Scandinavian Airlines-SAS issued this report on its fiscal second quarter:

COMMENTS BY THE CEO

The pilot strike at the end of the second quarter added to the challenges already faced by SAS from a competitive market, increasing jet fuel price and a weakening Swedish krona. In addition, we see decreased demand for domestic travel especially in Sweden. These factors highlight the importance of continued strong focus on improving our efficiency, flexibility and sustainability efforts.

The strike between April 26 and May 2, 2019 resulted in some 4,000 canceled flights affecting more than 370,000 passengers. I apologize to all of our customers affected by the traffic disruptions during this extraordinary event. The total impact on income before tax of the strike is estimated at MSEK 650, of which MSEK 430 relate to the last five days of the second quarter.

Earnings before tax came in at MSEK -1,216, a decrease of MSEK 728 compared to same quarter last year. The result was negatively impacted by the strike, increasing fuel price and a continued weakening of the Swedish krona. Excluding these effects, the result would have been comparable to the same quarter last year, which was one of the strongest second quarter in SAS’ modern history.

Even though the result is far from satisfying, we are encouraged by certain underlying trends. The investments we have made in our customer offering are paying off with higher revenue per passenger and an increase in ancillary revenues. Furthermore, we are maintaining our market share in a market characterized by increased competition and lower demand on Swedish domestic routes. We also continue to rank high in terms of punctuality and have noted increased interest in our premium offerings (Plus and Business). Our efforts are also reflected in enhanced customer satisfaction ratings across all our production platforms.

However, the combination of soft economic indicators, increasing jet fuel price and the weak Swedish krona outweigh the positive underlying momentum. Therefore, we need to increase the pace of transformation to adapt our company to the current market conditions and secure future profitability.

NEW PILOT AGREEMENT PROVIDING STABILITY

The new three-year collective bargaining agreements with the pilot unions in Denmark, Norway and Sweden give us the stability and time to continue our transformation efforts. In total, the net pilot cost across Scandinavia increases with approximately 5.4% over the three-year period and includes productivity improvements that to some extent mitigate increased compensation and other costs.

Although I would have preferred to avoid the disruption in our operations, I am pleased to see that proper planning, digital investments and engaged employees made a huge difference during the strike. We mobilized and trained a team of nearly 400 administrative colleagues that answered queries and helped our customers with rebooking.

As a result of the effective communication with our customers, we avoided a situation in which a large number of passengers would have showed up and gotten stranded at the airport. However, in order to help the customers who did arrive at the airport, we mobilized nearly 1,100 of our staff equipped with over 300 tablets to help customers. Walking the floors in the terminals and leveraging our newly launched disruption module, we were able handle large numbers of rebookings efficiently.

TOWARDS MORE SUSTAINABLE AIR TRAVEL

We are continuing to push for more sustainable air travel. As proof that we are moving in the right direction, SAS was recently ranked the most sustainable brand within aviation in Sweden for the 9thconsecutive year, according to Sustainable Brand Index. According to the same survey, SAS was also rated the most sustainable aviation brand in Denmark.

Looking ahead we strive to stimulate large scale biofuel production and engage in the development of the next generation aircraft. Both activities aim to significantly reduce the carbon footprint caused by aviation.

During the quarter, SAS together with Swedavia and the research institute RISE launched a common path towards increased production of biofuels. Current global production is insufficient. Therefore, it is essential that large scale production of biofuels is established for SAS to reach its goal of using biofuel equivalent to the total consumption of all domestic SAS flights by 2030.

SAS and Airbus recently signed a memorandum of understanding on a joint research partnership for future aircraft – partially or fully electrically powered. The purpose with the partnership is to increase know-how in terms of operations, infrastructure and challenges linked to the introduction of hybrid and electric aircraft in commercial traffic. This advances our ambitious sustainability work even further, and I am proud that Airbus has chosen SAS as its partner for this important project aiming for zero emission aircraft.

Until technology has evolved and large-scale biofuel production is in place, we continue our efforts within the technology available today to reduce our carbon emissions. This includes continued investments in new aircraft that combine efficiency gains with sustainability gains, thereby reducing the fuel consumption and emissions by 15-18 percent.

In order to address the CO2 emissions that we still cannot eliminate, we have introduced carbon offsetting for all our EuroBonus members in February this year. As of the end of this quarter, we had compensated for over 3.4 million journeys with SAS, representing 44% of passenger-related CO2 emissions.

OUTLOOK

Since our Q1 report, several developments have negatively impacted our earnings. These include the pilot strike, as well as an increased jet fuel price and continued depreciation of the Swedish krona against the US dollar and the euro.

Accordingly, it will be challenging to reach a positive result before tax and items affecting comparability, as stated in our previous outlook. See page 5 for further detail.

Our liquidity remains strong, but in the light of the challenges we are facing we cannot afford to rest on our laurels. Instead, SAS will continue with its strong focus on strategy execution and transformation efforts to be prepared for the future.

Finally, I want to thank you for your interest in SAS and I look forward to welcome you onboard one of our daily 800 flights!

Stockholm May 28, 2019

Rickard Gustafson,
President and CEO

FEBRUARY 2019–APRIL 2019

• Revenue: MSEK 10,187 (9,916)
• Income before tax (EBT): MSEK -1,216 (-488)
• Income before tax and items affecting comparability: MSEK -1,211 (-309)
• Net income for the period: MSEK -933 (-349)
• Earnings per common share SEK -2.44 (-1.0)
• Income before tax negatively affected by strike MSEK -430
• In the light of the strike and the macro development, the outlook is revised as it will be challenging to reach a positive result before tax and items affecting comparability in fiscal year 2019

SIGNIFICANT EVENTS DURING THE QUARTER

• 2,700 flights cancelled and 270,000 passengers affected by the pilot strike
• Convertible bond repaid at nominal value of MSEK 1,574
• 44% of passenger-related CO2 emissions compensated during the quarter

NOVEMBER 2018–APRIL 2019

• Revenue: MSEK 19,721 (18,894)
• Income before tax (EBT): MSEK -1,792 (-773)
• Income before tax and items affecting comparability: MSEK -1,935 (-694)
• Net income for the period: MSEK -1,402 (-598)
• Earnings per common share: SEK -3.69 (-1.88)