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SAS Stock Drops as Profit Misses Estimates, Spanair Risk Seen

SAS Group, the Nordic region’s largest airline, fell to the lowest price in more than 15 years in Stockholm trading after posting profit that missed estimates and outlining financial risks posed by former unit Spanair.

Third-quarter net income was 214 million kronor ($32.7 million) compared with a 1.05 billion-krona loss a year earlier, SAS said today. 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.

Spanair’s owners, including SAS, are in talks on the airline’s future, including its possible sale, SAS Chief Financial Officer Goeran Jansson said today in an interview in Copenhagen. SAS, which hasn’t reported a full-year profit since 2007, disposed of most of its stake in the Spanish division in 2009 as the Stockholm-based company shifted focus to the Nordic region in an unsuccessful effort to restore earnings.

“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 16 percent to 9.9 kronor at the close in Stockholm, the lowest price since at least July 2, 1996. The stock has dropped 56 percent this year, valuing the carrier at 3.26 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, 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 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.”

Spanair’s Sale

SAS sold 80.1 percent of Spanair in March 2009 to a group of investors led by Consorci de Turisme de Barcelona and Catalana d’Iniciatives. The Nordic company’s stake in Spanair was reduced to a little less than 11 percent after a “recent” capital injection by the main shareholders, SAS said today.

Following the disposal, Barcelona-based Spanair owes SAS 149 million euros ($205 million) due to be paid back in 2014, the Nordic company said. The cost to SAS in the event of Spanair’s collapse would be 1.8 billion kronor, with a “limited liquidity effect” of a maximum 300 million kronor, it said.

Spanair’s owners, including SAS, have been negotiating either a sale or a reorganization of the business “to resolve this loss-making situation,” CFO Jansson said today in an interview in Copenhagen.

Cost-Cutting Drive

SAS earned a profit in the quarter after completing a 7.8 billion-krona cost-cutting plan in June. The company’s main Scandinavian Airlines division reported a 16 percent decline in earnings before interest, taxes and one-time gains or costs, while Ebit excluding one-time items at the Wideroe division in Norway jumped 74 percent. The Ebit loss excluding one-time items widened at the Blue1 low-cost unit.

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.

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