While Norwegian's decision to pull its long-haul routes out of Copenhagen and Stockholm is good news for SAS in the short term, it points to a bigger challenge in the long term.
Scandinavian airline group SAS is expecting a short term boost from rival Norwegian’s decision to pull a number of long-haul routes in the region.
As part of a wider restructuring plan, Norwegian is ending flights from Copenhagen and Stockholm to the USA and Thailand. On some of these routes there is an overlap with SAS’s services.
“I think it’s in the short term, of course, a positive if we have a better balance between demand and supply in the market, and the market has been characterized by a significant oversupply in the recent years,” CEO Rickard Gustafson said on an earnings call with analysts on Thursday.
While losing a low-cost competitor is undoubtedly a good thing for a legacy carrier like SAS, it also points to the difficulty European airlines currently have making money in the market.
Gustafson said that Norwegian’s withdrawal was a “recognition of how difficult it is to generate a decent return” in today’s environment before gloomily pointing out that passenger demand was falling.
The CEO’s comments came after the company reported its fourth-quarter/full-year results.
On a quarterly basis the carrier bounded back with pre-tax profit rising 39 percent to $115 million for the three months to the end of October. On an annual basis, however, the company saw profit slump 61 percent to $83.6 million. Revenue for the year rose 4.5 percent to $4.9 billion.
SAS blamed the poor full-year performance on “jet-fuel costs, unfavorable currency movements and a strike“.
And the bad news is going to keep on coming by the looks of things.
Alongside lower growth — both on the supply and demand side — the airline said higher costs for new aircraft, increased training volumes and changes to lease accounting procedures, would mean a profit (EBIT) margin of 3 to 5 percent for fiscal year 2020 and an increased loss in the first quarter.
SAS’s share price fell following the earnings release and was down 16 percent at 8.35 ET.
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Photo credit: A SAS aircraft. The airline group is warning of a tough start to its next financial year. SAS