SAS Plans to Intensify Cost Cuts as Pricing Pressure Grows

Jun 18, 2014 4:47 am ET

(Updates with CFO’s comment in fourth paragraph.)

June 18 (Bloomberg) -- SAS Group, the Nordic region’s largest airline, plans to intensify efforts to reduce spending and boost sales after pricing pressure and competition weighed on second-quarter earnings.

The pretax loss widened to 1.08 billion kronor ($160 million) in three months ended April 30 from 329 million kronor a year earlier, Stockholm-based SAS said in a statement today. The carrier said it may still post a pretax profit for the full year, excluding restructuring costs.

The airline delayed earnings targets for fiscal 2015 by one year in December. SAS is disposing of assets cutting jobs in an effort to return to profit and fend off rivals including low- cost carriers Norwegian Air Shuttle ASA and Ryanair Holdings Plc. SAS has confronted an influx of carriers keen to capture Scandinavian-region traffic, as well as a decline in corporate traffic as companies reign in costs.

“The capacity has outgrown demand by 60 percent, and that takes a toll on prices,” which has been “quite severe” for many airlines, including SAS, Chief Financial Officer Goran Jansson said in an interview. “That’s been quite a disappointment for us, that the top-line has not delivered.”

Stock Drops

SAS dropped as much as 5.2 percent to 11.75 kronor, the steepest intraday decline since May 30, and was trading down 3.2 percent at 10:44 a.m. in Stockholm. The stock has fallen 27 percent this year, to the lowest levels since mid-April 2013 in the past month, in the third-worst performance on the 54-company Bloomberg Research Global Airlines Valuation Peers index.

First-half revenue fell 16 percent to 16.3 billion kronor. Additional cost cuts, which include eliminating 300 full-time employees, should drive an improvement in earnings of 1 billion kronor in the year through October 2015, SAS said. Competition is likely to remain intense through the European summer season, Jansson said.

The airline said it plans to expand the intercontinental network with new routes from Oslo and Stockholm to North America and Asia starting in the second half of next year. While corporate traffic hasn’t picked up, customers still value good service and punctuality, the CFO said.