SAS reports on its fiscal first quarter

Scandinavian Airlines-SAS announced its fiscal first quarter results and outlook:

SAS STRENGTHENS ITS MARKET POSITION

Our first quarter of 2020 was characterized by passenger growth and a strengthened position in the Scandinavian market. Operational improvements also resulted in increased robustness and customer satisfaction. However, a strong revenue growth was offset by negative currency and IFRS 16 effects, resulting in earnings below the same period last year.

NOVEMBER 2019 – JANUARY 2020

  • Revenue: MSEK 9,707 (9,405)
  • Income before tax (EBT): MSEK -1,087 (-576)
  • Income before tax and items affecting comparability: MSEK -1,078 (-724)
  • Net income for the period: MSEK -861 (-469)
  • Earnings per common share SEK -2.33 (-1.25)
  • First quarter with IFRS 16 accounting standard

SIGNIFICANT EVENTS AFTER QUARTER END

  • Charlotte Svensson appointed as SAS new Chief Information Officer as of 1 February 2020
  • New agreement signed with Danish union, FPU, tailored for future regional production

OUTLOOK

  • SAS expects to deliver a FY20 EBIT margin before items affecting comparability of 3-5%, subject to limited impact of COVID-19

We continued to note strong demand for our services in the first quarter of fiscal year 2020. Revenue increased more than 3% to SEK 9.7 billion, mainly driven by an increase of nearly 100 000 passengers.

Total expenses before items affecting comparability, increased over 4% compared with last year due to unfavorable currency movements.

As a consequence of unfavorable currency movements and the effects from IFRS 16 accounting standard, adopted on 1 November 2019, earnings before tax and items affecting comparability amounted to MSEK -1,078. This represents a decrease of MSEK 354 year-over-year and is in line with our guidance communicated at the end of last year.

Despite a weaker quarter from an earnings perspective, our cash position remains strong and is supported by improved forward bookings ahead of the summer season.

COMMERCIAL DEVELOPMENT

I am very pleased that our improved operational quality and customer offering, our dedicated focus on sustainability and introduction of new aircraft continue to attract customers. In a challenging market, our strong customer offering has resulted in a passenger increase of 1.5% and improved our market share in Scandinavia by 1.6 percentage points to 29%.

Ingegerd Viking, the first of eight Airbus A350s on order, had its inaugural flight from Copenhagen to Chicago on January 28, 2020. The passengers on board the new aircraft experienced a comfortable flight, in a cabin with new seat models and unique customized SAS solutions.

Aircraft operations account for over 99% of our greenhouse gas emissions. Therefore, fleet renewal is our most important initiative to reduce our environmental impact and the Airbus aircraft are the most fuel efficient on the market. In the quarter, we phased in eight Airbus A320neos in addition to the aforementioned Airbus A350. This means 15–30% lower fuel consumption and CO2 emissions compared with the aircraft they replace. During FY20, we expect deliveries of three additional A350s and six A320neos, which will further reduce our environmental footprint.

Until future technology enables zero-emission aircraft, we will continue our efforts to increase usage and stimulate supply of sustainable aviation fuels. Since we provided the option for our customers to add biofuel to their SAS tickets, almost 10 000 travelers have added biofuel to their journeys. This interest shows that a growing number of customers wish to contribute to more sustainable air travel.

At the start of the quarter, we launched new packaging for the New Nordic by SAS food concept, which eliminates up to 50 tons of plastics per year. This is one of many important initiatives in maximizing the use of sustainable materials in the customer offering.

We were also happy to announce that SAS and Apollo have extended their partnership for the 2020 summer and winter season. The agreement is worth around SEK 1.4 billion and we look forward to welcoming Apollo customers on board from 23 locations in Sweden, Denmark and Norway on their way to 26 destinations in Europe.

Norwegian Sykehusinnkjøp also entered into a four-year contract with SAS, as the preferred airline for patient and employee travel on the largest routes in Norway. The healthcare companies spend around MNOK 400 annually on airline travel, and the decision to choose SAS was based on a combination of price and departure schedules.

OPERATIONAL DEVELOPMENT

The ongoing work to improve our operations is reflected in a substantial improvement in operational performance. Compared to last year, punctuality increased 4.2 percentage points to 84.2% while regularity remained high at 98.7%.

Although weather was favorable for airline operations during the period, we also noted positive effects from the new planning processes implemented in FY19. These processes have resulted in a robust production scheme delivering tangible results with over 30% reduction in the average number of delay minutes per flight.

We know that punctuality is the single largest driver for customer satisfaction. Compared to last year, customer satisfaction increased three points to 74. In the month of January in isolation, the customer satisfaction index reached 75, which is the best result in many years. I would like to recognize our employees whose dedicated work is behind the improved performance and customer appreciation.

Productivity measured as pilot and cabin crew block hours per quarter, declined 10% and 2% respectively. The decline is explained by the required Airbus training as Arlanda becomes our second Airbus-base in FY20. Short-term, productivity will be negatively impacted before the benefits from a single-type fleet start to materialize.

One of the points I highlighted in the fourth quarter, was the need to evaluate how to renew the fleet of midsized aircraft servicing regional routes. Approximately 20% of the network is served with our current midsized Airbus A319 and Boeing 737-700 aircraft. Serving regional routes with aircraft of the right size is important from both sustainability and financial perspectives. However, these aircraft will need to be replaced in the next few years.

Before proceeding, there are several prerequisites that need to be fulfilled before a new order can become a reality. Firstly, we must ensure that each entity within our operating model is based on single-type fleet in order to minimize cost and complexity. Secondly, we need to have crew agreements tailored for regional operations in Scandinavia. Thirdly, we need to be able to select and source proven aircraft types suitable for reliable operations in Northern Europe.

Related to the second requirement we have made some progress. We have now signed an agreement with the Danish union, FPU, tailored for future regional production. The agreement fulfills the requirements of locating midsized regional production in Scandinavia, with local recruitment on Scandinavian terms and conditions. With this in place, we will continue our intensive efforts to address the other prerequisites, as well as continue to work with all our unions to ensure that we lay the best foundation for the future.

AFFIRMED FULL-YEAR GUIDANCE

We are encouraged by the increase in passenger numbers and maintained yields supporting strong revenue development. At the same time, the economic outlook remains uncertain and the outbreak of the COVID-19 virus adds additional concerns regarding a slowdown in key economies that may impact customer demand negatively.

Our exposure to mainland China is relatively low, with the routes to Shanghai and Beijing carrying some 250 000 passengers annually. The revenue loss from suspended flights during February and March is expected to amount to some MSEK 200. As long as the COVID-19 outbreak is contained in scope and the suspension of flights is isolated to the winter season, this should only have a marginal impact on our earnings. We are continuing to monitor developments and are maintaining close dialogue with the relevant authorities. The safety of passengers and employees is our highest priority and we need to see a positive development before recommencing flights to these regions.

The Swedish and Norwegian kronor remain weak against the US dollar and the Euro, thereby increasing our costs as well as price levels for customers that travel abroad. On the other hand, the recent decline in fuel prices represents a positive development.

After taking into account the supportive revenue development as well as the somewhat increased economic uncertainties, we can affirm our fiscal year outlook of an EBIT margin before items affecting comparability of 3–5%, given a marginal impact of COVID-19 that allows us to resume normal operations before the summer season.

I want to thank you for your interest in SAS and look forward to welcoming you on board one of our 800 daily flights.

Rickard Gustafson,

President and CEO

Stockholm, 26 February 2020

SAS aircraft photo gallery: