Q1 2023: Strengthened passenger demand and steady progress with our transformation plan
We are pleased that so many passengers are returning to SAS. Passenger demand continued the strong trend during the first quarter. SAS’ total number of passengers grew by 48 percent compared to the same period last year. Our flown load factor of 69.3 percent was at pre-pandemic levels of 69.5 percent for the first quarter in FY2020. At the same time, our currency-adjusted passenger yield increased almost 7 percent compared to the first quarter in 2022.
Due to our normal seasonality, the winter season is slower with relatively lower passenger numbers. Economic uncertainties with increasing interest rates and cost inflation are likely to affect the travel industry going forward but the overall underlying demand for travel remains healthy and continues its strong trend. We continue to prepare for a busy summer season in 2023 with an expected increased demand and capacity to match. During the quarter, we announced that we will open 20 new routes for the summer of 2023. This means that we will have a total of more than 5 000 weekly flights to over 100 destinations this summer. We look forward to welcoming our passengers on board.
SAS continues to make steady progress in our chapter 11 process in the U.S and in reaching our overall targets in the SAS FORWARD plan. During the quarter, we concluded our aircraft lessor negotiations having reached agreements with 15 lessors representing 59 aircraft. Through these agreements, we expect to achieve our targeted cost reductions related to annual aircraft lease and financing costs. We are engaging with different stakeholders as part of the next phase of the chapter 11 process, which includes launching an equity solicitation process to obtain the capital necessary to strengthen the balance sheet in line with the SAS FORWARD objectives and working to build consensus for a plan of reorganization.
We are grateful to the stakeholders who are working constructively with us. We look forward to continuing that collaboration to succeed with SAS FORWARD and to becoming a competitive and financially strong airline.
NOVEMBER 2022–JANUARY 2023
- Revenue: MSEK 7,896 (5,545)
- Income before tax (EBT): MSEK -2,449 (-2,597)
- Income before tax and items affecting comparability: MSEK -2,451 (-2,621)
- Net income for the period: MSEK -2,709 (-2,442)
- Earnings per common share: SEK -0.37 (-0.34)
SIGNIFICANT EVENTS DURING THE QUARTER
- On January 13, SAS concluded its lessor negotiations as part of the chapter 11 process. SAS reached agreements with a total of 15 lessors, representing 59 aircraft.
- SAS continues to work towards meeting certain conditions under the DIP term loan agreement to access the second tranche of the DIP financing as soon as possible during the second quarter of fiscal year 2023 (February–April 2023).
- SAS currently aims to complete its court-supervised process in the US during the second half of 2023, the implementation of which is likely to entail additional legal proceedings in other jurisdictions than the US. As a result, there is no assurance that there will be any recovery for the shareholders of SAS AB. SAS expects that its operations will be unaffected by such legal proceedings and that SAS will continue to serve its customers as normal.
- SAS reiterates its projections for FY2023 and is reviewing its longer-term projections for fiscal years 2024-2026. See more on page 9 in the report.
SAS noted strong passenger demand during the first quarter. The total number of passengers increased by 48 percent compared to the same period last year. Our RPK increased by 46.3 percent while capacity increased by 18 percent, compared to the same period last year. Our flown load factor of 69.3 percent was at pre-pandemic levels of 69.5 percent for Q1 FY2020.
Income before tax (EBT) ended at negative SEK 2.4 billion, representing a year-on-year improvement of SEK 0.1 billion. Jet-fuel prices continue to bring strong headwinds for our business.
Cost reductions across the business remain in focus to secure our cost competitiveness. Total operating expenses during the quarter ended at SEK 10.5 billion. Total operating revenue landed at SEK 7.9 billion for the quarter, a year-on-year improvement of approximately SEK 2.4 billion, but still 18.6 percent below the first quarter of FY2020, which was unaffected by Covid-19.
The cash balance at the end of the quarter was SEK 5.3 billion. Operational cash flow during the quarter amounted to an outflow of SEK 1.7 billion, compared with an outflow of SEK 0.1 billion for the same period last year.
