The SAS Group

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The SAS Group

Frosundaviks Alle 1, Solna
S-195 87 Stockholm
Sweden
Telephone: +46 8 797-00-00
Toll Free: (800) 221-2350
Fax: +46 8 797 12-10
Web site: http://www.scandinavian.net

Consortium of SAS Danmark A/S, SAS Norge ASA, and
SAS Sverige AB, Each 50% State-Owned
Incorporated: 1946
Employees: 28,900
Sales: SKr 41.51 billion (1999)
Stock Exchanges: Copenhagen Oslo Stockholm
Ticker Symbols: SASDK; SASB.OL; SAS.ST
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation; 481212 Nonscheduled Chartered Freight Air Transportation; 481211 Nonscheduled Chartered Passenger Air Transportation; 72111 Hotels (Except Casino Hotels) and Motels

The SAS Group is made up of the Scandinavian Airlines System and SAS International Hotels d.b.a. Radisson SAS Hotels and Resorts. The namesake airline is a unique example of international cooperation between three culturally similar but independent nations. Its charismatic CEO of the 1980s, Jan Carlzon, helped steer the airline through deregulated skies by an uncompromising dedication to business travelers. In spite of seemingly endless rounds of cost-cutting in the 1990s, the airline still satisfies them.

Underground Beginnings

Late in the 1930s three independent Scandinavian airline companies, Det Danske Luftartselskab (DDL) of Denmark, Det Norske Luftfartselskap (DNL) of Norway, and Aktiebolaget Aerotransport (ABA) of Sweden, made plans for a collaborative transatlantic passenger service. But their plans for the Bergen-New York service had to be postponed when Denmark and Norway were invaded by Nazi Germany. During the war the three companies secretly continued to arrange their consortium. Since Sweden remained neutral its investors were relatively free to conduct their own business. The private owner of Sweden’s share of SAS, Swedish Intercontinental Airlines (SILA), negotiated to purchase American airplanes when the war ended. They hoped this would give SAS an auspicious start and enable it to begin operations immediately after the war. In 1943, SILA, the purchasing agent for SAS, placed the first order for seven Douglas DC-4s. At great risk the Danes smuggled their share of the down payment to Sweden.

When the war ended SILA purchased a number of American B-17 bombers. These airplanes were acquired by SILA for only one dollar each. The “Flying Fortresses” were converted for passenger service by the Svenska Aeroplan Aktiebolaget (SAAB). On June 27, 1945, barely two months after the fall of Germany, ABA inaugurated their transatlantic service to New York from Stockholm employing the refitted B-17s. A year later the DC-4s went into service. SAS’s three-nation flag and logo were created that year, and south Atlantic DC-4 service to Brazil and Uruguay also was inaugurated. The Atlantic services of DDL, DNL, and ABA were combined under SAS, but their European and domestic services continued to operate independently until 1948. That same year SILA acquired all of ABA’s privately held stock. In 1951 the European, Atlantic, and domestic services of the three companies were combined, and SAS became the international flag carrier of Norway, Denmark, and Sweden.

DDL, DNL, and ABA were each 50 percent owned by the governments of Denmark, Norway, and Sweden, respectively. Together the three companies formed the SAS Consortium. DDL and DNL each owned two-sevenths of the SAS Consortium and ABA owned three-sevenths. From its inception SAS was operated as an unsubsidized instrument of the Scandinavian trade and commerce.

In 1949 SAS expanded its intercontinental service to Bangkok via Europe and central Asia. Two years later service was extended from Bangkok to Tokyo. In 1954 SAS pioneered a polar route to Los Angeles and, three years later, one to Tokyo. It was the first airline to fly the Caravelle, a revolutionary French-built jet with its engines mounted on the rear of the fuselage. The airline also ordered special cold weather versions of the DC-8 and DC-9 from Douglas.

About this time SAS was confronted with a basic problem in airline economics. Most of its destinations were European, which meant that most of its flights were of short duration. This, in turn, translated into frequent takeoffs and landings and increased wear on the airplane. Moreover, the cost of preparing an aircraft for another flight was incurred more frequently. There was, therefore, an economic incentive to operate “long haul” flights to more distant points. During this period SAS also suffered from overcapacity, or simply having too many airplanes.

A solution to these problems arose when SAS was approached by officials from Thailand who wished to establish their own international airline services. SAS was chosen over other airline companies because Thailand regarded the Scandinavian countries as politically neutral. In 1959 an agreement was reached and a new company called Thai Airways International, Ltd. was formed. Under the agreement SAS contributed 30 percent of that company’s total capital of US$100,000. Thai Airways would be sole concessionaire on all routes to foreign destinations for 15 years. SAS would provide the management, support, and flight personnel in addition to leasing the necessary aircraft. Thai Airways began operations in 1960 and recorded its first profit five years later. Today, Thai companies are sole owners of TAI, Ltd. but technical, operational, and commercial cooperation with SAS continues.

Innkeepers in 1960

SAS began a limited related diversification in 1960 when it purchased the Royal Hotel in Copenhagen. Later, SAS established a catering subsidiary and a charter airline called Scanair. In 1965, SAS created the first Europe-wide computerized reservation service (or “CRS”), providing the company with a significant advantage over its larger European competitors.

