MARK PILING LONDON
Already reeling from a steep drop in business traffic and a hefty fine for its role in a price-fixing pact with Denmark's Maersk Air, SAS suffered another blow on 17 September when its entire supervisory board resigned.
The hits just seem to keep on coming for beleaguered SAS. At a time when most carriers are intensively busy working out how to radically reshape their businesses in the wake of the US terrorist attacks and accompanying crisis, the Scandinavian flag carrier has the additional problem of being without a board of directors.
The entire supervisory board resigned on 17 September following a report by an SAS-appointed Independent Review Commission into its role in the SAS/Maersk Air affair. The European Commission (EC) fined SAS €39.4 million and Maersk Air €13.1 million in July for a secret deal where the two agreed not to compete on each other's routes from Copenhagen and Billund.
Although the Review Commission found that the board did not know about the secret deal, and was not sufficiently informed of subsequent investigations after the deal was discovered, it said that "criticism must be directed at the Board for inadequate activity".
"The natural reaction for a board of directors in such a situation is to put the management team up against the wall and get to the bottom of the suspicions that have caused the actions by the authorities. It cannot be said that the board did this," the Commission said. The review also criticised the board because the SAS/Maersk Air affair was not mentioned in the SAS year 2000 annual report, and because it did not appeal against the EC's fine. "Naturally SAS would not have been acquitted - this would have been impossible - but the penalties could have been considerably reduced," it said. Following this statement, SAS has reversed its decision, and will appeal against the level of the European Commission fine.
It will be a demanding task to recruit swiftly an entirely new six-man board for SAS. Candidates will be drawn from the business and corporate world in each of the airline's state shareholder countries, Denmark, Norway and Sweden, with the appointments themselves heavily influenced by the state.
The current board will serve until replacements are found, but it is not yet clear when this will be. According to a Scandinavian airline analyst, the mass resignation is the first positive news for SAS for some time. "With a new board SAS gets a brand new start, without the baggage the current board carries with them," he said. If any members of the board had stayed on there would have always been a question mark against them, he added.
SAS chief executive Joergen Lindegaard, who only took office on 8 May, has already restructured his management team following the affair, which saw his deputy, Vagn Sorensen, resign over his role in the scandal. Sorensen has since been appointed chief executive officer of fellow Star Alliance member Austrian Airlines.
The upheaval at SAS comes at a precarious time. Even prior to the events of 11 September it was suffering, with business-class traffic falling by 10% on some key European routes in August, and with no prospect of an improvement in sight. Although SAS had seen overall passenger numbers grow in the year to August, the rise had not been as great as the extra capacity being offered, leading to falling load factors and yield. It slashed its pre-tax profits forecast for the year by 25% to SKr1.2 billion ($113 million).
"Development of passenger mix worsened in July and August, compared with previous months," said Lindegaard. "Overall business class is lower than last year, putting yields and revenues under pressure." To cut capacity this winter the carrier already axed some European routes in August.
Source: Airline Business