UPDATE ON SAS’ TRANSFORMATION PLAN
We launched our comprehensive business transformation plan SAS FORWARD in conjunction with the publication of the first quarter report for FY 2022, in the end of February 2022. The aim of the plan is to secure long-term competitiveness for SAS in the global aviation industry. The plan aims to strengthen our financial position and achieve a sustainable cost structure with an annual cost reduction of approximately SEK 7.5 billion. As part of SAS FORWARD, we also plan to raise at least SEK 9.5 billion in new equity and convert SEK 20 billion of debt into equity. To accelerate the implementation of SAS FORWARD, SAS voluntarily filed for chapter 11 in the U.S. on July 5, 2022. Chapter 11 is a well-established and flexible legal framework for restructuring businesses with operations in multiple jurisdictions. Through this process, SAS aims to reach agreements with key stakeholders, restructure the Company’s debt obligations, reconfigure its aircraft fleet, and emerge with a significant capital injection.
During the first quarter, SAS continued to make steady progress in the chapter 11 process and in reaching our overall targets in the SAS FORWARD plan. During the quarter, we concluded the lessor negotiations as part of the chapter 11 process. In total, we reached agreements with 15 lessors, representing 59 aircraft. The amended lease agreements are subject to the plan of reorganization in the chapter 11 process being confirmed and becoming effective. Through the amended lease agreements, we expect to achieve the targeted annual cost savings of at least SEK 1.0 billion in reduced aircraft lease expenses and annual cash flow items relating to aircraft financing, as part of the SAS FORWARD plan.
During the quarter, we received approval from the U.S. court for the 5.5-year collective bargaining agreements with SAS Scandinavia Pilots’ unions, which were negotiated in July last year. We also reached a new collective bargaining agreement with the labor unions in Norway, with duration until March 31, 2024, a necessary step to ensure continued progress of the SAS FORWARD plan.
After the quarter ended, SAS reached a multiyear agreement renewal with Amadeus, one of our key travel technology providers. The agreement will deliver efficiency within Distribution & IT, in line with our targets in the SAS FORWARD plan, whilst keeping SAS at the forefront of technology evolutions.
NEW ROUTES AND DESTINATIONS
As part of SAS’ strategy to strengthen our offering for Scandinavian travelers, and to adapt to the relatively increased demand for leisure travel, SAS has announced several new routes during the quarter. In December, we announced that we are opening 20 new routes for the summer of 2023. This means that we will have a total of more than 5 000 weekly flights to over 100 destinations this summer. The new summer program includes more than 200 routes, and the number of flights will continue to rise on major domestic, Scandinavian and international routes. We look forward to a busy summer and to welcoming our passengers on board.
US destinations continue to generate demand for more and frequent departures and we announced two new intercontinental routes from Gothenburg and Aalborg to New York during the quarter. The flights will operate throughout the summer 2023 season and will return for the summer 2024 program. We also launched a new route from Copenhagen airport to John F. Kennedy International Airport in New York during the quarter, with five weekly flights from Copenhagen ramping up with daily flights for the summer schedule. Since December 2022, SAS also offers more frequent departures between Copenhagen Airport and Shanghai Pudong International Airport.
STAR ALLIANCE NAMED THE WORLD’S LEADING AIRLINE ALLIANCE – THIRD CONSECUTIVE YEAR
In November, Star Alliance was named the World’s Leading Airline Alliance at the World Travel Awards for the third consecutive year. The annual awards are awarded based on a worldwide poll of qualified executives working within travel and tourism, and the consumer travel buyer. SAS is very proud to be part of the Alliance, and winning the award for the third consecutive year is truly a proof of quality for SAS and for the entire Star Alliance network.
