SAS Profit Misses Estimates; Sees Spanair Risk

SAS Group, the Nordic region’s largest airline, posted third-quarter profit that missed analysts’ expectations and said financial risks from its remaining ties to former unit Spanair have increased.

Net income was 214 million kronor ($32.6 million) compared with a 1.05 billion-krona loss a year earlier, Stockholm-based SAS said today in a statement. Profit was less than the average estimate of 326 million kronor in a Bloomberg survey of six analysts. Sales fell 1.5 percent to 10.6 billion kronor.

SAS, part-owned by Sweden, Norway and Denmark, hasn’t made an annual profit since 2007 as it confronts rising competition from discount carriers such as Norwegian Air Shuttle ASA. SAS, which sold Spanair in 2009, still owns 11 percent of the Barcelona-based airline and lent the unit 149 million euros ($205 million) due to be paid back in 2014. The cost to SAS in the event Spanair fails would be 1.8 billion kronor, SAS said.

“Times are tough in southern Europe, and Spanair has struggled for a long time,” said Hans-Erik Jacobsen, an analyst at First Securities ASA with a “reduce” recommendation on SAS shares. If Spanair collapses, “it would be negative for SAS but it’s something the market is aware of.”

SAS fell as much as 12 percent to 10.4 kronor, the biggest intraday drop since Feb. 9, 2010, and was down 9.3 percent at 12:07 p.m. in Stockholm. The stock has dropped 52 percent this year, valuing the carrier at 3.54 billion kronor.

‘Tightening’ Corporate Travel

Companies are “tightening their travel policies” and booking less-expensive seats for business travel, reducing revenue earned per kilometer flown, Chief Executive Officer Rickard Gustafson said in a phone interview. “The challenge is that the average ticket price is going down, which is pressing the yield down.”

Airlines across Europe are finding times tougher as the slowing economy affects bookings. Deutsche Lufthansa AG (LHA), Europe’s second-biggest airline, has cut a planned increase in winter capacity by two-thirds to 4 percent as slowing growth, declining consumer confidence and Europe’s sovereign-debt crisis hurts demand.

Air France-KLM (AF) Group, Europe’s largest carrier, reduced its earnings target in July, saying it aims to break even this year versus a year-earlier operating profit of 28 million euros. Lufthansa said on Sept. 20 that it expects operating profit to decline while remaining “at the upper end of the three-digit million-euro range.”

Spending Reductions

SAS earned a profit in the quarter after completing a 7.8 billion-krona cost-cutting plan in June. Gustafson, 47, joined SAS as chief executive officer on Feb. 1, and outlined plans in September to deepen cost cuts through 2015.

SAS reaffirmed a forecast today that it will report a pretax profit in 2011, with the earnings likely to be “marginally positive” as long as “nothing unexpected occurs.”

The company is maintaining a “strategic platform” presented in September that includes reducing spending by 3 percent to 5 percent by 2015, Gustafson said.

“We may cut costs closer to 5 percent if the economy continues to develop like this,” he said, declining to specify areas where spending will be reduced.

The CEO said in September that employees must accept pay packages that are lower than the rate of inflation to enable SAS to meet cost targets.

To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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