Scandinavian Airlines (SAS) has received greatly attention in the media in recent times partly due to the poor financial performance in the past years. The purpose of this paper is to analysis the corporate governance model of the company SAS, and identify the key corporate issues that may be behind the bad performance that the company is undergoing. The airline industry is especially sensible to business cycles and the financial crisis bit it hard. That is why in order to develop a fair analysis I will benchmark the company with its most relevant competitors, the German Lufthansa and the French Air France KLM. It can be argued that Norwegian Airline is the main rival. However its business model is different oriented. That is why I will not include this last one in the analysis.
To present these ideas the rest of the paper proceeds as follows. After a brief presentation of the company, section III will discuss the strategies followed by SAS in the last couple of years. Section IV and V will analyse in deep the corporate governance model of the company and its bond to the general Scandinavian model. Section VI will benchmark the financial results to the competition. The paper will close with a layout of the main findings. II.
Overview of the company
Based in Stockholm, Scandinavian Airline System (SAS) is the national airline of three Scandinavian States: Denmark, Norway and Sweden. The airline has 136 aircraft in service and operates to 90 destinations within Scandinavia, Europe, Asia and North America. SAS’ main hub is Kastrup or Copenhagen Airport, which is the main European and intercontinental hub. Somewhat smaller hubs also exist at Oslo Airport, Gardermoen and Stockholm-Arlanda Airport. The conglomerate was founded in 1951 as a merger between the three Scandinavian flag carriers Aerotransport (ABA), Det Danske Luftfartselskab (DDL) and Det Norske Luftfartselskap (DNL), after the three had been cooperating on international routes since 1946. Until 2001, the three national companies owned a fixed share of the SAS Group, after which the shares of the three companies were merged. In May 1997 SAS founded Star Alliance. SAS is listed on the stock exchanges in Stockholm, Copenhagen and Oslo. SAS is the number one carrier in its three Scandinavian home markets Sweden, Norway and Denmark and number two in the fourth Nordic market, Finland. With an average of 1,111 daily departures in Jan-2012 to Oct-2012, it also had the highest departure frequency in the region. In 2012, it opened 38 new routes, many to leisure destinations, and it plans 45 new routes for 2013. SAS has been loss-making since 2008.
The SAS strategy
The company management knew that they had to change something in order to overcome the crisis. The main objective is to make profitable the airline operations. The short or operational strategy of the company is based on a time-value approach since business travellers is its primary target group. For instance the airline counts with fast tracks in the airports of Copenhagen, Oslo and Stockholm, to save business class and extra economy passengers from waiting the long lines at the control gates. According to the annual report of 2012 SAS’ market share is of 51% in Norway, 31% in Sweden and in 39% in Denmark. These figures do not seems bad but when analysing the balance sheet of the company it is observed that it is very fragile (Table 1). The company had an Equity/Assets ratio of 32% in 2011, which means that is too dependent on external credit. According to Simon Johnson and Veronica Ek in an article published on November 12, 2012 at Reuters, SAS has lost 12.4 billion Swedish crowns since the start of 2002. The company faces two main challenges: it must become attractive for the capital markets, to secure access to the capital necessary to fund growth and aircraft investments; and its major problems of labour productivity and high unit costs must be solved. It can be observe in the...
Please join StudyMode to read the full document