In 2014, SAS intensified efforts to reduce costs and increase flexibility with the aim of creating an even more efficient production platform. The earlier restructuring program was followed by additional measures. Altogether, the new measures are expected to generate an earnings impact of SEK 2.1 billion with full effect in 2017.
Restructuring program completed – earnings impact SEK 3 billion
At the end of 2012, SAS launched a restructuring program to achieve substantial cost savings and increased flexibility by rectifying fundamental structural efficiency barriers. The aim of the program was to implement cost-efficiency enhancements of about SEK 3 billion during the 2013–2015 period. At October 31, 2014, most measures had been implemented and clear results were visible in the form of lowered unit costs, a more flexible cost base and increased productivity. In 2014/2015, the remaining earnings impact of about SEK 0.3 billion will be realized.
Unit cost lowered 10%
SAS endeavors continuously to lower unit cost and, at the end of the 2013/2014 fiscal year, SAS’s unit cost had decreased 10% since the launch of the restructuring program. Lowering the unit cost has strengthened SAS’s competitiveness, enabled investments in new routes and increased capacity, primarily for leisure-related destinations.
Outsourcing ground handling services
To ensure increased cost-base flexibility and provide enhanced conditions for Ground Handling’s operations to grow, SAS has initiated the outsourcing process of ground handling services. As a first stage, 10% of the shares in Ground Handling were sold to Swissport in October 2013. The parties have agreed to pause negotiations until Swissport has concluded the acquisition and integration of Servisair. As planned, negotiations were restarted in November 2014. In the meantime, intensive efforts have been ongoing with improving the efficiency of and automating operations as well as creating preconditions for additional cost measures.
The new collective agreements that were signed in November 2012 enabled sweeping enhancements in planning and scheduling efficiency. The new employment terms were implemented in spring 2013 and resulted in a significant productivity increase for flight crew with a consequent increase in the productivity of SAS’s flight operations.
From October 2012 to October 2014, the productivity of SAS’s pilots and cabin crew has increased by 4% and 13%, respectively. The new agreements also opened the door to using wet leases. This model, whereby SAS’s own production is supplemented with wet-leased production creates the preconditions for more flexible access to cost-efficient aircraft suitable for smaller traffic flows.
Since October 2012, SAS has increased productivity per aircraft by about 45 minutes/day, corresponding to a productivity increase of 9.1%. The productivity increase corresponds to a capacity increase of 12 aircraft. The improvement was made possible by optimization of the network and the traffic program, including SAS’s investment in new leisure- related destinations.
To further increase aircraft utilization, SAS will optimize maintenance planning and efficiency on the ground.
Enhancing the efficiency of the administration and sales organizations
During 2013/2014, the majority of administrative and commercial functions were centralized and moved to Stockholm. Altogether, the number of employees in these functions has been reduced by slightly more than 1,000 FTEs since the launch of the restructuring program in November 2012. Certain functions, such as revenue accounting, have been outsourced, which has resulted in both cost reductions and increased flexibility. The SAS sales organization has been restructured and centralized. A new remuneration model has been developed with a higher degree of performance-based remuneration for sales personnel. A new commercial concept has been implemented with simplified logistics. The call center for customer support and direct sales has been outsourced.
Continued production optimization with Lean
SAS continues to work with production optimization by driving Lean in its work processes. At the core of the program is the optimization of utilization of the aircraft fleet and flight crew through continuous efficiency enhancement of the network and phasing out traffic. During the fiscal year, a cross-functional Lean project, called Plan to Execution, has resulted in significant quality and efficiency enhancements through a solid grip on the entire chain from network planning to phasing out traffic. This has played a major part in SAS continuing to be one of the world’s most punctual and safest airlines. In 2014/2015, the Lean initiative will be expanded with focus on commercial processes and product development.
Wet lease complements own production
SAS has supplemented its own aircraft with wet leases to create additional flexibility. This possibility has been utilized, for example, to open the new Stavanger–Houston connection, and also for domestic and intra-Scandinavian routes, such as Copenhagen–Linköping and Stockholm –Visby. This production model creates possibilities for combining efficient resource utilization and cost reductions with attractive schedules and route networks. Wet leasing is utilized, primarily, for frequencies and flows that require smaller aircraft.
Additional cost measures 2015–2017
For the majority of 2013/2014, the increase in market capacity outpaced passenger growth, which led to additional price pressure and, accordingly, to the requirement to continue raising productivity and lowering unit costs. SAS expects the trend with lower prices for air travel to continue in the long term. Therefore, SAS is entering a new phase of cost measures totaling a further SEK 2.1 billion with full earnings impact in 2017. The measures will be applied across the entire organization.