SAS Tumbles as Scandinavian Airlines Profit Push Falls Short

  • Estimate for 2016 efficiency gains cut to 700 million kronor
  • Price sensitivity poses ‘challenge’ for industry profit: CEO

SAS AB, the owner of Scandinavian Airlines, fell the most in more than three and a half years after the carrier said a push to improve profitability will fall short of expectations.

The profit contribution from efficiency-enhancement measures will amount to about 700 million kronor ($85.4 million) in the fiscal year ending Oct. 31, down from an earlier estimate to 1 billion kronor, SAS said in a statement on Friday. The carrier reiterated it will post a profit before tax and nonrecurring items in the fiscal year, while its loss on that basis widened by 82 percent in the quarter through April.

“We close the book on a quarter that was unsatisfactory” due to price pressure, maintenance costs and currency headwinds, Chief Executive Officer Rickard Gustafson said in the statement. “The market trend toward main growth in the leisure travel segment and an increasing price sensitivity with customers poses challenges for profitability in the industry.”

European carriers are adding capacity as a decline in the oil price slashes fuel expenses, helping the industry earn record profits and justify less profitable routes. The glut in turn is depressing ticket prices, with demand hampered by terror attacks from Brussels to Turkey. The security concerns have weighed on travel within Europe and reduced demand for trips to the region from nations such as Japan and the U.S.

The shares fell as much as 13.5 percent, the steepest intraday drop since November 2012, and were down 11.7 percent to 19.70 kronor at 10:12 a.m. in Stockholm. The stock has tumbled 20 percent this year, valuing the company at 6.5 billion kronor.

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