Balance sheet deters group from replacing Boeing twins
The long-touted replacement of SAS Group’s fuel-guzzling Boeing MD-80s is staying firmly off the agenda as the airlines-to-hotels conglomerate battles to complete its financial turnaround this year in the face of soaring oil prices.
Despite cutting unit costs by 6.4% in the first half of 2005 compared with the same period a year earlier, adjusted for currency effects and higher oil prices, the group’s fuel bill climbed by SKr700 million ($114 million). However, the group still posted a first-half operating profit sharply higher than last year, at SKr949 million.
“We have nearly 100 MD-80s,” says SAS Group president and chief executive Jørgen Lindegaard. “[Replacement] is impossible. We cannot invest in the next few years in changing the fleet. We don’t have a balance sheet that would allow us to do so.” The MD-80 has “very stable” maintenance costs, he adds, and “trip cost is not that far off” newer-generation aircraft.
Another cost driver is the diversity of types operated in the group, which includes various Scandinavian Airlines businesses, SAS Braathens and subsidiaries such as Spanair, Widerøe and Blue1. SAS unusually operates a mix of Airbus A320, Boeing 737 and MD-80/90 family aircraft.
“We have a very diversified fleet but there’s nothing I can do about it,” says Lindegaard. “I want to be the one chief executive of SAS that doesn’t introduce a new aircraft type that in five years’ time we don’t need any more.”
Traffic figures for September – the first full month since the introduction of the group’s new business model for Europe and Scandinavia – showed a 6-7% improvement in load factor compared with the same month a year earlier, but there are “indications” that yield fell by 5-10%. The new model sees the introduction of one-way and demand-driven pricing on European and intra-Scandinavian routes.
Between 2002 and 2004 SAS passenger numbers rose by 7%, but revenues have fallen 17%, driven by a more than 500% increase in the number of seats offered by low-cost airlines to, from and within the Scandinavian countries.
ANDREW DOYLE/COPENHAGEN
Source: Flight International
