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.
CONCLUSION
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.
images: SAS
Their routes are also all over the place. It’s absurd that a European flag carrier cannot sustain a daily flight to Madrid, and, instead of competing with KLM for a slice of the action in the UK regions where a huge number of flyers have limited nonstop connectivity even within Europe, they keep chopping and changing their flights (they even had a route to Humberside at some point, didn’t last long obviously) and offer no lounge access to premium pax.
SAS unfortunately just does not have enough connectivity within Europe to support their long-haul service. To every other large hub in Europe they are dominated by their competition, offering just 1 or 2 flights a day to major cities like Zurich, Munich, and Paris. Take FRA for example: 2 SAS flights from CPH and 5 from Lufthansa. Or MUC: 1 on SAS and 5 from Lufthansa. CDG: 2-3 on SAS and 6 on Air France. There is clearly demand for travel in these markets and SAS is not competitive, further eroding their overall system viability.
I had done work with LEGO in Billund around 2005 when they were facing a massive restructuring with production shifting to China. It was painful for this company, which is a source of national pride and that was (and still is) tied directly to many lives in that area of Jutland. It’s very difficult, for the Danes at least, to be forced with a choice that means not taking care of its own.
The good news is that LEGO has since thrived and, while they had a difficult few years changing much of their culture and operations, they are now very much alive and still an important part of the economy of that region. In many ways they became a better company for the community than they once were.
Let’s hope that SAS can find a similar solution as LEGO did and be able to thrive in the future. But I imagine it will take a few years of many painful decisions.
You “lost” some words in there.
Yep, all hope is lost with Matthew…
I nearly lost it there trying to figure out what you two were referring to.
Don’t rush me, I’m making misteaks as fast as I can!
hahahahaha
“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.”
I know this is a very different situation, but it does seem similar to what happened to Gulf Air decades ago.
I totally agree and for many years SAS was my choice on relevant routes in Europe and going further east, service was great and their business class way above average on both long and short haul.
Now I fly with them only when I don’t really have a choice and that’s not to too many places these days. From LHR to OSL or ARN to connect much further north is about the only time I look at SAS these days and it is because the service is non-existant but the fares are still relatively very high. They have cut everything to the bone but expect you to pay a premium for it.
SAS Plus, the ‘premium economy’ offering on short haul is a joke. There is a small food offering with no choice other than take it or leave it. For three months this year the only thing on offer was a cold pork dish, really! I would say 80% of people either didn’t take it or sent it back untouched on the eight services I was on so why pay for premium, particularly if you are already a *G, no reason to at all because there will rarely be a free middle seat at the front.
I just wish they would start to add things, there’s nothing left to take away on any of their services. They have cut long haul eastbound to two or three routes from quite a wide offering, it’s now useless but interestingly, Finnair have moved into ARN and are making those routes work without many connections – BA to LHR is about the only one.
SAS need to improve or just die, my money is on the latter.
On a somewhat related note, hopefully the SAS museum still will be operational when we visit OSL next month . . . If reorganization doesn’t pan out, the museum may be all that’s left of SAS.
As SAS goes broke, it appears that Finnair is punching above its weight and pops up as a viable alternative. What are the fundamental differences between the two neighboring airlines?
Finnair has a clear strategy of connecting pax through ONE hub (and not 3 hubs) to/from Europe-Asia
SAS is trying to be everything to everyone in 3 different national markets
Finnair is part og the metal neutral trans Atlantic OneWorld joint venture, while SAS has been left
Out of the StarAlliance equivalent
You are correct that the lack of a joint venture transatlantic partnership with UA/AC/LH/LX/OS has been quite detrimental to SK.
Since when is a $100,000 salary “exorbitant” for someone who holds hundreds of people’s lives in his or her hands every day? Commercial airline pilots make an average of $115,000 per year. https://www.shmoop.com/careers/commercial-airline-pilot/salary.html
I didn’t call SAS salaries exorbitant – I made precisely the opposite point.
The real question is: what is SAS’ business model actually? Are they trying to compete with RyanAir and EasyJet for holiday-makers? Are they trying to compete with Lufthansa and Air France to create an international hub in Scandinavia? Those are very different models, and with only 20 million or so population across Norway, Denmark, and Sweden there is not much organic demand.
Exactly. That’s SAS’s problem. It’s stuck in no man’s land between the LCCs and the full service carriers, unable to do either very well.
I think that a business model similar to KLM’s might suit SAS- not aiming to be particularly premium (no first class, rather mediocre soft product in both business and economy), but emphasising reliability and easy/convenient connections. There is definitely a market for that sort of thing; LOT even used to offer 3-class short-haul flights (with Premium Economy). CPH isn’t too far North or too far East to require serious backtracking from/to major European destinations (Germany, UK, PAR/BRU/AMS/LUX). But SK really have gone too far in their cost-cutting and are only an attractive proposition if you have to get to the smaller Scandinavian cities/towns; service on most other routes is too infrequent and/or too expensive for what it is.
To be fair, this seems to be primarily what SAS has been aiming for the last decade or so. I recall countless (good) ad campaigns focusing on frequency, reliability and network. The issue is that I’m not sure such a model is sustainable in Scandinavia. There are fewer and fewer business travelers now that many trips for meetings are replaced by Teams/Zoom (a trend that started way before Covid, but was greatly accelerated), while at the same time the leisure market is back and seems stronger than ever.
And to make matters worse, LCC competition have continued to chip away at SAS’ market share by going after its ‘worst’ customers (the ones that only care about price) – now to the point that SAS can’t fill up its planes anymore without slashing prices. A very successful strategy for the LCCs, but detrimental to SAS because what should they do? Keep focusing on the declining business market but loose market share, or go after the leisure market and erode their product because their cost base looks nothing like that of an LCC.
One also can’t deny that the internal issues with its workers have played a large factor in SAS’ downfall, I’ve counted six pilot strikes in 12 years, which is clearly not a sustainable situation regardless of whether the strikes have been justified or not.
I have always been loyal to SAS and preferred them for all my travels, but I fear that my lifetime gold will have a greatly reduced lifetime given the current situation..
The key to the KLM business model is connecting traffic between foreign markets. SK may have been active in marketing themselves within Scandinavia, but I don’t think they have not been serious about grabbing market share from/to places like Berlin, Manchester and Prague which have a lot of pax who need to choose between connecting somewhere or making do with an infrequent/poorly timed low-cost option.
They did away any semblance of short haul business class, losing revenue from those who are connecting to/from intercontinental services, they eliminated fast track and lounge access from most outstations, becoming less attractive to those who frequently fly within Europe (as a member of that group, I believe that the ground experience counts more than what happens on the actual flight), and keep changing routes and frequencies with obvious consequences in terms of how their reliability is perceived.
KLM has to deal with a lot of similar pressures, plus serious competition from the railways for their shortest flights, but hasn’t made any of those mistakes.
If you’re a business traveler based in Scandinavia, I don’t know why you wouldn’t make M&M your primary program. They have nonstops to a lot of places you may be going (FRA/MUC/ZRH/DUS/GVA/VIE/WAW/ZAG/BER/LUX), and they offer convenient connections to anywhere you need to go. They also have a proper European business class, and a marginally better rewards program. If you ever felt like just taking the SK nonstop, you’d have *G so you wouldn’t really be missing out on that much once you get to the airport. I don’t know how anybody could be loyal to the current iteration of SK.
Or you could choose one of the FFPs from the Southern European *A members and still do most of your European flying with the LH Group. It’s not like SENs enjoy lots of additional benefits when flying their ‘home’ airlines.