THE JOURNEY TOWARDS SUSTAINABLE AVIATION
SAS strives for global leadership in sustainable aviation and is proud to participate in an EU-funded research project at Copenhagen Airport to investigate sustainable aviation fuel (SAF) flights’ impact on local air quality, which started during the first quarter. The air quality from SAS flights with 35% SAF fuel within Scandinavia has been measured several times per day. We hope to see positive results on air quality and work environment, which will reinforce the positive climate effects of SAF use at higher altitudes as well.
Starting this spring, travelers buying Go Smart or Plus Pro, are able to purchase tickets with 50% of Sustainable Aviation Fuel (SAF such as biofuel) - to lower the C02 emission of their SAS trip. This is one initiative from SAS, being a driving force in sustainable aviation and working hard to cut emissions.
SAS will continue to invest in modern fuel-efficient aircraft, sustainable aviation fuels, emerging technologies, and sustainable products and services.
LOOKING AHEAD – FINANCIAL PROJECTIONS
Economic uncertainties with increasing interest rates and cost inflation are likely to affect the travel industry going forward, but the overall underlying demand for travel remains healthy and continues its strong trend.
We reiterate our financial projections for fiscal year 2023 and expect revenue to reach approximately SEK 40 billion, and income before tax (EBT), excluding gains or losses related to the completion of the chapter 11 process, to amount to a loss of approximately SEK 4-5 billion.
We are currently reviewing our longer-term projections for fiscal years 2024-2026. The preliminary assessment, based on a stronger recovery in demand than expected, is that our revenue for fiscal year 2026 will be higher than our projection in September 2022 of SEK 49 billion. We reiterate our projection that the company will reach positive EBT in fiscal year 2024, but EBT in fiscal year 2026 is expected to be higher than our previous assessment in September 2022 of SEK 3-4 billion. We will inform the market about updated projections for fiscal years 2024-2026 in due course.
We continue to prepare for a busy summer season in 2023. We are preparing for the launch of our 20 new routes during the summer season, including continuing the process of substantial recruitments and rehiring to meet the expected increase in future demand.
We are engaging with different stakeholders as part of the next phase of the chapter 11 process, which includes launching an equity solicitation process to obtain the capital necessary to implement our SAS FORWARD plan and working to build consensus for a plan of reorganization. The equity solicitation process is expected to be commenced during the second quarter. We continue to work towards meeting certain conditions under the DIP term loan agreement to access the second tranche of the DIP financing as soon as possible during the second quarter.
I am grateful for the really hard work my colleagues at SAS are doing to ensure that we take the best possible care of our customers, and to ensure that they get the quality service they expect from us. Thank you for all your efforts!
As always, we look forward to welcoming our customers on board our aircraft.
Anko van der Werff
President and CEO
Stockholm, February 24, 2023
Teleconference – Q1 2023
A teleconference and webcast for investors, analysts and media will be held at 10.00 AM CET. Anko van der Werff, President & CEO and Erno Hildén, Executive Vice President & CFO, will present and comment on the report. The presentation will be held in English.
Access via web link (no advance notification is necessary): https://edge.media-server.com/mmc/p/uebt7qy9
Link to register for participation via telephone: https://register.vevent.com/register/BI487d37ab7b0e491781269b5b86c4a5a4
For further information, please contact:
SAS press office, +46 8 797 29 44
Investor relations, +46 709 977 070
SAS, Scandinavia’s leading airline, with main hubs in Copenhagen, Oslo and Stockholm, is flying to destinations in Europe, USA and Asia. Spurred by a Scandinavian heritage and sustainable values, SAS aims to be the global leader in sustainable aviation. We will reduce total carbon emissions by 25 percent by 2025, by using more sustainable aviation fuel and our modern fleet with fuel-efficient aircraft. In addition to flight operations, SAS offers ground handling services, technical maintenance and air cargo services. SAS is a founder member of the Star Alliance™, and together with its partner airlines offers a wide network worldwide. Learn more at https://www.sasgroup.net
This is information that SAS AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of Erno Hildén, at 08:00 a.m. CET on February 24, 2023.