Published on June 20th, 2016 | by Jim Lee0
Recent results “unsatisfactory” as Scandinavian Airlines experiences industrial relations difficulties
On 10th June, SAS – Scandinavian Airlines, published its interim report for the period November 2015 to April 2016, which showed rising passenger numbers, in a weak quarter. A disappointed Rickard Gustafson, President and CEO of SAS, said in a comment:
“We close the book on a quarter that was unsatisfactory in terms of results. However, it is pleasing to note that the commercial strategy with a focus on frequent travellers is delivering results and increasing numbers of customers are choosing to fly with SAS, which is also reflected in the positive cash flow. Despite substantially reduced jet fuel costs, we reported weaker results than last year. The weak results were primarily attributable to three factors: increased price pressure, technical maintenance costs and negative currency effects”.
He went on; “We are focusing on frequent travellers and are targeting our initiatives using innovation and increased digitisation to strengthen loyalty in this target group. This has attracted 130,000 new EuroBonus members during the quarter and, at the same time, our new corporate program SAS Credits has gained almost 5,000 new customers compared with last year. Our investment in new long-haul routes is appreciated by our customers and, overall, the bookings status for the summer looks stable. At the same time, we note that the European civil aviation landscape is undergoing rapid change. The market trend toward main growth in the leisure travel segment and an increasing price sensitivity with customers poses challenges for profitability in the industry. At present, SAS is the only airline that operates between Scandinavia and Europe where the flight crews are exclusively subject to Scandinavian employment terms”.
“Given this background, we have to continue to change to thereby ensure long-term competitiveness and a sustainable return for our shareholders” he concluded.
The key figures for the period November 2015 to April 2016 are:-
- Income before tax: SEK -182 million (-481 million), around -€19.5 million (-€51.6 million),
- Income before tax and nonrecurring items: SEK -1,005 million (-1,160 million), around -€107.8 million (-€124.5 million),
- Revenue: SEK 17,191 million (17,774 million) , around €1,844.65 million (€1,907.25 million),
- Unit revenue (PASK) declined 10.8% [Currency adjusted],
- Unit cost (CASK) decreased 3.9% [Currency adjusted and excluding jet fuel],
- EBIT margin: 0.3% (-1.1%)
- Net income for the period: SEK -75 million (-361 million), around -€8.05 million (-€38.75 million),
- Earnings per common share: SEK -0.76 (-1.63), around -€0.08 (-€0.17).
Industrial relations difficulties leads to Swedish pilot strike
In a statement on 10th June, SAS confirmed that the Swedish pilot union, SPF, had called 400 members on short haul flights out on strike. Both domestic and European flights from Sweden were cancelled, affecting many thousands of passengers. However, long-haul flights from Sweden to the US continued to operate as planned. The strike action followed the rejection by the pilot association of a mediators’ proposal for agreement. The negotiations, which started back in April, had failed to reach a solution, despite the fact that SAS had offered a contract on par with the agreement for the Norwegian pilots, concluded the previous day. The statement went on; “Instead of continuing the dialogue, SPF in Sweden has chosen to call 400 pilots out on strike, which causes a large number of cancelled flights from and to Sweden. For the past couple of weeks, negotiations have continued with the help of mediation, but the parties have not reached an agreement”.
“It is deeply regrettable that our customers are affected by this conflict. We have been responsive to the pilot association’s requirements and offered a contract in line with the Norwegian pilot agreement. Despite this, the pilot association chose conflict. Our top priority now is to take care of those passengers affected by the strike and help them in the best possible way”, said Karin Nyman, Vice President Communications, SAS.
SAS said it had accepted a number of the pilot association’s demands, such as a new salary scale, a salary review within the context of the framework of the central salary settlement in Sweden and changing leisure and part- time rules. Equally important, the draft agreement is in line with the agreement which the Norwegian pilots agreed to. Nevertheless, the strike went ahead and on the evening of Friday 10th June, approximate 40 flights were cancelled, affecting domestic flights in Sweden and European short- haul flights. Flights from Stockholm to Asia and the US were not affected.
