The airline industry is a growth industry in the sense that traffic normally exceeds the general economic growth. However, the growth has sometimes been disrupted, usually by external events such as wars, epidemics and oil crises.
Normally, the airline industry grows somewhat faster than the gross domestic product (GDP). Traffic has traditionally increased by approximately 5% per year. Based on the rate of the last 30 years, traffic growth is deemed to have a multiplier of approximately 2.5 time GDP.
The airline industry is an international business that is affected by global external events. SAS identifies risks on an ongoing basis and formulates plans to handle them. Below are some parameters that affect the airline industry and SAS:
- Capacity plans. A crucial factor for the aviation industry’s profitability is capacity development and traffic performance. New aircraft deliveries and traffic forecasts can be studied by the two largest aircraft manufacturers, Airbus and Boeing.
- Epidemics or global diseases could affect demand very fast. During the SARS epidemic in 2003, SAS’ earning was significantly affected due to less demand and cancelled flights. SAS is regularly in contact with relevant authorities such as WHO etc as well as the Aviation Authorities in case there is a major outbreak. SAS has contingency plans in order to minimize impact from sudden decreases in demand.
- Jet fuel. SAS is exposed to changes regarding the world market price for jet fuel. To avoid fast price increases SAS manages price hedging of jet fuel. The policy is to hedge on an ongoing basis 40-80% of the anticipated consumption in the coming 12 month period. The policy also allows hedging up to 50% of the anticipated volumes for the period, 12 to 18 months.
- Currency. SAS is exposed to the fluctuations of several currencies. Currency exposure is managed through continuously hedging 40-80% of SAS’s surplus and deficit currencies based on a 12-month rolling liquidity forecast. See currency exposure for further information.
Further information about risks and trends can be found in SAS’s annual report.