Bloomberg News

SAS Reports Wider-Than-Estimated Loss on Spanair Writedown

February 09, 2012

(Updates with CEO’s comments in seventh paragraph.)

Feb. 8 (Bloomberg) -- SAS Group, the Nordic region’s largest airline, posted a wider-than-expected fourth-quarter net loss as the collapse of its former Spanair brand last month led to a writedown on assets from their remaining ties.

The loss was 2.08 billion kronor ($312 million) compared with a 47 million-krona profit a year earlier, Stockholm-based SAS said today in a statement. The loss was wider than the 1.29 billion-krona average of four analyst estimates compiled by Bloomberg. Sales fell 4.6 percent to 10.2 billion kronor.

SAS, which hasn’t made an annual profit since 2007, and mainline competitors such as Air France-KLM Group and Deutsche Lufthansa AG are struggling to sustain earnings as discount carriers including Norwegian Air Shuttle ASA expand. SAS said today that 2012 will pose “greater challenges” as the company reorganizes amid a “weakening” economy and oil-price growth.

“They’re warning of a difficult year as they’re suffering from higher fuel costs and pressure on prices,” said Finn Bjarke Petersen, a Nordea Markets analyst in Copenhagen who recommends selling SAS’s stock and is predicting a “small negative result for the year.”

SAS said Jan. 18 that it will eliminate 300 administrative jobs in a program begun in September to reduce costs by as much as 5 percent. SAS, which owns the Scandinavian Airlines brand, has a strategy to enhance the bottom line by 5 billion kronor in 2012 and 2013 through spending reductions and measures to boost revenue, the carrier said today.

Profit Forecast Missed

The full-year net loss narrowed to 1.69 billion kronor from 2.22 billion kronor. The pretax loss was 1.63 billion kronor versus a loss in 2010 of 3.07 billion kronor. Revenue rose 0.8 percent to 41.4 billion kronor. Before Spanair folded, SAS had forecast that it would be profitable on a pretax level.

“It’s of course worrisome there’s no annual profit since 2007, and it’s extremely irritating we didn’t post a marginally positive result on the bottom line” for 2011, Chief Executive Officer Rickard Gustafson said today in an interview in Stockholm. “What’s pressuring us in the short term are the high fuel prices and the massive competitive pressure. We must continue to cut costs, and therefore we’re accelerating the pace of the key cost savings.”

Air France-KLM, Europe’s biggest airline, said on Jan. 25 that it will post a loss of “several hundred million euros” for 2011 after fuel costs increased. The Paris-based company, which has been hampered by a four-day strike this week in a dispute over a proposed strike-notification law, is freezing pay and hiring as part of a 1 billion-euro savings program.

Lufthansa’s Plan

Lufthansa, the region’s second-largest carrier and a partner with SAS in the Star Alliance marketing group, said yesterday that a program to integrate administration for its brands is intended to add 1.5 billion euros ($2 billion) to earnings by 2014. The Cologne, Germany-based company also owns Austrian Airlines, Swiss, Brussels Airlines and Germanwings.

SAS’s spending reductions through next year include 1 billion kronor in labor costs, and unions have “shown responsibility” in agreeing on the cutbacks, Gustafson said at a press conference in Stockholm. At the same time, the company can’t rule out further job cuts, the CEO said in the interview.

The reorganization at SAS, which is jointly controlled by the governments of Sweden, Norway and Denmark, contrasts with a growth strategy at Fornebu-based Norwegian Air Shuttle, which ordered 222 narrow-body airliners from Airbus SAS and Boeing Co. in January valued at a combined $21.5 billion.

Norwegian Air’s Traffic

Norwegian Air Shuttle, whose only destination beyond Europe and the southern and eastern Mediterranean coast is Dubai, said today that traffic rose 17 percent from a year earlier in January. That compares with a 0.4 percent increase in SAS’s traffic, measured as the number of passengers multiplied by the distance flown, which includes Scandinavian Airlines’ intercontinental routes.

“Because we’re flying so much short-haul, where we’re in direct competition with low-cost carriers such as Norwegian, we probably have to take tougher actions than some others,” Gustafson said. “So we have more to do than many others, but we are doing that. We’re on the ball.”

SAS fell as much as 2.8 percent to 8.55 kronor and was trading down 0.6 percent at 12:35 p.m. in Stockholm. The stock has gained 9.4 percent this year.

Malev’s Collapse

The writedown on SAS’s remaining 11 percent stake in Spanair and extra operating costs stemming from the Barcelona- based carrier’s collapse totaled 1.7 billion kronor in the fourth quarter. Spanair, which SAS sold in 2009, filed for bankruptcy and halted flights Jan. 27. The airline’s failure was followed a week later by the collapse of Hungary’s six-decade- old state airline Malev Zrt.

Fourth-quarter earnings before interest, taxes and one-time gains or costs at Scandinavian Airlines dropped 79 percent while jumping 64 percent at SAS’s Wideroe brand. The Blue1 division’s Ebit loss excluding one-time items almost tripled.

Blue1 will probably start to “show profit” in 2013, and the brand has “come far” with its reorganization, Gustafson said today.

--Editors: Tom Lavell, Marthe Fourcade

To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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