REPORT BY MARK PILLING IN VIENNA / PHOTOGRAPHY BY ETIENNE DE MALGRAIVE
Vagn Sørensen's career took an unexpected turn last year. He left SAS under a cloud, only to become the first foreign head of Austrian Airlines
It is said that you should always try to find some good in the worst of situations. Yet even the normally cheery Vagn Sørensen must have found it difficult to smile as events unfolded last summer. In July he was obliged to resign as deputy chief executive at SAS and accept responsibility for the notorious price-fixing scandal between the Scandinavian flag carrier and Danish operator Maersk Air. But no sooner had the rising star fallen from grace at SAS, than within the space of a month he was headhunted for the chief executive role at Austrian Airlines. The ambitious Dane simply describes this as his "dream" job and is determined not to look back.
The remarkable turn of events has given Sørensen his first chance at running an airline. And he has certainly picked a challenge - not only is there the need to steer through stormy seas after 11 September, he also has to restructure and reunite a group of four carriers, redefine its mission statement and hone its European role within the Star Alliance, where it sits alongside SAS.
Sørensen joined SAS in 1984 as a marketing trainee after graduating from business school. He rose rapidly through the ranks, finally entering the inner cabinet as executive vice-president early last year, when he became responsible for the airline's commercial affairs.
At SAS, Sørensen had his sights firmly set on one day leading the airline. He thought his chance might have come with the retirement of chief executive Jan Stenberg in May last year. But SAS had other ideas, and in November, the carrier recruited Jorgen Lindegaard, managing director of Danish telecommunications firm GN Store Nord. "I applied for the chief executive job, and was disappointed I did not make it. It was clear I had to take another step at some point. I was still motivated to stay at SAS, but you begin to think about what is next, and there were rumours the Austrian position was coming up,"he says.
"The Austrian job was kind of a dream job for me, because I thought it was a great company with a lot of potential. My leaving SAS made me available at short notice, so the timing was fortunate. Then I was contacted by a headhunter shortly after and it went in the right direction very quickly. It is no secret I am very happy about being here, since it was a job that I had wanted for a long time, and I always thought it could be a good next step for me."
The fact that Austrian's supervisory board chose Sørensen - the first foreigner to head the carrier - speaks volumes for the reputation he built at SAS, which has a long history of co-operating with Austrian, both through the Star relationship and in alliances such as the European Quality Alliance and Qualiflyer.
However, he brings no local baggage with him. "Maybe it was an advantage coming from outside, because you were not part of any past here, and not tied to any specific network in the country so you can act freely and really businesslike." It was stressed to Sørensen that, despite the local influences that inevitably affect a national carrier, his brief was to put these aside and "act in a 100% business fashion, and make the decisions and strategies with the aim of increasing the value of this company".
Austrian was also not put off by Sørensen's association with the co-operation deal between SAS and Maersk. This pact saw the two going further than their stated 1998 deal and entering into a secret agreement regarding market division. In July, the European Commission (EC) imposed heavy fines on Maersk and SAS for breaching competition rules. The affair not only claimed Sørensen's scalp but Maersk's chairman and managing director - and later the entire SAS board. Although he denied any personal responsibility for the deal, Sørensen resigned, stating he had a "moral duty" to take the blame for the airline's involvement. Days later, SAS actually announced that Sørensen had indeed taken "full responsibility" for the affair, but he was nevertheless given credit within Austrian circles for taking the blame so early. "They had the attitude that something happened at SAS that shouldn't have, but personally he took the consequences and is now available, and he has a lot of experience," says Sørensen.
Today he politely keeps his replies on matters surrounding this affair to "no comment". But adds: "I had 18 splendid years with SAS, it is a great company and I have a lot of friends there. As a result of that case, I decided to quit the company, and luckily I had the opportunity to join Austrian shortly thereafter."
