SAS Scraps Business Class in Europe to Meet Low-Cost Threat

SAS Group (SAS), the largest Nordic airline, became the first major European network carrier to scrap its business class in favor of a model positioning it closer to discount operators such as Ryanair Holdings Plc. (RYA)

SAS will eliminate its business cabin, in which the middle seat of three was left empty to give more room and passengers were served a three-course meal, in favor of a uniform seating plan and a trolley-based food service. People will be able to pay extra for faster airport transit and an extra checked bag.

“We’ve torn everything up and started from scratch,” SAS spokeswoman Elisabeth Manzi said by telephone. “Business class was the right thing in the 1980s, when we helped pioneer it, but the modern traveler has different needs. The highest priority now is time and affordability, not luxury.”

SAS’s plan is the most radical yet as former flag-carriers including Air France (AF) and Iberia shrink European operations to cope with high fuel costs and competition from discount carriers including Ryanair and Norwegian Air Shuttle ASA. The company said it will retain a premium offering on long-haul flights, where more people are prepared to pay for extra comfort.

Unique

SAS fell as much as 1.8 percent and traded 0.4 percent lower at 14.05 kronor as of 12:23 p.m. in Stockholm, where the company is based. The stock has added 79 percent this year, giving a market value of 4.62 billion kronor ($706 million).

Photographer: Erik Abel/Bloomberg

SAS will eliminate its business cabin, in which the middle seat of three was left empty to give more room and passengers were served a three-course meal, in favor of a uniform seating plan and a trolley-based food service. Close

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Photographer: Erik Abel/Bloomberg

SAS will eliminate its business cabin, in which the middle seat of three was left empty to give more room and passengers were served a three-course meal, in favor of a uniform seating plan and a trolley-based food service.

The decision to eliminate business class on European flights came about following a study that focused on “customer needs rather than on industry standards,” SAS Chief Executive Officer Rickard Gustafson said in a statement.

SAS is unique in scrapping short-haul business class among peers including British Airways, Iberia, Air France, KLM, Swiss and Lufthansa, despite having led its introduction in 1981. Its EuroClass product offered more legroom, upgraded meals, lounge access and other perks aimed at luring corporate travelers, all at a full-fare economy price that replaced first class.

Passengers will now be faced with a choice of two service standards, called SAS Go and SAS Plus. The former includes a free seat reservation and checked bag -- unlike most discount carriers -- plus tea or coffee and mobile check-in, while the Plus option adds an extra bag, lounge access and more air miles.

Muffins

Those choosing the higher fare will also get free food and beverages from a trolley-based “Cafe” service, with items such as salads, muffins, chips and hot wraps rather than traditional meals. People who opt for the Go product can choose from the same food but must pay.

Manzi said that SAS Plus customers will also get to board first and will likely sit together at the front of the plane. The new brands won’t be introduced until June and fares haven’t yet been set, though they’ll be “very competitive,” she said.

“You have to change strategy when the market changes and people don’t choose an airline because they have business class anymore,” said First Securities analyst Hans-Erik Jacobsen in Oslo, who has a “reduce” rating on SAS. “Those days are over.”

SAS currently offers three classes on short-haul flights, with business berths having extra room because of the vacant seat, together with a full meal service.

A curtain is also drawn during the flight to make the cabin separate. Economy extra has no extra space but includes a meal, differentiating it from the “buy on board” food option in coach.

SAS said March 8 it might post a first annual profit since 2007 this fiscal year as job cuts, pay agreements and disposals lift margins. The 4Excellence plan aims to deliver 3 billion kronor in savings over two years, with the company seeking a similar amount from asset sales.

To contact the reporter on this story: Chris Jasper in London at cjasper@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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