SAS to Cut More Jobs as Fuel Prompts Surprise 42% Profit Decline

SAS Group (SAS), the Nordic region’s largest airline, said it will deepen job cuts after higher fuel costs and sluggish European economies caused second-quarter profit to tumble 42 percent, missing analyst estimates.

Net income fell to 320 million kronor ($47.5 million) from 551 million kronor a year earlier, the Scandinavian Airlines parent said in a statement. Analysts had estimated profit would increase to 565 million kronor, based on four estimates.

SAS, which faces competition from Norwegian Air Shuttle ASA, is scrapping 300 office jobs and will cut more as it seeks a first annual profit since 2007, Chief Executive Officer Rickard Gustafson said in an interview. While the Stockholm- based company’s quarterly sales rose 0.6 percent to 11.4 billion kronor, the fuel bill jumped 39 percent 784 million kronor.

“Delivering productivity gains and cost savings will create redundancies that must be taken out,” Gustafson said at Arlanda airport, close to the company’s headquarters. “The industry is struggling with fuel prices and profitability, so it’s difficult to compensate for that with fare increases.”

Shares of SAS fell 9.2 percent, the biggest drop since May 3, before trading unchanged at 5.95 kronor as of 11:47 a.m. in Stockholm. They’re down 26 percent this year, valuing the company at 1.96 billion kronor. The seven-member Bloomberg EMEA Airlines Index, of which SAS isn’t a member, is up 8.6 percent.

Jet-fuel price fell slightly in the second quarter, only to increase again last month, and constitute “a major challenge” for the industry according to Gustafson. The company’s 35 unions have agreed to a salary freeze through 2013, he said.

“Passenger revenue isn’t increasing, while fuel costs are,” said Jacob Pedersen, an analyst at Sydbank A/S in Aabenraa, Denmark, with an “underweight” rating on SAS. “That’s a massive problem. The challenge is to continue to cut costs while getting revenues up.”

SAS, part-owned by the governments of Sweden, Denmark and Norway, aims to cut costs by as much as 5 percent and boost earnings by 5 billion kronor in 2012 and 2013.

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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