Restructuring time
Sørensen is the first person in sole charge at Austrian. Previously run by joint presidents Herbert Bammer and Mario Rehulka, today it has a typically German four-strong management board, with Sørensen able to have his say over appointments. Thomas Kleibl came from brick and tile manufacturer Wienerberger Zeigel to become chief financial officer, while Walter Bock, Austrian's chief pilot and executive vice-president for flight operations, was made chief operating officer. Josef Burger, previously executive director at regional carrier Tyrolean Airways, was named chief commercial officer. Sørensen is also seeking to recruit new blood in senior network planning and human resources roles.
No sooner was Sørensen in place than Austrian was plunged along with the rest of the air transport industry into crisis after 11 September. This compounded what was already turning out to be a poor year, and influenced the integration of Lauda Air into the Austrian Airlines Group, and the complete re-engineering of the company.
Sørensen knew he could waste no time in tackling some fundamental issues at Austrian. "What is important to me is that we have in a short time established a clear programme to turn the company around," he says. The first item is the "acute" task of improving its performance with a c260 million ($224 million) "results improvement" exercise. This included a 15% cut in flight operations, reflecting the downturn in demand, and a target of reducing personnel costs by the same amount this year.
The loss of 968 from the carrier's 8,000 headcount should produce 7% of this targeted 15% cost saving, while a recently agreed package with unions should account for the remaining 8% through a mix of salary cuts, wage-freezes and reduced working hours. Sørensen stresses that first- and second-level managers took 15% pay cuts at the start. Other measures include order postponements, an investment freeze and cuts in other heavy costs, such as distribution.
The other part of its programme is redefining mission strategies and establishing "core strategic projects", of which there are 18. This plan focuses on "technocratic" areas, such as network and revenue management, and some "concrete projects like the integration of all of our technical organisations in the various companies into one".
Early on, Sørensen's new team took the decision to keep all four of the group's brands: the parent Austrian Airlines; the Lauda Air leisure business; and the two regional carriers Tyrolean Airways and Rheintalflug. In particular, the three smaller companies have cost advantages which Sørensen wants to preserve, as well as their strong regional positions.
Since Austrian brought these three companies on board, it has struggled to bring them together. Sørensen's plan to streamline and re-organise them involves making the Austrian Airlines Group the parent, with the other airlines becoming production operations. "This enables us to get a clear division of responsibilities and roles. When I arrived there were a lot of duplications, and it was unclear to many what their role was."
Sørensen is in no doubt that the changes being implemented can be done much faster than would have been possible in a normal climate. He says: "The integration within the group was under way, but it was a very gradual one and it was maybe implemented to 50%. Our task was to make things simple and to finish the job. I think our staff appreciate that. They say that all of us might not like our role in the concept but at least we know what our role is. For many years, we had two parallel organisations here in Vienna - Austrian and Lauda - but now they are together." This step alone, he adds, has saved 100 jobs. Staff have co-operated well with the cuts, says Sørensen. The bankruptcies of Sabena and Swissair demonstrated that their jobs were not for life. "What happened in Switzerland and Belgium was really an eye-opener."
Another simple but necessary move has been to give Austrian Airlines responsibility for scheduled and cargo operations, with Lauda taking care of charter operations, except for a few selected long-haul routes. Tyrolean and Rheintalflug will serve routes with aircraft of under 80 passengers.
In addition to concentrating on short-term fixes, Sørensen knew he had to offer his staff something more. "The new management found it important not only to talk about what needs to be done here and now and the sacrifices we have to make, but we also put up a picture of the future, of where we want to end up. So we created a vision built on our Austrian group, keeping our independence and our Austrian majority, and assuming a niche role in European aviation," he says. This will build on what he sees as Austrian's strengths: a strong home market and healthy position in neighbouring countries; its Vienna airport hub ideally located politically and geographically for building up a good network into eastern Europe; a loyal workforce with a reputation for high quality service; and in parts of the group a good cost and productivity position.
Last, but not least, comes the membership of Star and ties with Lufthansa. It has been suggested that Austrian could eventually find itself absorbed by its large neighbour, as consolidation takes hold. Sørensen has a different view. He agrees with the vision of Lufthansa chief Jrgen Weber of only three big European airline groups. However, he believes "there will definitely be room for a lot of niche players".
