SAS Predicts First Annual Profit Since 2007 on Cost-Cut Plan

SAS Group, the Nordic region’s largest airline, said it may post its first annual profit since 2007 this fiscal year as job cuts, new pay agreements and the disposal of assets lifts margins.

SAS rose as much as 7.1 percent after saying there’s a “possibility” it will achieve a positive pretax result and earnings before interest and tax equal to more than 3 percent of sales, assuming a stable fuel price and no external shocks.

Unit costs fell 7 percent in January thanks to the revamp, SAS said, and the outsourcing of ground handling to Swissport International Ltd., announced yesterday, will deliver further savings. The pretax loss for the 12 months to Jan. 31 narrowed to 1.39 billion kronor ($220 million) from 1.82 billion-krona a year earlier. Analysts had predicted a 1.42 billion-kronor loss.

“We have now provided ourselves with greater control of our fate,” Chief Executive Officer Rickard Gustafson said in a statement from Stockholm-based SAS. “Actions taken by our employees, which enabled us to enter into new and market-based agreements, were a crucial step toward making SAS profitable.”

SAS shares were trading 6.4 percent higher at 15 krona as of 10:46 a.m. in the Swedish capital, extending gains this year to 90 percent and valuing the company at 4.92 billion kronor. The stock has lost value during each of the past six years.

Disposal Hurdle

“They’re moving in the right direction, but there’s still a question mark on how to sell the assets they have,” said Finn Bjarke Petersen, an analyst with Nordea markets in Copenhagen with a “sell” rating on the stock.

The Scandinavian company is seeking to slash expenses as low-cost carriers including Norwegian Air Shuttle ASA on short-haul routes and network operators such as Air France-KLM Group and Deutsche Lufthansa AG reduce their own cost bases.

“We have anticipated that long-haul competition will increase with Norwegian entering into the market, and that is embedded into our plan,” Gustafson said on conference call. “We have a strong footprint in the corporate and business market.”

SAS’s 4Excellence savings plan, introduced in November, aims to deliver 3 billion kronor in savings over the next two years. The planned sale to Swissport of a 51 percent stake in the ground-handling division, which employs 5,000 people, is part of a plan to raise the same amount through divestments.

The savings drive includes job cuts and simplification of the tri-national company’s management. Centralization of traffic monitoring in Stockholm has reduced the staff requirement by 30 percent while retaining punctuality, and SAS has also signed an agreement to outsource call centers to a third party, it said.

Gustafson said the disposal of airport-related properties is also under way, while the process of selling Norwegian offshoot Wideroe “has begun and is proceeding as planned.”

SAS also struck a sale and leaseback agreement last month for surplus aircraft engines which will boost liquidity by 700 million kronor.

(Updates with comment from CEO in eighth paragraph.)
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