Nordic by Nature: SAS CEO Rickard Gustafson, racing to keep costs falling faster than revenues, speaks with AW

SASSAS hopes to please stakeholders with an array of ongoing structural reforms when it reports its February-to-April quarterly results this week. The airline—its post-9/11 history a relentless race between falling costs and falling revenues—is finally getting somewhat of a break on the revenue side this year. Unit revenues are holding firm—last week it reported a 1% y/y rise for April, with May figures looking roughly flat despite strikes that canceled 147 flights. The airline’s CEO Rickard Gustafson spoke with Airline Weekly last week in Miami.

Airline Weekly: Can you start off by describing demand conditions right now in the transatlantic market?

Rickard Gustafson: It’s a very competitive market, but we are still optimistic, and our booking levels are actually where we expect them to be. So we’re pleased. And it’s a good market still.

AW: If Finnair can create a robust Asian hub in Helsinki, why can’t SAS do the same in Stockholm, which appears in global terms to have similar geography?

RG: From Helsinki, they can actually operate a number of destinations on a 24-hour [aircraft] rotation. And that extra hour that it takes to fly out either to Copenhagen or Stockholm actually makes it impossible to do that. So therefore you need more than one aircraft to operate, and all of a sudden, the cost equation changes quite dramatically. So I think that’s the key driver. And we have had another focus, and we have had strong demand going westbound to North America, so we build a lot of our efforts to support the North American market.

AW: Staying for a moment on the topic of Finnair, it is now in the oneworld joint business with British Airways/Iberia and American across the Atlantic. Does SAS have an eventual place in the A++ joint venture with your Star partners[Lufthansa, United and Air Canada?]

RG: We’ll see. There’s no secret that we definitely welcome the opportunity to join the A++ venture, but I guess it’s a question for Lufthansa, United, and Air Canada if they want to add more into that. But we’ll see. And we’re talking to our friends within the Star family, and we might.

AW: What is the main topic of discussion when you negotiate with them?

RG: I think it’s very simple. I think the joint venture needed to be established among those founding members initially. And I think they had some problems in the start-up and they needed to sort that out. And then the Lufthansa Group is… not really driving a centralized business model. Each of the different carriers in the Lufthansa Group is fairly independent, so I think they need to sort that out before they’re willing to add more complexity into that JV.

AW: You do have a revenue-sharing arrangement with Singapore Airlines?

RG: That’s correct. We do, on one particular route, Copenhagen-Singapore.

AW: So just that one route?

RG: Yes. It works well, and we’re happy about that. And that enables us to provide an important market for especially our corporate customers to have an opportunity to go straight from Scandinavia to other parts of the world. We don’t operate there. We realized that for our longhaul operation, we’re going to focus on the Northern hemisphere, so we’re going to fly to North America and northeast Asia, and we’re not going to deploy our metal to southeast Asia for a number of different…

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Also Inside this Issue:

The world’s airlines partied on South Beach last week, celebrating what’s expected to be their most profitable year ever. Of course, what’s true for the collective isn’t necessarily true for all 257 IATA member airlines, some of which were in a less festive mood at the annual industry gathering. Fuel prices have dropped, yes. But outside the U.S., economies are sluggish and currencies weak.

One hot topic at this year’s meeting was the Gulf carrier subsidy debate, with IATA itself taking no sides but various member airlines arguing their cases. Another much-discussed issue: Lufthansa’s declared war on global distribution systems, which received nearly universal acclaim from Lufthansa’s peers, who are themselves eager to reduce selling costs.

U.S. carriers, with their corpulent profit margins, were understandably the stars of the powwow. But after a brief period in which revenues stayed high even as fuel prices plummeted, revenues are now showing clear signs of softening. The four giants of the U.S. airline industry—American, Delta, United and Southwest—are all seeing substantial y/y RASM declines this quarter, though JetBlue is an exception.

Delta, for its part, is taking yet another step to rightsize its shorthaul fleet by buying more planes in advance of this week’s Paris airshow—as long as pilots ratify their new contract. And American will head for Sydney as it tightens cooperation with Qantas.

And in a major development for South Atlantic markets, Azul —or its backers, anyway, if technically not the airline itself—won a bidding war to buy TAP Portugal.

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