SAS Lifts Profit, Seeks $900 Million in Cuts, Disposals
SAS Group (SAS), the No. 1 Nordic airline, said third-quarter profit doubled and that it’s completing plans to sell 3 billion kronor ($450 million) of assets and cut the same amount from costs. The stock rose the most in 14 months.
Pretax profit totaled 568 million kronor as passenger revenue increased 9 percent and unit costs were reduced by 6 percent, Stockholm-based SAS said today in a statement. That compares with earnings of 276 million kronor a year earlier.
SAS, which hasn’t posted an annual profit since 2007, is seeking to deepen a savings program that already aims to shave 5 percent from costs and boost earnings by 5 billion kronor in 2012 and 2013. Chief Executive Officer Rickard Gustafson said Aug. 8 that more jobs may go beyond 300 already being cut, while asset disposals could include a check-in and baggage-handling unit, a person familiar with the situation said yesterday.
“This is absolutely crucial for SAS’s survival,” said Louis Landeman, a senior credit analyst at Danske Bank Markets in Stockholm. “The company has higher costs than many of its competitors and they simply must boost savings.”
SAS, struggling with high fuel costs and competition from carriers including Norwegian Air Shuttle ASA, rose as much as 22 percent to 7.15 kronor, the biggest intraday gain since Aug. 17 last year, and was trading up 14 percent at 1:52 p.m. local time. That pares the stock’s decline this year to 16 percent.
“SAS has for some time signaled the need for significant further efficiency improvements in order to secure its long-term competitiveness,” the carrier said, adding that the coming plan will “fundamentally address” long-term spending and business flexibility and seek a union deal to pare the size of an equity write-down in 2013 stemming from pension accounting changes.
The board of the Scandinavian Airlines-parent will decide on the cost cuts in the “near future,” the statement said.
SAS, part-owned by the Swedish, Norwegian and Danish governments, said it’s in talks with banks to extend 4.7 billion kronor of credit lines expiring in June and that the new savings plan “is an essential part of the negotiations.” While the dialog has been constructive, lenders are concerned about the history of losses, the person familiar with the situation said.
Other European airlines are also cutting costs. Regional No. 1 Air France-KLM (AF) Group is eliminating jobs, merging units and boosting no-frills flights to head off a fourth straight annual loss. The plan helped pare its second-quarter operating loss by more than 50 percent to 66 million euros ($86 million).
Deutsche Lufthansa AG (LHA), the European No. 2, is seeking to save 1.5 billion euros through 2014 via its Score reorganization program, which entails the elimination of 3,500 administration posts and as many as 1,000 catering jobs.
Both companies are due to publish third-quarter earnings figures tomorrow. SAS is scheduled to release more detailed earnings data on Nov. 8.
To contact the reporter on this story: Ola Kinnander in Stockholm at email@example.com