, not to labour the point about industrial relations, but it is sort of a challenge there, again, in explaining what you're doing. I think you've indicated there is no, per se, reduction, in activity by SAS, core SAS, in Scandinavia, that the growth will come under these new entities. Is there not a risk there, where, particularly, some of the unions, such as pilots, will argue that you're simply going around the local regulations and the spirit of them and by the back door shipping out, if not shipping out jobs, certainly changing downward terms and conditions, which they might argue should not be done?

Anko van der Werff:

No, because once again, these are Scandinavian conditions. It's Scandinavian unions, it's Scandinavian collective bargaining agreements, it's Scandinavian labour laws. So, no, I don't think so. We have to understand that once again, if that market is changing and we see the evidence of that, we need to be there for a different customer, we need to be cost competitive. That is also what those new platforms will give us, in every single way when you look at whatever touches an aircraft. So yes, we can, we can go for a new fleet deal, you can go, of course, then for the newest technology and make that also very sustainable and you can therefore put yourself into a new position.

Anko van der Werff:

Yes, a large chunk of that growth will be there, but we've also been very clear that [SKAOC 00:24:27], if you like, we want that also to be competitive so that we can grow that back. The conclusion is, 2019 is not coming back, so going back and making sure that we all, in a way, bring everybody back, which is what we want, but if we go back to 2019, we can't get there, we cannot bring everybody back on those, let's say terms, so we do have to make sure that we transition.

John Strickland:

And in terms of those opportunities for growth, you talked about it, it's not about size. You talked about the opportunities in secondary cities. I think I saw another interview you'd given recently, which suggested we could even see SAS venturing into new territories, not right now, but in the future with this modernised and simplified fleet A321 allows, what we talked about, but also A350s on the long haul. We're seeing Finnair make a great virtue, pre pandemic, of its position in Scandinavia to serve Asia, you do that, you serve the USA. But could you [do anymore with that 00:25:32], that maybe new markets, and I'm thinking of, Latin American markets, for example, other markets around the world, which again, attract these strong leisure flows.

Anko van der Werff:

Yep. Well, it won't surprise you that after seven years in Latin America, I am indeed looking at the team or looking with the team here at some Latin America flow. So yeah, I do think that, that would fit also who we are again, or who we want to be also going forward and if that leisure market is indeed increasing and becoming more important. So yes, I would think that those flows would work. There is between 50 and 80 new RATs that we can actually open relatively soon if we were to position ourselves well, if we make sure that we are competitive. And I think that's again, up to us, to make sure that we get there and offer our customers that growth.

John Strickland:

And around that, Anko, again, you're in a part of the world, which in many ways is the home of the environmental sustainable focus. Every airline has to have that on their lips because it's not going to go away. Even if we hope that COVID goes away or reduces this environmental challenge, it is not. Is SAS well positioned in that respect? Not just in terms of the switch to fleet you're doing now, but other activities in terms of working towards sustainable aviation fuels, for example, and ultimately further down line, new power sources as well.

Anko van der Werff:

Yeah, absolutely. I think actually SAS has been on the forefront. I mean, SAS has always been very much the airline that has and had sustainability already in its focus. I would like to say, not just lips, you said, yeah, we have to have it on our lips, no, we have to have it in our actions. There is of course fleet renewals, there is, of course, everything we've done around removing plastic, removing food waste and it's one of my favourite examples, actually, I thought that was, yeah, morally, well, let's call it object. When we gave people free food, 80% was just going to waste, [crosstalk 00:27:37] we reduced our food waste by 80% when we switched to a new catering concept, which everyone will understand and every everyone agrees with.

Anko van der Werff:

And so I'm a big believer, and you'll see some things coming out hopefully already next week and then also in January, we've got some bigger things planned, that customer behaviour change, when you look at actually how much customers at the moment are saying, yes, we want to be part of this. And yes, we believe this is an important and what they actually do, I think we can do more there and airlines should actually give them more options. So, we're working on some interesting things there, and you'll see us come as... It's not about words, this is really going to be about actions. You've also seen us... No, please go ahead.

John Strickland:

I was just going to say, do you think your core customers are going to stick with their travel? I mentioned, your Scandinavia, especially we think of the understandably loud voice of somebody like Greta Thunberg, there have been reductions in recent years in some Scandinavian markets where people, particularly, domestically have not flown as much, certainly I've seen that from statistics in Sweden. Do you think that the Scandinavian public will still want to travel? Are they maybe early movers, in some elements of just not travelling by [inaudible 00:28:58]?

Anko van der Werff:

So, what we've seen first of all, again, I think that fourth quarter is very important to us to see what kind of changes in the market were there, if any. And we see two things, you see demand coming back, people do want to travel, they want to meet their businesses, they want to meet, of course, their colleagues and what have you. And once again, in this part of the world, there is a lot of commuting, air travel is a part of who we are, simply because the countries are so large, so that will stay. I do think that, yeah, leisure will rebound faster, I think indeed, that business... We have seen what digital, of course, means to us so yeah, we have to factor that in for the future, hence, also the pivot, but most importantly, it really requires us as airlines to do so much more about it.

Anko van der Werff:

I really wanted to make sure that, that customer behaviour change is actually driven through them and with them, it can't be just, in a way, airlines saying okay, now we've got new fleet and we're back on track, no, it has to be so much more. You've seen us launch hopefully a few weeks ago, a big initiative to be the first producer of synthetic aviation fuel so that will come into play. It's a big one with Vattenfall, a Swedish energy firm, Shell aviation is there, LanzaTech, us trying to come up with big plans and if we are successful, then that will produce around 25, 30% of our needs at least of sustainable aviation fuel, which by the way, here, I think you know that, north Europe, Sweden, in particular, the requirements for blending mandates are actually higher than anywhere in the world, so for us to take those steps, it's really just far more than words.

John Strickland:

Very interesting, Anko. Some serious issues you can get your teeth into in the, I guess, next few years that you're going to be there as CEO of SAS. There's more, I'm sure we could talk about and more we will talk about I'm sure, in the future, as all these events play out and as you push through the new strategy and the new approach with SAS. So for today, we're out of time I'm afraid, Anko, so I'd just like to thank you very much for the last 30 minutes of extremely interesting and insightful conversation. And that's it today, ladies and gentlemen from me, John Strickland. So thank you very much. Anko van der Werff, CEO of SAS, and we'll see you next time. Thanks a lot.

Anko van der Werff:

Thank you. Thanks.

Copyright policy: All transcripts on this site are the copyright of CAPA - Centre for Aviation. Our reproduction policy is as follows: you may quote up to 400 words of any transcript on the condition that you attribute the transcript to CAPA - Centre for Aviation and link to the original video page. All other use is prohibited. While we aim for 100% accuracy in the transcript, there may be some minor transcribing errors.