COLIN BAKER LONDON
The takeover by SAS of Norwegian domestic carrier Braathens may not be the last consolidation move in a fragile Scandinavian market.
Having completed the Braathens acquisition, SAS's aim is to cut the excess supply of seats in the Norwegian market that has caused losses to both carriers. Braathens, which has a 52% market share, has already announced a 25% reduction in capacity. It will lay off 900 staff and reduce its fleet to 23 from 35 aircraft. Norwegian capacity will also be trimmed as part of a 15% system-wide cut at SAS.
The deal was timely. Braathens posted a pre-tax loss of NKr737 million ($83 million) in the first nine months of 2001 against a NKr355 million profit for the same period in 2000, despite substantial restructuring efforts earlier this year.
SAS expects a SKr1.5-2 billion ($140-190 million) operating loss in 2001 on falling traffic. A 8.4% slide in November followed a 9.3% decline in October and the airline has warned of further capacity cuts unless the market improves soon. Weak activity has persuaded Stockholm Arlanda airport to scale back plans to build an additional terminal.
Observers agree that the takeover made sense. Earlier this year SAS forecast that synergies between the two carriers - such as aircraft lease expenses, capital expenditure, marketing and crew costs - would generate pre-tax savings of NKr600 million ($66 million) in 2002, rising to over NKr900 million ($100 million) after three to four years.
This move to consolidate may not be the last. Analysts agree that, in the long run, the Scandinavian market is probably too small to sustain more than one major carrier. SAS intends to be the survivor. The speculation now is that SAS may launch a bid for oneworld carrier Finnair, although the two airlines say there are no such plans.
Recent moves by the Scandinavian authorities only add to the pressure for consolidation. The Norwegian competition authorities want to abolish frequent- flyer programmes from April, while a government-sponsored study recently completed by the Swedish civil aviation administration LFV proposed abolishing bonus programmes in Sweden.
Competition from low-fare carriers promises to get tougher too. Sweden's LFV also recommends that low-fare airlines be encouraged to launch domestic routes. It said it should look into the "possibility of giving a limited amount of market support to help other airlines establish themselves".
SAS is sceptical that there is scope for additional competition, pointing to a recent study showing that on a distance-adjusted basis, business fares are 3-5% cheaper and economy class 25% less expensive than in the rest of Europe.
Source: Airline Business
