SAS to cut 1,000 jobs as fuel, competition hamper earnings

Bloomberg

SAS AB plans to cut 1,000 administrative jobs and double its cost-savings target as the Nordic airline prepares for rising fuel prices and intensifying competition that’s lowering fares and hampering earnings growth.
Profit in the fiscal first quarter, which started Nov 1, will decline from a year earlier following “more demanding” trading conditions in the autumn autumn, Stockholm-based SAS said in a statement.
The airline will try to reduce spending on operations by 1.5 billion kronor (S$233 million) from 2017 to 2019, versus an earlier target of 800 million kronor, with the job cuts amounting to about 9.3 percent of its workforce. It’s also considering establishing airline operations outside of its home markets of Sweden, Norway and Denmark.
The current fiscal year will be “a year of many challenges,” Chief Executive Rickard Gustafson said in the company’s annual report. “While our 70-year history has contributed to our strong position, it also means that structures have been built that are no longer competitive. Improving SAS’s efficiency is a crucial and existential issue for the company.” SAS is focusing on business travelers seeking a dense route network and high-quality services, and is expanding its long-distance fleet as rivals including Norwegian Air Shuttle ASA tap demand for cheaper tickets in Europe and abroad for leisure flying. Norwegian is recruiting crews in places as remote as Thailand, and earlier this month received clearance to operate US routes via one of its subsidiaries, which will accelerate its expansion.
SAS shares fell as much as 2.4 per cent and were down 0.7 per cent at 14.5 kronor as of 9.56 am in Stockholm trading. That pushed the stock’s decline to 41 per cent this year.
Fiscal 2016 pretax earnings excluding one-time items totaled 939 million kronor, and this year the measure will again be positive, the airline said. Capacity growth in the current year will slow to between 6 per cent and 8 per cent from 9.3 per cent in the 12 months ended Oct 31. The company added four long-haul aircraft to bring its fleet in the segment to 16 planes, and intercontinental passenger numbers jumped 25 per cent in the fourth quarter.
Unfavorable currency shifts cut 1.77 billion kronor from earnings before interest and taxes last year, SAS said. The Swedish krona has lost almost 8 per cent against the dollar in 2016, while in the airline industry, expenses from jet fuel to plane purchases are typically paid in the US currency.