Separately, as noted above, SAS had managed to conclude negotiations between SAS and the pilots’ unions NSF and SNF in Norway, narrowly averting additional strike action. SAS had been in negotiations with those two pilots’ unions since the middle of April, and from 7th June the process had continued at the National Mediator’s Office in Oslo. This mediation process fortunately resulted in new collective bargaining agreements and all SAS-flights to, from and in Norway departed as scheduled during the period of the Swedish pilot union action. The agreements with the Norwegian unions are effective from 1st April 2016 and are valid for one year.
On 14th June, SAS announced that negotiations with the Swedish pilot union SPF had finally resulted in a breakthrough, and a new collective bargaining agreement, bringing to an end the crippling five-day strike, that led to around 1,000 flight cancellations, affecting 100,000 passengers. Daily flights between Stockholm and Dublin, the SAS535/6, were cancelled between the 11th and 14th June.
The financial effects from the strike are, as yet, too early to quantify. Analysts however estimated that the strike had cost the airline at least €1 million a day, with the potential losses even greater should customers lose confidence in the company’s dependability, as a consequence of cancellations.
The new agreement between SAS and SPF is also affective from 1st April 2016 and is also valid for one year. It resulted in a 2.2% wage increase, much less than the 3.5% demanded by pilots.
Commenting on the conclusion of the strike, Mr. Gustafson said: “It has been a difficult process and we are relieved that the strike is called off and that our customers can take their flights as planned. I deeply regret that so many customers have been affected by this strike”.
SAS continues to improve its services and passenger experience
On 1st June, SAS launched its latest initiative, ‘silent morning flights’, which is intended to give SAS travellers, who are regular morning flyers, a quieter experience. As part of this new service, the crew now only give their customary welcome on board, after which there will be no service communication, between the safety briefing and just before landing. It allows customers to use the time they spend on board in the way they want – to sleep, to read, to eat breakfast or simply to prepare for their working day. This latest initiative, being trialled on all SAS domestic and intra-Scandinavia flights between May and September this year, will eliminate most in-flight announcements, with the exception of the safety briefing, from flights departing prior to 09:00.
In recent times, SAS has given frequent flyers access to a number of Café Lounges, and opened a City Lounge in Central Stockholm, in recent weeks. In addition, from 25th April, SAS introduced ‘SAS Upgrade’, which allows its customers to bid for an upgrade, to Plus, or Business. This will give more customers a greater opportunity to enjoy SAS’s best products and lets them decide how much they want to bid, for an upgrade, and can even pay with EuroBonus points.
Bids for an upgrade can be made immediately after booking, and up to 48 hours before departure. Customers receive notification by email on whether their bid has been accepted, 36 hours before departure. Payment for an upgrade is only made once a bid has been accepted. Bids can be amended or retracted up to 48 hours before departure.
Upgrading to SAS Plus provides a range of benefits, including: Fast Track (faster through security), Lounge access (with Wi-Fi, computer workstations, attractive environment, food, beverages, newspapers, etc.), food and beverages on board, as well as more EuroBonus points.
SAS has already improved its’ on-board offering by launching ‘Fresh Bites’ – fresh and light snacks, for customers travelling in SAS Plus, on routes within Scandinavia and short-haul within Europe. Fresh Bites consists of two different offerings: a new sandwich and a number of small dishes – something small, but healthy and is being offered to passengers, to complement the existing on-board service, from the beginning of the summer schedule. This allows passengers to choose a light and tasty snack in addition to the existing snack options. Fresh Bites and the sandwich are included in the ticket price in SAS Plus, and the sandwich is also available to purchase for passengers in SAS Go for €4, from 09:00 and throughout the rest of the day.
