Scandinavian Airlines ready for take-off

By Jorn Madslien
BBC News Online business reporter

SAS is working hard to get itself out of a hole

The airline group SAS has halted its recent gloomy mumbling of downsizing and instead declared bold plans to expand.

Following a series of breakthrough deals with the unions last week, the group is confident that it is about to become one of the most efficient operators in the industry.

By early next year, SAS Group should have reduced its cost base by 45% following a 14bn Swedish kronor (£1bn; $1.8bn) cost cutting manoeuvre, said Soren Belin, executive vice president in charge of airline strategy and coordination.

"Now we're going to expand, we're going to gain market share," Mr Belin told BBC News Online, revealing plans to add more flights to existing destinations, to add new routes, and to buy more aircraft.

Painful journey

For the crisis-hit airline, it has been a rough ride to get to where it is today.

Last week's deals ended months of wrangling with the 39 trade unions that represent SAS staff in Denmark, Sweden and Norway.

"We're the only airline which has so many unions," said Mr Belin.

But their sheer number did nothing to stop the SAS management from forcing the unions to their knees.

Savage pay cuts, longer hours and a virtual eradication of benefits were pushed through with threats of the sale of a slew of SAS units along with mass redundancies.

At some point a deadlock was broken when the management threatened to close down the whole airline and fire all Swedish and Danish staff, then create a new carrier and rehire by offering individual contracts, the Danish newspaper Politiken reported.

In the end, the employees caved in and accepted a deal which the Danish union leader Verner Lundtoft Jensen described as "the worst ever".

Consensus

It was the only way, insisted Mr Belin.

SAS has hammered home some harsh facts

"The reason why we have had no strikes at all is because the unions realised that this is absolutely necessary," he said, describing the SAS staff as "real heroes".

"It can look ruthless from the outside, but it has been cooperative.

"It's the market that's been ruthless. The circumstances for the industry have been ruthless."

Europe's growing army of budget airlines forced SAS "to cut prices before we cut costs", and this made radical staff and expense reductions all the more urgent, Mr Belin said.

Indeed, even Mr Lundtoft Jensen acknowledged that after 6,000 of the Scandinavian flagship carrier's 22,000-strong workforce had lost their jobs, the cost cuts were needed to ensure job security for those still working for the airline.

In return, SAS has been able to tell the unions that there will be no further job cuts.

A desirable crisis

If it turns out that the SAS management has really pulled off the restructuring, then the crisis the group has been facing may eventually prove beneficial.

"It is beyond comparison the way the SAS management has managed to turn around the company so quickly and managed to cut its cost base so severely in a company that has been burdened with so many and such powerful trade unions," First Securities industry analyst Hans-Erik Jacobsen told Norwegian newspaper Dagens Naeringsliv.

Investors are impressed too, as seen by the sharp gain in the value of SAS shares following last Wednesday's deals.

In fact, the group's restructuring has gradually been building support among investors, and its share price has bounced back from a historic low hit last March at the time when the first job cuts were announced.

Low cost

Investors are clearly coming around to accepting that the restructured SAS airline - which has been split into three national carriers plus one long-haul operator - is ready to face the budget airlines.

Many budget airlines operate with prices that are, on average, similar to those offered by flagship carriers, even though their adverts promise cheap flights, Mr Belin insisted, adding that it is only a matter of time before customers realise this.

Besides, it is not the pan-European operator Ryanair, which flies to provincial Scandinavian airports, that poses the most serious problem, said Mr Belin.

"We match the low cost airlines and we fly from the main airports," said Mr Belin.

Worse for SAS is the existence of Scandinavian low cost airlines which "compete with us wing-to-wing", flying out of the same airports, Mr Belin said.

In fact, the main battle will be with the regional low cost airlines Norwegian Air Shuttle and Sweden's Nordic Air Link, he said.