In February 1970, SAS formed an inter-airline association with KLM (Royal Dutch Airlines), Swissair, and UTA (Union de Transports Aeriens of France), known as the KSSU group. Together they established a maintenance pool that offered cooperative operational and technical services. As one unit they were better able to compete with major airlines such as BOAC, Air France, and Lufthansa. SAS spent much of the 1970s expanding its service area and updating its fleet. The combined “internal” and “external” expansion programs made SAS a major international air carrier by the end of the decade.

After 17 profitable years SAS suffered its first loss in 1980. It was threatened by increased competition from the recently deregulated American airline companies and low-cost operators, including Freddie Laker’s transatlantic “Skytrain.” Compounding this problem was SAS’s overly conservative management style. Not only was there less concern for passengers or service on SAS, but entrenched management was broadening its scope of authority and centralizing the bureaucracy. Indeed, a number of employee responsibilities were taken away. Many changes were needed if SAS was to remain competitive, and the first step was to install more enlightened leadership.

The Carlzon Years: 1981–93

The man chosen by the board of directors in 1981 was Jan Carlzon, formerly the head of Linjeflyg, a domestic Swedish air carrier and subsidiary of SAS. Applying an innovative management style, Carlzon first recommended treating expenses as resources in an effort to find ways of raising efficiency. He declared, “All three Scandinavian countries can only survive by doing business in foreign markets; business travel is the backbone of SAS traffic; the first purpose of a Scandinavian airline must be to serve business.” Since SAS failed to consistently attract the business traveler, Carlzon initiated a strong campaign to standardize and improve the company’s business class passenger service. As a result, one year later SAS recorded a US$24.6 million profit for the airline operation, and more than doubled that the following year. Moreover, SAS invested millions of dollars in programs for staff training and motivation, urging employees to “work smarter, not harder.” Finally, in the effort to bring about changes in management, most of the airline’s principal managers were replaced as a new organizational structure was introduced.

Carlzon also launched a campaign aimed at making SAS the most punctual airline in the world. He even had a computer terminal installed in his office so that he was constantly apprised of every flight. When a delay threatened the departure of an airplane he would telephone the crew and investigate the problem personally. On-time efficiency was raised to 90 percent, making SAS the most punctual airline in Europe. Carlzon then took steps to improve flight operations by selling or leasing older jets and purchasing the most recent state-of-the-art equipment. The airports of Copenhagen and Bangkok were designated as the airline’s European and Asian hubs. All flights were designed to connect at these hubs to facilitate passenger transfers. Much of Copenhagen Airport’s traffic includes passengers flying on to other destinations. The other airports, Oslo’s Fornebu and Stockholm’s Arlanda, are secondary hubs connecting SAS with smaller domestic services.

Company Perspectives:

SAS shall offer competitive flight connections in, between, to and from each of the Scandinavian countries via flights arranged either under its own auspices or together with selected partners. SAS prioritizes absolute safety, maximum punctuality and excellent personal service. SAS makes every effort to design its products and services to meet the market’s general requirements, as well as the individuar’s specific wishes and the need for freedom of choice. SAS’s operations shall maintain satisfactory profitability in terms of its owner’s requirements for a return on their investments. SAS shall also be perceived as an attractive investment object. SAS is strongly committed to limiting the environmentally harmful effects of aviation. SAS encourages social development through its contributions to cultural life, as well as sports and education.

In 1984, SAS began operating hovercraft between Copenhagen Airport and the busy southern Swedish port of Malmö. The 17-mile trip across the Oresund strait directly to the airplane tarmac in Copenhagen could be made in 30 minutes. The hovercraft (British Hovercraft Corporation AP-188s) were impervious to water, land, and ice. Although owned by DSO (a subsidiary of Danish State Railways), the hovercraft operated under the SAS name and with SAS personnel.

Believing that little more could be done to improve the “air travel” of SAS, Carlzon concentrated on what happened to the customer on the ground. A new service concept called SAS Business Hotels and Destination Service was introduced that enabled passengers to confirm reservations and arrange rental cars and hotel rooms with one phone call. In addition, SAS created Business Travel Systems that expanded the capabilities of its computerized reservations system.

SAS investigated the feasibility of a second teaming arrangement with Sabena of Belgium and Finnair of Finland. An agreement would involve coordination of flight schedules to more efficiently utilize their share of certain highly competitive markets. Because of its size and pragmatic character SAS often was compared with Delta Air Lines in the United States. SAS flew to 90 cities in 40 countries, operating 96 aircraft, including DC-8s, DC-9s, DC-10s, B-747s, and F-27s. The airline planned to receive 16 new aircraft to cover expansion plans for the 1988-90 period. Its air cargo business, with a hub in Cologne, West Germany, was one of the most sophisticated in the world. SAS shopped around the model for this facility’s computerized cargo system to airlines that did not compete in the same markets.

