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by Maxwell Orme Johnson
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| The Airbus A340 is the longhaul
workhorse of the SAS fleet. |
| Courtesy SAS |
One of the best-kept secrets outside of Scandinavia
is Scandinavian Airlines System (SAS), the airline
service of the SAS Group. Not only is it a well-run
operation, but in this time of U.S. airlines coming
to Washington for huge loan bailouts after billions
of dollars in losses, SAS has managed to improve
its overall revenues and its bottom line, while
still offering high standards of service.
SAS sets an example that most other airlines can
only admire from afar. How it has managed this feat
is a cautionary tale, one that all airline CEOs,
not to mention the unions, should heed.
According to Jorgen Lindegaard, the Danish CEO
who was brought in on May 8, 2001 to turn the SAS
Group around, the demise of the airline industry
had very little to do with the severe downturn in
traffic in the post-Sept. 11 world. Lindegaard contends
that, in fact, the current crisis has been years
in the making -- that inflated government subsidies
and restrictive national and international regulations
preventing fair and open competition have enabled
many airlines to expand willy-nilly without really
understanding the long-term effects, and that few
airline executives have a clue how to make an airline
a profitable business.
Inflated fixed costs and overcapacity were causing
the entire industry to go into a dead man’s
spiral. One need only to look at the situation in
the U.S., with only Southwest Airlines and Jet Blue
showing consistent profitability, to see this. Add
to this the very high passenger-mile costs brought
on by rising wages, from the pilot down to the mechanic,
and the overcapacity on many routes, Sept. 11 simply
took a very bad situation and forced the airlines
to take a hard look at their future. What they saw
was a very grim picture. As Lindegaard put it, “The
airline industry, over the past 20 years, has simply
done everything wrong.”
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| CEO of SAS, Jorgen Lindegaard |
| Courtesy SAS |
Lindegaard, the first person to run SAS without
a background in the airline industry, had a sterling
record as a successful CEO in telecommunications.
He barely had time to learn the basics of SAS operations
and conclude that major changes would have to be
made when, a few short months after he took the
helm of SAS, Al-Qaeda terrorists struck. Reeling
from the effects of Sept. 11, he recognized that
even more severe changes would have to be made if
SAS was to survive.
On April 17, 2002, SAS announced that beginning
in Oct., it would implement a major realignment
of the traffic and production systems, with the
principal focus on a new air traffic route system
as a platform for long-term profitability. SAS ceased
serving several destinations, mostly in Scandinavia,
postponed expansion in routes between Scandinavia
and the West Coast of the U.S. and Asia, and instituted
what for the airline was a radical new concept:
the new traffic system should touch (and improve)
every sector of operations, from the ground up,
enabling it to adapt operations more closely to
demand and to the customer base.
In May, the board of directors announced a reorganization
of functions within the SAS Group. Lindegaard stated,
“We have been able to make greater use of the
Group’s economies of scale by reorganizing
our route structure and by becoming more efficient
at developing other related operations. This change
is another step on the path in the goal-oriented
change process, which will generate new business
opportunities for service units and result in a
more efficiently run operation.”
In June, SAS introduced Scandinavian Direct. The
concept simplifies and lowers the cost structure
by changing the airline’s onboard service to
only one travel class, with pricing pegged to advance
reservations and capacity, with “greater freedom
of choice, easier bookings and simpler, more convenient
in-flight service.”
They also announced a new (for SAS) concept of
Internet-based reservations and check-in, whereby
a traveler would receive a reduced price ticket
by purchasing it on the Internet, would be able
to check in on the Internet, and then simply go
to the gate with his receipt and hand luggage to
board the aircraft. Søren Jespersen, responsible
for SAS sales, predicted that this would lead to
increased pricing competition, which will ultimately
benefit travelers.
Lindegaard plans another major step forward, predicting
that in the near future SAS would announce a system
of deeply discounted weekend Web-based fares, much
like many U.S. airlines have in place. He forecasts
an increase in usage of Internet fares from zero
in 2001 to 25 percent by 2005, and he predicted
that they could create an “SAS Lite” catering
to the increasing leisure trade to places like Florida
(for Disney World) and the Far East, particularly
Thailand, either through a subsidiary or through
a merger or acquisition of an existing no-frills
airline.
One of the real SAS success stories has been the
Washington to Copenhagen and the New York-Newark
to Copenhagen routes, which are consistently booked
to capacity and very profitable. Equally important
to the transatlantic trade is the code-sharing agreement
between SAS and United Airlines.
Commenting on the competition from the low-cost,
no-frills airlines such as RyanAir, Lindegaard maintains
that, in addition to possibly starting up its own
SAS Lite, the keys to a viable and competitive cost
structure are cost containment and deregulation.
He contends that “whether or not low-price
airlines will survive in Europe is of course an
open question. What is not in question is that SAS
is in business for the long haul, serving a market
that expects and demands quality service and cost-efficient
air travel.”
Having succeeded in the wake of deregulation of
the telecommunications industry, he knows well that,
while it is a painful process, with the help of
the unions and the entire SAS family, SAS will continue
to be able to offer quality service at a competitive
price.
The story of SAS would be incomplete without mention
of the Radisson SAS hotel chain. SAS first went
into the hotel business with its ill-timed acquisition
of Intercontinental Hotels, which, for a number
of reasons, was a financial disaster that almost
caused the demise of the airline. However, the concept
of linking the airline to a chain of branded, upscale
hotels proved to be a viable one with the establishment
of the Radisson SAS hotel brand.
The SAS Group established the Radisson SAS hotel
brand in 1994 through an exclusive agreement with
the Carlsson Companies of Minneapolis, MN, which
gave SAS exclusive rights to branded hotels in Europe,
Africa, the Middle East and Asia. At present, there
are over a hundred Radisson SAS hotels throughout
the world, with plans to expand to 160 and to open
up a three-star brand, Park Inns and Country Inns,
to serve the cost-conscious business traveler and
the leisure market.
In late Sept. of this year, SAS announced a new
agreement with Carlsson, which gives SAS exclusive
rights to three of Carlsson’s brands –
Country Inns and Park Inns, both proven 3-star brands,
and Regent Hotels, a 5+ star brand. According to
Jorgen Lindegaard, this will enable SAS to meet
the needs of an even wider base of customer needs,
with the added benefit that 3-star hotels are normally
less sensitive to fluctuations in the business cycle.
Today there are 114 Radisson SAS hotels in 38 countries
throughout the world, with over 40 establishments
under development.
According to Jens Willumsen, senior vice president
of Marketing and Product Management, the story of
Radisson SAS hotels is one of the very bright spots
in the SAS Group, consistently recording increasing
year-to-year profitability, even after the Sept.
11 attacks.
Jorgen Lindegaard summed up his vision in this
way: “We live in a global, interconnected world,
heavily dependent on trade and tourism. On the other
hand, we are proud to be Scandinavian, and we will
offer top quality service to all our customers.”
For more information, please see: www.scandinavian.net
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