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Troubled SAS has 'less than a year' left: expert

12 Nov 2012, 17:33

Published: 12 Nov 2012 17:33 GMT+01:00

"It's too late now," airline industry consultant Anders Lidman told The Local.

Lidman's comments come following an announcement by SAS on Monday that the company planned to slash 3 billion kronor ($445 million) in costs through salary reductions and other measures which include shedding nearly 6,000 jobs through divestments and staff cuts.

SAS CEO Rickard Gustafson dubbed the plan SAS's "final call" in avoiding bankruptcy.

But Lidman, who runs an aviation consultancy in western Sweden, said there was very little SAS could do to overcome a legacy of bad management and an approach to the airline business which remained stuck in the early 1980s, when national carriers enjoyed monopoly conditions.

"When you have a monopoly you don't have to worry about costs. You can instead focus on service, and SAS was very good at that," he said.

He explained that SAS has been exceedingly slow in responding to changing market conditions which have seen the emergence of several low-cost carriers such as EasyJet, Ryanair, and Norwegian, as well as major advances in internet booking.

"It's sort of like being infected with a virus for a long time and not discovering you are sick until it's too late," said Lidman, who criticized SAS for having "no reaction" to changes that have made it harder for the airline to compete.

"It's taken 25 years and SAS is still weighted down by the legacy of the old days," he said.

According to Lidman, SAS made a strategic error by betting on the European market, rather than focusing on long-haul routes for which there is less competition.

"They can't earn enough in the European market, and that is where they generate 90 percent of their income," he said.

"They will never compete with the low-cost airlines in the bloodbath which is the European market."

Among the many problems with the new savings plan, according to Lidman, was that it failed to address how the airline would generate new revenue.

"For every penny they save, they will end up losing two pennies in income," said Lidman.

One of the airline's biggest obstacles was its inability to invest in a new fleet of aircraft which have much lower operating costs than SAS's current fleet.

"They are caught in a death grip," said Lidman.

He also faulted CEO Gustafson as well as SAS board vice chair Jacob Wallenberg for delivering an ultimatum regarding the savings plan.

"If we don't come to an agreement with staff, then SAS will cease to exist," Wallenberg told the Dagens Industri daily on Monday, adding that the company only had a week to convince staff to accept the changes.

Lidman pointed out that, while SAS had enough cash to continue operations, putting a deadline on when employees and unions must agree to the measures meant the company might have to declare bankruptcy prematurely.

"If one union says no to the measures, the company must then logically declare bankruptcy," he said, agreeing that Wallenberg had essentially "painted the airline into a corner".

Lidman also had a simple explanation for why the Swedish state, which is SAS's largest owner, hadn't been able to sell its stake in the company.

"No one wants to buy it," he said.

Story continues below…

He said, however, that there was no shortage of other carriers that would be able to take over both SAS's domestic and international routes should the company go bankrupt.

And while passengers may not need to worry just yet about whether or not to book travel with SAS, Lidman explained that concerns about the airline's future may have already set off a downward spiral.

"Travellers get worried and then refrain from making reservations or paying upfront for annual membership cards and suddenly you have sort of a self-fulfilling prophesy," he explained.

While Lidman stopped short of saying that SAS could go bankrupt by the end of the year, he remained very pessimistic about the airline's long-term future.

"I'm very doubtful" that SAS will be around at this time next year, he said.

David Landes

Follow David Landes on Twitter

Your comments about this article

20:32 November 12, 2012 by B Slick
And year after year the swedish goverment believed that they could save SAS by finding some "big shot" person from the private sector and then pay him BIG MONEY that that was the was the way to make SAS a profitable company. They were only throwing away tax payers money. To invest any more money in SAS is like pumping fresh blood into a dead body!
21:51 November 12, 2012 by cupidcub
I don't know why sometimes it is so hard to understand the simple thing ? Just observe how other competing airlines are making money ? SAS is damn expensive, people need a good reason to pay three times of money.
03:12 November 13, 2012 by Smokebox
I stopped using them a few years ago. The old school airline days are over. Time to move on.
04:24 November 13, 2012 by rolfkrohna
SAS has an internal cultural supremacist problem which goes back a very long time, the staff see themselves as superior to others, and customers only justification is to pay what staff wants. I know people who stopped flying SAS decades ago after being insulted and maltreated. Recently they apparently also grossly insulted the Chinese. Tragically he is probably right, SAS had been digging its own grave for a long time and soon it is finished.
07:19 November 13, 2012 by RobinHood
A 20% shareholding in a half bankrupt airline; this is going to cost the Swedish taxpayer a very large amount of money.

There are those on these forums who argue that the Swedish government ought to buy even more worthless shares in all sorts of even more useless companies - Saab for example. One hopes those people will now have the wisdom, the dignity and the good grace, to shut up.
08:56 November 13, 2012 by djmarko
The managment is certainly to blame, seems they have not moved ahead with times, competition is so fierce in the European route, I believe SAS can turn things around but they certainly need to get rid of the entire management and bring on board younger people with more fresh ideas, quite surprised SAS dont have too many long haul flights, they are certainly losing out to the likes of BA, KLM, Air France, Luthansa who are major players in the long haul market, in a country where some people can keep their jobs for life, there are no incentives to improve, change, re-organize, its basically a case of trying the same formula year in year out without much sucess!
11:22 November 13, 2012 by Great Scott
RobinHood, here speaketh the man with the fake user name. The man who uses the name of a man of the people, is in fact a man who protects greed and condemns people who have lost their jobs and accuses them of being benefit cheats and parasites of society. He speaketh of the word dignity, of which he has none himself.

SAS has had over 10 years to see the writings on the wall and failed to adapt. Part of the management of the airline is the responsibility of the Swedish government, they in turn should resign for their failings and creating further unemployment.

As with SAAB they will neglect they responsibilities and continue with their road to ruin. The airline will probably be sold off with certain moderate politian's making money from the sale as they did with SAAB.

As djmarko quoted, get rid of the management get someone who can do the job and turn this thing around. If Ryanair and Norwegian who have the wisdom to do it, why can't others.
13:46 November 14, 2012 by cogito
Thirty-nine unions.
13:36 November 15, 2012 by Anthony Fishwick
Far to much union control, and the government still don't realise that high tax makes high prices, therefore totally uncompetitive. It is a government problem for losing control to the unions and not acting conservatively. Getting socialist spending under control and reduce taxation would solve it, but it's probably too late. You can't get a tiger to change his stripes!
18:21 November 16, 2012 by jbkulp
Trying the same failed thing over and over is the definition of insanity.
21:27 November 17, 2012 by Attestupa
Come on guys. Stop crying in your milk. Get on with the job. SAS is worth saving.
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