The SAS Group operated a number of subsidiaries aside from the airline. These included Vingresor, the largest tour operator in Scandinavia, and Service Partner, a profitable catering service. In addition, the group operated a network of 11 first class hotels in Scandinavia, Vienna, and Singapore. The SAS Group also owned the Olson & Wright air cargo company, the Scanair charter airline service, and an insurance company.

By the end of the decade, a half dozen U.S. carriers had set up routes to Scandinavia. To keep a share of inbound international traffic (most of its passengers were Scandinavian themselves), SAS worked to forge links to other airlines’ networks. British Airways PLC thwarted the company’s offer to buy British Caledonian Airways Ltd. in 1987. Its attempts to invest in Aerolineas Argentinas were classified a “privatization nightmare.” SAS did acquire an 18.4 percent share of struggling U.S. carrier Continental Airlines, which boosted U.S. traffic by 28 percent for SAS in its first year. Another deal with Airlines of Britain, a group of small carriers, gave SAS some rare slots at London’s Heathrow Airport.

Cutting Costs and Making Pacts in the 1990s

SAS streamlined its corporate structure in the late 1980s, thinning layers of management as well as reducing the number of employees per plane. Job-cutting and efficiency measures continued into the early 1990s as the Gulf War and a global recession slowed business. SAS lost US$120 million in 1990, after earning US$193 million the year before. It lost more than US$250 million in the next two years. Carlzon launched another US$1 billion cost-cutting program to ensure that SAS would be among the surviving European airlines. Among positive developments, the fall of the Soviet Union opened up a new frontier for SAS, particularly in cargo. In addition to trade with the CIS itself, SAS ferried shipments from Asia through Scandinavia to the United States.

SAS helped pioneer the concept of airline alliances. Although Sabena ditched SAS in favor of British Airways and KLM, SAS was able to strike up a lucrative, long-lived partnership with Swissair. It then formed the European Quality Alliance (EQA) with Swissair and Austrian Airlines (AUA), a means of building up some critical marketing mass. This also allowed the partners to share operating expenses. Finnair joined the EQA in 1989 but left two years later to pursue a looser pact with Lufthansa.

The EQA spawned the Alcazar project, an attempt to merge KLM, Swissair, AUA, and SAS. After spending most of 1993 in discussions, however, the alliance fell apart in November over the choice of a U.S. partner. SAS had naturally insisted upon Continental. Carlzon left SAS after the debacle, and Jan Stenberg became the new CEO.

The next round of cost-cutting saw SAS shedding noncore businesses such as catering (but not hotels). It sold off a 43 percent stake in Lan Chile, practically exiting the South American market. The company also sloughed off the excess desks one might expect a tripartite bureaucracy to accumulate. It even axed the long-running Copenhagen-Los Angeles route as it retrenched itself in its familiar Scandinavian waters.

Key Dates:

1946:: SAS consortium is officially formed, though certain services of the three carriers remain independent.
1951:: Operations are consolidated and SAS serves as the international flag carrier of Norway, Denmark, and Sweden.
1954:: SAS pioneers polar route to Los Angeles.
1960:: Purchase of the Royal Hotel in Copenhagen brings the group into the hospitality industry.
1970:: KSSU group teams SAS with three continental carriers to save operational costs.
1981:: Jan Carlzon chosen to steer SAS through hostile, deregulated skies.
1993:: Carlzon leaves after Alcazar alliance crumbles.
1999:: “SAS 2000” program is launched to deliver improved service with a Scandinavian flavor.

British Airways was meanwhile making significant inroads in Scandinavia. It teamed with Maersk, Braathens, and Sunair on certain routes and SAS bought a 40 percent share of British Midland. SAS also was able to team with Lufthansa, effectively muscling Finnair out of its alliance with the German carrier. Finnair responded by making a second hub out of Stockholm, literally flying in the face of SAS’s administrative center. Both Finnair and SAS entered limited code share agreements with the region’s numerous smaller airlines, and SAS joined the United Airlines and Lufthansa-led Star Alliance in 1997.

SAS 2000

Company officials unveiled an extensive corporate makeover in late September 1998. Beyond redesigning uniforms and aircraft liveries, “SAS 2000” also aimed to incorporate the results of the airline’s most in-depth study of its customer interactions. It added a number of passenger amenities, such as mirrors in overhead compartment doors and unique, automatically adjustable seating in business class. The carrier emphasized its Scandinavian heritage in new menu items and design elements.

In spite of the improvements, SAS had trouble filling seats in 1999, although it continued to receive high customer satisfaction ratings. The carrier renewed its efforts in intercontinental operations, launching a strategic alliance with Singapore Airlines. It ordered Airbus A330 and A340 aircraft to replace its medium-sized Boeing 767s, and it ordered larger A321s for European service. New Boeing 737s and de Havilland Q400s also were added to the fleet.

Principal Subsidiaries

SAS International Hotels; Scandinavian Airlines Data; SMART; SAS Flight Academy; British Midland PLC (40%); Spanair (49%); Grolandsfly (37.5%); Polygon Insurance (30.8%); Wideroe’s Flyveselskap (63.2%); airBaltic (38.2%); Cimber Air A/S (26%); Skyways Holding (25%); Air Botnia.