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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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132 total articles
On 01-Feb-2017 SAS announced that it is to establish a new AOC in Ireland, with operational bases in London and Spain. It has yet to specify the airports that will become its first bases outside its three Scandinavian home countries. SAS is following a course established by Norwegian, apparently forgetting its previous objections to its LCC rival's approach.
Indeed, it seems that SAS' move is a pragmatic response to intense competition from LCCs, particularly from Norwegian. According to SAS' 2016 Annual Report, 65% of its ASKs compete with LCCs. Scandinavia's high labour costs are a significant handicap in competing with airlines that have bases outside the region.
Spain and UK are its two biggest markets outside Scandinavia, with London Heathrow its biggest non home airport. After years of cost reduction programmes – also years of initiatives aimed at enhancing the appeal of SAS' product and brand to its core target market of Scandinavia's frequent flyers – a bolder step is needed. SAS will be a very rare example of a European legacy airline with bases outside its home market, more than 20 years after market liberalisation presented the opportunity.
Ryanair's 117million pax in 2016 tops European airline groups. The first time an LCC topped rankings
For the first time ever in Europe, in 2016 a low cost airline carried more passengers than any other airline or airline group, as Ryanair's 117 million passengers pushed Lufthansa Group's 110 million into second place. Ryanair had beaten Lufthansa itself, but not the whole Lufthansa Group. IAG's first full year of including Aer Lingus helped it to take third place from Air France-KLM. Europe's number two LCC, easyJet, was ranked fifth.
The big five can be expanded into a big seven to include Turkish Airlines and the Aeroflot Group, although these two had contrasting growth rates in 2016. A chasing pack of middle sized airline groups includes three LCCs (Norwegian, Pegasus and Wizz Air) and three legacy airlines with varying challenges to establishing sustainable profitability (SAS, Air Berlin Group and Alitalia).
Most of the faster growing airline groups in the top 20 are LCCs and the main growth drivers for Europe's big three legacy groups are their LCC subsidiaries. Just outside the top 20 are some fast growing legacy airlines in Eastern Europe, demonstrating the potential there. Nevertheless, unless there is a big merger or acquisition, Ryanair looks set to remain at number one for some time.
Norwegian plans to add US routes to its Edinburgh base, a development considered in part 1 of this report, adding to its growing list of European long haul bases. However, its Edinburgh-US routes will use new Boeing 737MAX-8 aircraft – its first deployment of narrowbodies for long haul. It has also ordered 30 Airbus A321neoLRs for long haul use. Narrowbodies open up new possibilities for routes between the UK (or other European markets) and the US east coast.
Norwegian also plans to add non-US destinations to its UK long haul network, with details expected during the course of 2017. Norwegian's flexibility to develop its long haul operations from the UK would be improved by the grant of a US foreign carrier permit to its UK-registered subsidiary, Norwegian Air UK.
Norwegian has had to surmount many obstacles to build and grow its global network – which may also include Latin America in 2017, when it will accelerate long haul ASK growth to 60%. However its rapid expansion, currently driven mainly by long haul growth, has led to a rapid increase in debt, and is likely to weigh on unit revenue. Norwegian's undoubted strategic innovation can only be sustained if it is financially successful.
Norwegian's plans to add Edinburgh to its long haul bases are a further indication of its constantly evolving strategic development. Driven mainly by long haul, Norwegian returned to strong growth in 2016 after a respite in 2015. Norwegian's 2017 expansion plans will make the LCC Scandinavia's largest airline by passenger numbers, ahead of the legacy airline rival SAS.
The UK is Norwegian's biggest European long haul market outside Scandinavia. This has so far been based entirely on its network at London Gatwick, where its weekly seat capacity to the US now equals that of the market leader Virgin Atlantic. However, Norwegian is looking beyond Gatwick and will add trans-Atlantic routes from Edinburgh in 2017, for the first time deploying a narrowbody (Boeing 737MAX-8) on its long haul network. It has yet to announce the US destinations from the Scottish capital, and also plans to fly to the US from other UK cities.
This report considers Norwegian's Edinburgh long haul plans in the context of its existing UK operations. Part 2 looks at Norwegian's use of narrowbodies for long haul and the application by its UK subsidiary for a US permit. Part 2 also touches on the financial impact of Norwegian's rapid growth.
A harsh truth for SAS is that improvements to its network and product, and its focus on Scandinavia's frequent travellers, have not isolated it from unit revenue weakness. Moreover, in spite of very creditable progress with unit cost reduction, it still has a high cost base. In FY2016 its operating margin started to turn down again. In addition to further targeted cost savings SAS is now considering further, more radical, changes to its production model.
In particular, it is assessing whether or not to establish operations outside Scandinavia for some of its European traffic. The European airline market includes a fast-growing and price-sensitive leisure segment, where SAS tries to compete against much lower cost operators that are not weighed down by Scandinavia's very high labour costs.
Even Scandinavia's most significant LCC, Norwegian, has established bases in the UK and Spain, and many other LCC competitors have bases across the continent. Indeed, it would seem that SAS, once an opponent of Norwegian's plans to use Ireland as a trans-Atlantic base in search of lower labour costs, has borrowed a page from its rival's book on how to re-write airline strategy.
In early Dec-2016 the Irish regional airline CityJet ended talks with Stobart Group about the possible acquisition of the airline Stobart Air. This deal could have accelerated CityJet's growth in the area of regional airline contract flying, where Stobart Air is positioned with contracts for Aer Lingus and Flybe. Nevertheless, while this is a setback to CityJet's ambitions, the airline continues to pursue an aggressive growth strategy.
CityJet had also preliminarily agreed to launch new routes at Stobart Group's London Southend Airport, but will not now do so. Instead, Stobart Group has taken control of Stobart Air by acquiring shares from minority investors, and will use its in-house airline to grow the Southend network. This should help the airport in reaching its own growth targets, as set by the Stobart Group.
CityJet may seek an alternative acquisition in order to fulfil its goal of becoming the largest regional wet lease provider in Europe. It will almost certainly convert all or some of the 16 options it holds over Sukhoi Superjets, in addition to its firm order for 15 (three have already been delivered). CityJet has undergone significant change since leaving the Air France-KLM group in 2014, and its losses are narrowing.