Despite government bailouts during the pandemic and a strong surge of demand in recent months, SAS recently collapsed, seeking bankruptcy protection in the USA and claiming its business model was broken. What really led SAS to fail?
Why Did SAS Fail?
SAS finds itself in a very bad situation for many reasons, some within its control and some outside its control. The point of this post is not to trivialize the many forces at work, but focus on a fundamental unforced error that arguably gets to the heart of why SAS has struggled while its competitors have fared much better.
Ask any longterm SAS employee how they really feel about their airline and they will tell you the company has abused the trust of its workers in large part by slashing service and outsourcing so many jobs to replace people who used to be employed directly by SAS. In its effort to cut costs, SAS set itself up for failure by sacrificing what made it unique and severely diminishing the value proposition (and thereby any potential revenue premium) by a pattern of short-sighted moves.
While it goes beyond hiring, hiring is a huge component. SAS seem to be erasing everything that set them apart. So many of its flights are operated by crews based in Spain and Ireland and Eastern Europe that it doesn’t even really feel Scandinavian anymore. For economy class passengers, the in-flight experience is not much different than any other low-cost carrier.
We’ve also seen a degradation of its “business class” product within Europe and a miserly SAS Bonus loyalty program that does not inspire trust.
Sounds familiar? Norwegian Air Shuttle was the catalyst for this change. When the ultra-low-cost carrier began offering deeply discounted and unsustainable fares with a flawed business model from Scandinavia to North America as well as within Europe, SAS tried to cut cost in order to compete and hold on to market share. In so doing, it chipped away at its brand and at customer experience. Unfortunately, even after Norwegian went under, SAS has not shown a clear vision to embrace anew the premium product that it was known and highly regarded for in the past.
The current pilot’s strike is not because pilots are demanding exorbitant six-digit salaries like their U.S. counterparts, but because they are trying to protect their future from outsourcing. During the pandemic, half of SAS pilots were furloughed. Rather than bring them back, SAS has begun hiring pilots through two subsidiaries, Connect and Link. Why? Under new contracts, it can offer dramatically lower pay to pilots.
The focus on cutting costs instead of differentiating its product, including its human capital, will not work. It has not worked. Right now, we observe a race to the bottom and that is not a contest that can be won when the fundamental cost structure for SAS is so high. SAS can only win by developing its products and enticing customers to choose to fly SAS instead of the competition.
To make matters worse, the governments of Norway and Sweden are not really on the side of SAS either. Sweden is trying to reduce the number of people traveling by air and Norway would rather support the reincarnated Norwegian instead of SAS. Thus, you have Denmark propping up a flag carrier for three countries and that does not represent a long-term solution.
All hope is not lost, though. SAS has a fleet of new aircraft (with more on the way) and staff that are willing to offer concessions for a fresh start in which local jobs are not sacrificed to the lowest European bidder. I’ve always enjoyed flying SAS and am willing to pay a premium to travel on it…but not if it the in-flight experience is no different than flying a budget carrier.
It is time for some introspection at SAS. The cost-cutting has not worked (as the grave of Norwegian longhaul operations attest). Maybe it is time to realize that its Scandinavian influence, including its employees and onboard offerings, are what make it unique and that no airline has ever succeeded in cutting its way to growth as a long-term strategy.
I root for SAS to emerge from this restructuring stronger than ever before, but the narrative that this is simply greedy employees who refused to see the writing on the wall is far too superficial an explanation. The problem is not simply that the war in Ukraine has closed Russian airspace and made flights to Asia unviable. SAS must understand that its only hope of success is to command a revenue premium and that starts with great employees and a great product.