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SAS PUSHES GERMAN MARKET

By Sebastian Steinke

"We have a strong presence there", says Magnus Engström, the new director of Scandinavian Airlines (SAS)'s operations in Germany, describing optimistically the present situation of his airline in an exclusive interview with FLUG REVUE. SAS, as a multi-national airline based in Denmark, Norway and Sweden, is trying to reconcile independence, co-operation and growth.

The company, which has been listed on the Stockholm stock exchange since August of last year, is 50% state-owned, but is to be progressively privatised in the future. Three-sevenths of the 50% still in state ownership is held by the Swedish government, and two-sevenths by each of Denmark and Norway. Although the airline's primary hub is in Copenhagen, Denmark, major maintenance work is in future to be concentrated in Oslo, Norway.

Even if SAS too has been affected by the present crisis in aviation, the Scandinavians are hoping that the worst is already behind them. Passenger traffic from Germany is playing an increasingly important role here. Thus in 2001 the airline actually achieved double-digit percentage growth on its longhaul services from Germany to Asia and the USA. Last year, according to the company, no less than 835,260 passenger coupons each for one individual leg of a flight - not be confused with passenger tickets - were sold in Germany. In November 2001 SAS's German market made a start towards recovering from the previous difficult months of crisis with a modest 3.5% growth in passenger volume.

For Scandinavian this growth is especially important as the economic downturn in its home markets of Denmark, Norway and Sweden following the terrorist attacks took it by surprise in the midst of a fleet renewal programme that was scheduled to continue to 2004. The new fleet will increase capacity, for example, on longhaul routes with the 261-seat A340 and A330, by an ambitious 40% compared with the now superseded 767-300ER, and this extra capacity now needs to be filled. In the future the Boeing 737NG and Airbus A321 will constitute the backbone of the new medium-range fleet, while regional routes will be flown by Bombardier Dash-8 Q400 turboprops. Magnus Engström is adamant that SAS will continue its fleet modernisation programme unchanged. On the other hand, all the old DC-9-41s had been sold off ahead of schedule by the end of last year, and altogether 17% of the fleet or 21 aircraft have been taken out of service.

Further expansion of the route network has temporarily been shelved. Before 11 September, the company had been considering introducing new services to San Francisco, Hong Kong, Singapore non-stop, Shanghai, Seoul and Osaka, but all plans here have been postponed until further notice. On top of this, SAS has cut services from Oslo to New York and from Copenhagen to Barcelona, Kaliningrad, Tel Aviv, Delhi and London-Stansted, and indeed the last four destinations have even lost their SAS stations so that restoration of operations will no longer be straightforward. In the German market, SAS has reduced the frequency of flights between Stockholm and Berlin, Düsseldorf and Hamburg and has farmed out its Cologne services, which it had previously run itself, to its partner Cimber Air.

3,600 jobs out of a workforce that stood at 31,000 in 2000 have had to go in cuts that have swept right across the airline. For those left in employment a one-year 6% pay cut has been agreed. When one considers that the tri-national airline has to contend with 40 different unions, this has obviously not been easy.

Again, as elsewhere in the industry at the moment, Business Class traffic is flat at SAS, even though the airline's classically comfortable airline ambience and frequently served trunk routes to the USA and Asia are aimed particularly at business travellers. Some of this increasingly cost-conscious clientele has migrated towards the rear of the SAS cabin. With this in mind, the "Economy Extra" class, an upgraded substitute has been developed for this much sought-after customer group: in the A340-300, for example, this new, separate section of the cabin offers 24 seats that are wider than the seats in Economy Class but are supplied from the classic Economy main section of the cabin immediately to the rear.

Magnus Engström explains that the desire for this "Eco Extra" class was originally voiced by customers from Scandinavian companies, as a lot of companies for cost reasons will no longer pay for their staff to travel Business Class but are insisting on Economy Class instead. Even so, these "full-fare paying" Economy passengers want a little more comfort and full ticket flexibility. Requirements which SAS has taken into account in its new Economy Extra class. Unlike United Airlines, which appears to be using its improved seat pitch "Economy Plus" simply as a "passive reward" for frequent flyers, SAS plans to actively market its new Eco-Extra class, according to Engström. While Business Class bookings were 15 to 20 % down last year, Economy Class (including Eco Extra) actually experienced 10 per cent growth. Back in 1979 SAS had been one of the first airlines world-wide to offer a Business Class after the traditional, but extremely expensive, First Class began to lose customers.

In Germany, SAS co-operates closely with its partner Lufthansa (LH) and indeed far beyond the level of other Star Alliance co-operations. For all routes between Germany, Scandinavia and separately run Finland, the partners have founded a joint venture which shares all costs, revenues and risks, looks after ground handling for both airlines and is intended to integrate all tasks 100%. This also includes reciprocal sales activities.

"We set great store by further co-operation with Lufthansa," declares the director of operations in Germany. The Star Alliance still has a major advantage over the competition, he believes. In particular, SAS has benefited from its good position in the Amadeus computer reservation system, which makes it easier for the airline to fill its additional capacity. Already in the winter months, organised flights have assumed an increasing role. Thus, for example, the airline has been able to sell group holidays from Germany to Peking. There are also plans to increase the proportion of internet bookings from Germany. Engström regrets that the "www.scandinavian.net" website, which is also available in a German language version, is still not widely used in Germany.

Seven separate German destinations are currently connected by SAS services to the airline's home airports of Copenhagen, Oslo, Stockholm and Göteborg. These are Berlin, Hamburg, Hanover, Düsseldorf, Frankfurt, Stuttgart and Munich. Flights are flown daily on over 90 connections, taking into account the services offered by SAS's partners. Here SAS has registered an increase in transit traffic from Germany to its numerous destinations in Poland, Russia and the Baltic. Many passengers are evidently drawn here by the Scandinavian hubs, which have the best records for punctuality of any European airports. Traditionally, the trunk routes to the USA and Asia are also popular with German passengers, not least because in flying to the Scandinavian transfer airport one is already geographically part of the way en route to the final destination. By contrast, many other hubs on the European continent require the passenger to actually travel in the opposite direction from the destination to catch the through-flight, thus lengthening overall journey time.

One of the success factors of his company according to Magnus Engström is the relatively large Scandinavian home market, which may extend "only" to 20 million people, but whose geography, with its distances, mountains and lakes and waterways, nevertheless generates a high volume of basic traffic. In addition, Scandinavian has financial interests and teaming agreements with a number of regional airlines all around Europe, intended to generate feeder traffic to its own hubs.

Engström is not worried about the low-cost airlines. "Up to now they have offered little in Scandinavia. No-frills airlines attract additional passenger groups. I do not see that in a very negative way, as the business traveller is hardly going to be affected by a total so far of two destinations in Scandinavia." However, if a market requirement should develop, SAS could always devise new price and service concepts for shorthaul flights within Scandinavia. Even though the airline is constantly considering new offerings, the low-cost market is currently still too small.

As far as Engström is concerned, his most important German airport continues to be Frankfurt. Before too long he would like to offer additional flights from Munich as well. But Berlin he sees as a particularly "rapidly growing market". Since Lufthansa stopped flying to Washington, the airline has enjoyed an increase in passenger numbers, especially from government quarters. Unfortunately, other east German cities are not currently an option for SAS as their markets are too small.

Engström still see SAS primarily as an airline which serves the intercontinental market. Within a year he believes the world-wide slump will be over and SAS will expand even more significantly, continuing as an independent airline. He cannot imagine "selling out" a privatised SAS to foreign shareholders. "We are much too important to the Scandinavian economy and governments for that."

From page 26 of FLUG REVUE 3/2002