FLYING INTO PROFIT

AIRLINES: Jørgen Lindegaard, a Dane and also chief executive of the SAS Group, the Scandinavian airline, has good reason to be satisfied. Despite the global crisis in aviation, SAS Group has come out with a positive result for the first time in his five-year period as head of the group.

“For a long time up to 2000, SAS had monopoly-like status on many markets”, says Jørgen Lindegaard as he explains why losses have now turned into profits. “SAS could maintain high ticket prices, and it was still sought-after to fly business class. When aviation was liberalised in the 1990s, SAS failed to see the danger and failed to act. Then a lot of things happened. It started in 2000, when the IT balloon burst. Earnings from our regular customers started dropping, and then came 11 September 2001, which strongly affected air traffic.

The budget airlines started growing during the same period. They could see that the old airlines were shaken, and they managed to take up the battle. They took over many routes in Europe, and many of the old companies had to close. On the domestic front, we also faced strong competition from Mærsk Air, which started a budget airline operating out of Copenhagen.” 

Change of mindset
“All these things made it difficult for SAS to bounce back”, continues Jørgen Lindegaard. “And at the same time a change of mindset occurred. Major companies had previously never thought it necessary to economise on travel budgets. They just travelled, and expenses were expenses. But suddenly it was fashionable to travel cheap. The focus was on airline travel costs because people suddenly felt that they had been exploited previously, and we had to negotiate with the majority of our major customers, who all aimed for appreciable discounts. Fortunately it has also changed again, and today you can almost talk about a normalisation of the relationship between our costs and ticket prices.”

Major changes
It is not the first time SAS has been in a crisis. The difference between then and now was that considerable amounts of money had to be saved to get the business to hang together again. The organisation has been changed towards a simpler, national division, companies have been sold off, there have been job cuts, and acquisitions have been carried out in Scandinavia, Spain, Estonia, Latvia and Lithuania. “In many ways we have actually used the policy of budget airlines to win back the market”, explains Jørgen Lindegaard. “We use and get ideas from them, in the sense that we have introduced a differentiated price policy, we have made sure that customers can now buy one way tickets from SAS, and individual seating has been introduced. In addition we offer discounts when tickets are purchased directly via our website, and we put great efforts into making this platform as simple and userfriendly as possible.

These changes have not happened without some clashes with the staff. Strikes have been held, and as recently as January this year, the Danish pilots went on 24-hour strike in protest against a plan to transfer them to the national SAS company. “Naturally there is a danger that we have tested the tolerance of the organisation because of the many changes”, says Jørgen Lindegaard. “I can live with the fact that in certain cases a bit of job satisfaction is missing behind the professional mask, but rather that than a fired staff member. I believe that SAS has a strong future role to play in the aviation industry, and I also think that the pride and satisfaction of being a part of SAS will increase as we generate profits and gain a stronger competitive position.”

Scandinavian design
SAS is often associated with Scandinavian design, with pure lines and superior colour composition. The question is whether the former high quality level in this area can be maintained in times of financial constraint. Jørgen Lindegaard is in no doubt: “In my opinion the design aspects, and here I am especially thinking of designer cutlery, glass and porcelain, have had something superficial about them. There has not been enough realism to acknowledge that it never can or will be the world’s best culinary experience to eat in an aircraft! On the other hand, we do not compromise on quality regarding use of colours and the layout of our cabins and lounges. Here we continue with the pure Nordic lines and the form of design, that Scandinavia is known for around the world.”

Despite the positive result, the group cannot expect that changes have come to an end. Savings and consolidation are still required so that SAS can maintain its competitiveness in the long term. In 2006 and 2007, a total of DKK 1.6 bn must be saved across the entire group, and Jørgen Lindegaard expects to get the three Nordic companies in particular generating a profit. The SAS Group consists of nine airlines and according to Jørgen Lindegaard, there are no plans for further initiatives in that area. “Our primary objective is consolidation and profit”, he says. “SAS is a member of Star Alliance, and there are no plans for actual mergers or acquisitions either from our side or from our partners.”