INCREASED DEMAND AND PROGRESS WITH SAS FORWARD BUT QUARTER IS NEGATIVELY IMPACTED BY OPERATIONAL RAMP-UP CHALLENGES AND PILOT STRIKE
President and CEO Anko van der Werff said:
SAS results were severely affected by a 15-day pilot strike between July 4 and July 19, causing traffic disruption and leading to some 4,000 cancelled flights affecting more than 380,000 passengers. I sincerely apologise to our customers and partners who were affected by the traffic disruptions.
The overall underlying demand for travel was healthy during the summer quarter and SAS noted an increasing number of passengers eager to travel as restrictions were lifted across the globe. However, the quarter was impacted by major events that influenced the overall result. First and foremost, the 15-day pilot strike in July had a severe effect on the overall result. In addition, we experienced major operational disruptions during the quarter which affected the whole airline industry. Lastly, on July 5, SAS voluntarily filed for chapter 11, a legal process for financial restructuring in the U.S. The chapter 11 process aims to accelerate the implementation of our transformation plan SAS FORWARD, and ultimately to enable us to become a financially strong, profitable and competitive company for years to come.
After the close of the quarter, SAS secured a debtor-in-possession (DIP) financing commitment for USD 700 million from Apollo Global Management. This substantial financing commitment is an important milestone in our transformation and it gives us a strong financial position to support our operations throughout the chapter 11 process.
MAY 2022–JULY 2022
- Revenue: MSEK 8,580 (3,982)
- Income before tax (EBT): MSEK -1,991 (-1,334)
- Income before tax and items affecting comparability: MSEK -2,081 (-1,213)
- Net income for the period: MSEK -1,848 (-1,336)
- Earnings per common share SEK -0.25 (-0.18)
SIGNIFICANT EVENTS DURING THE QUARTER
- The aftermath of the COVID-19 pandemic has led to most of the airline industry experiencing difficulty in rebuilding operations. This has led to SAS reducing its summer program by 4,000 of a total of 75,000 flights
- SAS Scandinavia’s pilot unions went on strike from July 4 to 19, resulting in the cancellation of some 4,000 flights and affecting more than 380,000 passengers
- On July 5, a voluntary chapter 11 process was initiated in the US to accelerate the transformation process in the SAS FORWARD plan is expected to lead to a financially stable and profitable airline
SIGNIFICANT EVENTS AFTER THE QUARTER
- In the beginning of August, SAS entered into a debtor-in-possession (“DIP”) financing credit agreement for USD 700 million with funds managed by Apollo Global Management. The agreement is subject to approval by the U.S. Court in mid-September
NOVEMBER 2021–JULY 2022
- Revenue: MSEK 21,173 (8,196)
- Income before tax (EBT): MSEK -6,145 (-5,580)
- Income before tax and items affecting comparability: MSEK -6,315 (-5,471)
- Net income for the period: MSEK -5,810 (-5,779)
- Earnings per common share SEK -0.80 (-0.81)
Looking back at the third quarter, we continued to see increased demand as travel restrictions were eased and this is yet another quarter where we have noted the highest number of passengers since the pandemic started. Compared with the previous quarter passengers flying with SAS increased 30% and the flown load factor reached approximately 78%, up 11 percentage points. Our capacity increased 27% compared with the second quarter. The transformation of SAS has to continue to adapt to the new market conditions in order to be able to remain flexible, competitive and financially strong for the long term. Earnings before tax ended at a negative SEK 2.0 billion, a decline of SEK 0.4 billion compared with last quarter, or a decrease of SEK 0.7 billion year-on-year. This was mainly an effect of the 15-day pilot strike.
Cost reductions across all of SAS remain in focus to secure our cost competitiveness. Total operating expenses during the quarter ended at SEK 9.7 billion and total operating revenue landed at SEK 8.6 billion for the quarter. Total revenue increased 22% compared with the second quarter, an improvement of approximately SEK 4.6 billion compared with last year, but still 37% below the third quarter in 2019, which was unaffected by COVID-19.
The cash balance at the end of the quarter was SEK 6.1 billion. Operational cash flow during the quarter amounted to an outflow of SEK 1.0 billion, compared with an inflow of SEK 0.5 billion for the same period last year.
PILOT STRIKE ENDED WITH NEW PILOT AGREEMENT PROVIDING STABILITY
SAS results were severely affected by a 15-day pilot strike between July 4 and July 19, causing traffic disruption and leading to some 4,000 cancelled flights affecting more than 380,000 passengers.
As previously announced, the estimated effect of the strike was approximately SEK 100-130 million per day (US$9.5-$12.5 million) in lost earnings before tax. To date, the financial impact of the strike is SEK 1.4 billion (US$135 million). I once again apologize to all of our customers and partners affected by the traffic disruptions during this extraordinary event.