East-west traffic
Austrian will be a big niche player with two markets to protect and develop. First is the domestic business. Second is the east-west traffic flow making use of an efficient hub and 25 minute minimum connecting times. "If we stick to these niches, I think it is realistic and that is what our owners want," says Sørensen. However, he is under no illusions and knows that in the long term things might be different. "For now, we stress our independence," he says.
This view is understood and accepted by Lufthansa, and Sørensen believes the companies have built good co-operation. This may be further strengthened soon, as he hopes the Austrian-Lufthansa joint venture on fares and schedules between their home countries will receive EC approval in the next months. The EC says it will clear the partnership after extracting concessions to enable rival airlines to operate German-Austrian routes, and avoid the development of a near-monopoly. Sørensen will not quantify the benefits of collaboration - but as the largest traffic flow in Austrian's network, it is clearly crucial.
The major east-west traffic flow also allows Austrian to stand out within the Star ranks. "You have to bring something to the table to be a valued alliance member, and I think that everybody in Star does that. Star lives off the complementarity of the different airlines. What Austrian brings to the table is a very good distribution network through Vienna into Eastern Europe. That is something we have which nobody else does. That is our chance really, and we have to develop ourselves there, be willing to take the risk to develop the market, be first and secure ourselves a strategic position."
Although the volume of east-west traffic is still modest, it has grown since 11 September, and should continue to do so with the proposed eastward enlargement of the European Union. But Austrian will go on consolidating its network, offering at least 5-6% fewer available seat kilometres this year compared to the last.
One bright spot is the resumption this summer of Montreal and Toronto flights - using Lauda Air - after strong tour operator backing for the service, he says. Other expansion has been to Belgium and Switzerland. Austrian has also stated its desire to operate quickly into Kabul, the Afghanistan capital.
With a degree of new business, but mainly through its cost-cutting measures, Sørensen hopes Austrian can reach operational break-even this year. This will have to happen quickly, since he himself expects the carrier to have made an operating loss of €150 million last year.
"We need that [turnaround] as we have one over-riding weakness - our high debt. So we have to quickly achieve good operating results. One problem we share with many others is excess capacity, and we find it very hard to re-market it." Austrian is trying to sell 10 grounded aircraft at present, and has already sold three business jets and four Dash 8 turboprops. "What we lack is a little bit of flexibility. Most of our aircraft are on fixed financial leases, I have very few operating leases, and one of our aims is to increase flexibility to achieve a better mix of operating and financial leases," he says.
On the ownership side, Sørensen does not feel it is the right time to bring in an airline equity partner. Credit Swiss First Bostonstill holds the 10% stake in Austrian which formerly belonged to bankrupt Swissair and Sørensen has held discussions on where it now goes. He wants it to return to Austria, although not necessarily to Austrian.
Sørensen has not been afraid to wade in to try to sort out Austrian's unfinished business - the acrimonious relationship with Niki Lauda, the founder of Lauda Air, for instance, who still held a 31% stake in the airline. "Too much energy was wasted in those matters," he says. In November he made a deal with Lauda that saw the former Formula One racing driver sell his remaining shares in the carrier to Austrian, with Lauda Air withdrawing from Italy, and three Boeing 767s being transferred to Lauda Air Italy. This gives Austrian full control of Lauda Air, and the out-of-court settlement puts all the outstanding court cases "to rest".
Making progress
Despite only being in place for four months, Sørensen is satisfied that his turnaround plan has made good progress. He has been pleasantly surprised with the attitude of Austrian's staff towards the changes, but the airline's poor finances and unresolved problems, such as the "Lauda complex" have been a "negative surprise".
A note of confidence in Sørensen's management was recently sounded by American investor Guy Wyser-Pratte, whose investment vehicle Global Governance Partners Fund took a 5% stake in Austrian in February. It described Austrian's shares as undervalued, and said the airline possesses an "excellent management team".
Sørensen is determined that such views will continue to remain well founded as Austrian's fortunes pick up. Like many others he sees recovery starting at the earliest in the third quarter. "We have lost between two and three years of our growth," he says. But he is far from down hearted - in fact, he is relishing the chance to lead a carrier for the first time.
Source: Airline Business
