SAS unveiled in June a new business plan aimed at increasing the carrier's profitability through cost cuts and focusing entirely on its home market.
The Scandinavian carrier is planning a massive sell-off of non-core units, including its 94.9% stake in Spanair, its 20% stake in bmi and its 37.5% stake in Air Greenland. It says it is also evaluating possible sales of its passenger ground services, air cargo handling and aircraft maintenance units. The divestments will allow SAS to focus on its core business - flying to, from and within Northern Europe.
The business plan also includes productivity improvements, administrative cuts and a move from its lavish headquarters in Stockholm "as soon as this is practicable". Lower costs will translate into lower fares and an over 200% improvement in operating profits from SKr1.3 billion ($183 million) in 2006 to SKr4 billion in 2011. By 2009, annual costs will be slashed by SKr2.8 billion or about 5%.
Mats Jansson, who took over as the chief executive of SAS at the beginning of this year, warns for the new four-year business plan to be successfully implemented relationships with labour must improve. A costly strike by its Swedish flight attendants crippled its operation in May and forced Jansson to delay unveiling his new strategic plan until after a settlement was reached.
"We have to abandon this strike culture that has long existed at SAS," Jansson says. "We have to stand together behind a new customer-oriented business culture based on the needs and expectations of our customers. This will ensure our future as a strong and independent carrier."
While SAS returned to profitability in 2005, it points out it has incurred losses of nearly SKr6 billion since 2001, which forced it to sell SKr40 billion worth of assets to fund investments. "Even if the 2006 result was the best for a long time, we are far from the profitability level needed for development and continued independence," it says.
Jansson's new strategic plan includes a new leisure product, new routes and more frequencies on existing routes. SAS says it will grow by 20% over the next four years, mainly through higher utilisation of current resources. Productivity improvements and lower administrative costs are expected to generate SKr2-2.1 billion in annual cost savings.
Negotiations with unions affected by the changes have begun but the introduction of profit sharing and employee share ownership should help align employee interests with management.
While stakes in Air Greenland, bmi and Spanair will be sold, SAS will seek a "majority stake" in Latvia's airBaltic and Estonian Air. It now owns just under 50% of both carriers. It will keep its 100% stakes in Finland's Blue1 and Norwegian regional Widerøe.
Travel group Marsans, which owns Aerolineas Argentinas and Spain's Air Comet, quickly emerged as the likely buyer for Spanair. Ahead of submitting a bid for the entire company, Marsans owner and Spanair president Gonzalo Pascual sold his 5.1% Spanair stake to SAS. Pascual expects the process of selling Spanair, which will be open to other bidders besides Marsans, will take at most four months.
ABN Amro analyst Andrew Lobbenberg says Spain's Air Europa may also bid for Spanair but warns SAS could get less than SKr1 billion for the carrier. "Spanair is a business seriously struggling in a very challenging market with very high off balance sheet debt," says Lobbenberg. "We do not think it will be possible to IPO it."
The stake SAS holds in bmi could be acquired by the carrier's other two shareholders, bmi chairman Sir Michael Bishop and Lufthansa. The two hold put/call options on their 50% and 30% stakes respectively.
Source: Airline Business