Negotiations resulted in SAS and SAS Scandinavia pilot unions agreeing to new 5.5-year collective bargaining agreements. SAS plan to offer the 450 previously redundant pilots rehire in tandem with the ramp-up of flight operations in the near term. The agreements include increased workforce utilisation flexibility and productivity as well as cost reductions in line with the targets set out in the SAS FORWARD plan relating to the pilots’ employment terms and conditions taking SAS one important step closer to achieving our target of SEK 7.5 billion in annual cost savings.
UPDATE ON SAS PROGRESS ON TRANSFORMATION PLAN
SAS FORWARD is a comprehensive business transformation plan that was launched in conjunction with the publication of the first quarter report FY 2022 at the end of February to secure long-term competitiveness for SAS in the global aviation industry. The plan aims to strengthen our financial position and to achieve a sustainable cost structure with an annual cost reduction of approximately SEK 7.5 billion. As part of SAS FORWARD, we also plan to raise at least SEK 9.5 billion in new equity and to convert more than SEK 20 billion of debt into common equity. The new equity and debt-to-equity conversions contemplated as part of SAS FORWARD will entail very substantial dilution to existing shareholders.
SAS has made progress in these efforts, having identified the vast majority of the SEK 7.5 billion in reduced annual costs and we have continued to invest in our digital capabilities and sustainability efforts. The 5.5-year collective bargaining agreements reached between SAS and the SAS Scandinavia pilots’ unions in July are also a key element of SAS FORWARD. During the quarter, SAS also received support for the plan from the Swedish, Danish and Norwegian governments. All three parties have agreed to convert SAS’ debt and hybrids into common shares. Denmark has also published that, potentially, it may invest new capital, subject to all stakeholders’ participation in SAS FORWARD. However, much remains to be done.
To accelerate the implementation of key elements of the plan, SAS voluntarily filed for chapter 11 in the U.S. on July 5. Chapter 11 is a legal process for financial restructuring conducted under U.S. federal court supervision. It has previously been used by a number of large international airlines to restructure. Through this process, SAS aims to reach agreements with key stakeholders, restructure our debt obligations, renegotiate our fleet contracts and emerge with a significant capital injection. SAS’ operations and flight schedules are unaffected by the chapter 11 filing and we continue to serve our customers as normal.
After the close of the quarter, SAS secured a debtor-in-possession (DIP) financing commitment for USD 700 million, or approximately SEK 7.0 billion, from Apollo Global Management. DIP financing is a specialised type of bridge financing used by businesses that are restructuring through a chapter 11 process. This substantial financing commitment is an important milestone in our transformation and it gives us a strong financial position to support our operations throughout the Chapter 11 process, which is expected to take 9–12 months in total. The DIP financing is still subject to court approval.
A DEMANDING QUARTER FOR OUR CUSTOMERS
During the quarter, major operational and infrastructural challenges across numerous customer touchpoints were experienced due to the strong recovery this summer season. The whole airline ecosystem was experiencing difficulties ramping up, and challenges relating to everything from airport capacity to ground staffing were experienced during the summer.
SAS acted proactively and implemented measures to safeguard our customers’ travel plans for the summer. We consolidated and removed a number of flights as responsibly as possible and made every effort to mitigate disruption for our customers. We have rehired across the business and expanded our customer service, and we are increasingly developing automated and self-service options for our passengers.
DEVELOPMENT DURING THE SUMMER SEASON
Ticket sales ahead of the important summer season were strong but levelled off as we approached the potential start of the strike which eventually was initiated in July. The strike impacted the overall level of tickets sold during the summer. We will now continue to work hard on rebuilding confidence in SAS and providing our customers with the service they expect.
SAS continues to strengthen our North American network and has established direct summer routes to Toronto from Copenhagen and Stockholm. During the coming winter season, SAS will continue to operate all its pre-pandemic U.S. routes for our travellers.
We are soon entering the winter season, and we remain cautious due to the prevailing uncertainties around the world. Traffic to and from Asia remains affected by COVID-19 restrictions as well as by the geopolitical situation.
Looking ahead to the next summer season we are preparing for substantial recruitments and rehirings that will be initiated in order to meet the expected increased future demand.
The FORWARD plan includes positioning SAS as a leader in sustainable aviation. SAS will continue to invest in modern fuel-efficient aircraft, sustainable aviation fuels, emerging technologies and sustainable products and services. By 2025 we will reduce our CO2 emissions by at least 25% versus 2005.
I am grateful for the hard work my colleagues at SAS are delivering, to ensure that we take the best possible care of our customers.
As always, we look forward to welcoming our customers on board our aircraft.