SAS sees more consolidation on the horizon
A GLOBAL economic slowdown and sky-high jet fuel prices will push the airline industry into a new wave of consolidation, the top executive of Scandinavian airline SAS, itself a long-rumoured takeover target, said on Tuesday.
European carriers face a collective loss this year due to soaring fuel costs and slack demand and with spare capacity in the industry there is little room for airlines to hike fares.
“I would be surprised if we didn’t see an accelerated activity in terms of consolidation in the airline industry driven by this situation,” Rickard Gustafson, CEO of loss-making SAS said in an interview.
“I do believe that ... when capacity outruns demand in very tough market conditions ... that is a pretty lethal cocktail.” SAS is among the airlines most widely touted to be gobbled up in any industry reshuffle. Late in 2010, German carrier Lufthansa was rumoured to be close to making a bid for SAS, half owned by Sweden, Norway and Denmark.
Gustafson would not be drawn on the future ownership of SAS, which has failed to make a full-year profit since 2007 and has only been in the black in three of the last 11 years.
Recent years have seen a number of mergers with Air France fusing with KLM, British Airways and Iberia forming International Airlines Group as flag carriers look to cut costs and catch up with more nimble, no-frills airlines like Ryanair.
In the latest move, British Airways bought regional British airline bmi from German carrier Lufthansa.
More than 1,000 jobs are set to go in the integration process.
Unlike predecessor Mats Jansson, who was explicit about his goal of readying the airline for a takeover, Gustafson said he did not see his job as making SAS fit for sale though its state owners have all opened the door to an eventual deal.
“I know the owners have said they would like to do some kind of exit,” he said.
“But my strategy and my focus is how do we create ..
a sustainable business model that is actually working and stands on its own merits.” Despite a decade of costcutting, SAS made a loss of 1.6 billion Swedish crowns in 2011, due to the bankruptcy of Spanair, in which it had a 10.9 percent stake.
The airline has speeded up its latest, 5 billion crown, efficiency programme, but has not given an outlook for the current year.
Getting back to profitability will be tough. In its latest report, The International Air Transport Association (IATA) said it expected Europe’s airlines to make a collective loss of around $600 million this year due to soaring fuel prices.
SAS’s fuel costs increased by nearly a third in 2011 to 7.8 billion crowns.
Only payroll costs were a bigger part of expenses, according to the company’s annual report.