SAS has financial problems - Will they be able to turn this around?
Updated: Oct 19, 2022
Annual cost savings of SEK 7.5 billion
An important challenge in making SAS competitive is the Company's cost structure, where SAS's unit cost (CASK) excluding fuel costs is significantly higher compared to many low-cost companies. In order to address this and achieve a CASK excluding fuel costs that is competitive in relation to both low-cost companies and other full-service companies, SAS needs to achieve extensive annual cost savings. SAS FORWARD is based on the cost savings plan that was presented in 2020 and which targeted annual cost savings of SEK 4 billion, of which approximately SEK 2.0 billion had been realized before the latest SAS FORWARD reconstruction process began.
SAS FORWARD expands the plan from 2020 and includes an additional SEK 3.5 billion, for a total of SEK 7.5 billion in cost savings between the financial years 2018/2019 and 2025/2026, compared to the annual cost base for the financial year 2018/2019. When the new business plan has been implemented and the cost savings achieved, SAS assesses that the Company will be well positioned financially and operationally to compete with other full-service companies as well as low-cost companies.
The cost savings (expressed as savings in kroner and ören) are divided into five main categories:
Business model and planning – includes expected cost savings of approximately SEK 2.3 billion. A new operating model with multiple production platforms aims to improve flexibility and efficiency, while improved quality in SAS's planning process aims to improve SAS's execution of services and resource utilization.
Aircraft fleet and maintenance - includes expected cost savings of at least SEK 1.35 billion. Improvements to the aircraft fleet are to be achieved by phasing out older, larger and less fuel-efficient aircraft, by replacing wide-body aircraft with narrow-body aircraft on certain long-haul routes, and by focusing on only three types of aircraft to simplify operations. Contract improvements and concentrating maintenance aim to reduce maintenance costs. Cost savings of at least SEK 850 million to SEK 1.0 billion are expected to be achieved in reduced aircraft leasing costs and reduced capital costs, with additional savings of SEK 0.5 billion to be achieved in maintenance operations.
Airport services – includes expected cost savings of approximately SEK 1.2 billion. The cost savings are driven by increased productivity through improvements in scheduling flexibility, adjustments to service level agreements, a new scheduling system, union negotiations and digitization of customer touch points. In addition, reduced costs for fees and supplier contracts, combined with a review of other internal processes, should reduce airport-related costs.
Costs for administration, finance, IT and distribution - include expected cost savings of approximately SEK 1.7 billion. These costs will be reduced through a combination of changed routines and new technology. Furthermore, the conversion of debt to equity capital will result in the cessation of significant annual interest costs.
Commercial and other costs – includes expected cost savings of approximately SEK 0.9 billion. On the commercial side, the focus will be on costs related to external suppliers, lounges and services on board and that the overall efficiency in these areas should be improved. Some facilities currently in use reflect pre-covid needs and will be renegotiated and/or vacated.