SAS signs major contract with Eirtech Aviation
Eirtech Aviation, headquartered in Shannon Airport, Co. Clare, and a leading provider of aircraft engineering and technical services, signed a contract with SAS, for Aircraft end of Lease Technical Services, until 2019. The new agreement became effective in May and builds on a strong relationship between the two companies, while expanding the scope of services being offered.
Eirtech Aviation secured the contract following a robust tendering process that will see the specialist aviation services company provide redelivery support for all SAS-leased aircraft, over the next four years.
The contract means that over 40 SAS aircraft reaching the end of their lease period will pass through Eirtech Aviation’s Technical Services department, located at Shannon Airport, ensuring that all aircraft are returned to the leasing company, in the condition agreed, at the time of leasing to SAS.
The contract will involve a dedicated Technical Services project team of over 20 people, assisted by Eirtech’s CAMO personnel, working across a range of aircraft including Boeing 737s, Airbus 320s and Airbus 340s.
SAS to retain ground handling operations at the main airports
In spite of its unsatisfactory financial results, SAS has decided to retain ground handling operations at its main airports. While both SAS and Aviator Airport Alliance Europe AB (Aviator) have agreed to continue negotiations in respect of the transfer of SAS Ground Handling’s line stations in Gothenburg and Malmö to Aviator – in line with the letter of intent signed in September 2015 – it has decided not to outsource ground handling at the main airports of Copenhagen, Oslo, and Stockholm. This followed an analysis and evaluation of an offer from Aviator, which concluded that the commercial criteria do not exist, to warrant a takeover of ground handling, at the main airports.
In recent years, SAS has implemented a large-scale streamlining program within SAS Ground Handling and has outsourced a large proportion of the business. This has reduced costs by around SEK 300 million (around €32 million) over the past two years. Its digitalization strategy will also enable further streamlining and customer improvements to be made, within the sphere of ground operations, which the company considers can be best achieved by itself.
Negotiations on ground handling in Malmö and Gothenburg are expected to be completed during summer 2016.
CityJet takes delivery of eighth CRJ900 for SAS wet lease contract
Last October, SAS entered into the agreement with CityJet, which sees the Dublin based airline acquiring eight new Bombardier CRJ900s, to supplement the 12 CRJ200s SAS already operates, through its subsidiary, Cimber. The three years wet lease agreement covers the eight new CRJ900s initially, with an additional option on a further six aircraft. The initial two aircraft were delivered in March, with EI-FPA delivered on the 14th and leased to SAS from the 18th and EI-FPB on 24th and leased to SAS the following day. Four more were added in April, EI-FPC (1st), EI-FPD (9th), EI-FPE (22nd) and EI-FPF (28th). EI-FPG was added on 18th May, while the final aircraft, EI-FPH, was delivered Montréal/Mirabel Airport – Keflavik – Dublin on 16th/17th June, as the BCY041P. It departed Dublin at 14:43 using the same callsign and landed in Oslo at 16:34. This was only aircraft delivered through Dublin.
SAS Dublin Summer schedules
SAS’ Summer schedules see a number of reductions compared to last year. The Copenhagen-Dublin route now operates at daily frequency, down from last year, which operated up to 13 times a week. There are some variations throughout the season, both in aircraft type and timings, but basically, the SAS537/8 operates Monday to Saturday, with the SAS2537/8 operating on Sundays, although it operates on other days over the summer, in place of the SAS537/8. SAS is operating the route in competition with Ryanair and Norwegian. Oslo-Dublin operates up to six times per week, with the SAS4603/4 operating daily except Saturday, but reducing over the summer to a minimum of three services a week. The route is also operated in competition with Norwegian. Stockholm – Dublin too has a variable schedule, with the SAS535/6, operating daily and the SAS2565/6 operating twice daily. Again there are many variations in times, frequency and days of operation over the summer. The Gothenburg – Dublin route is not being operated this year.