Scandinavian Airlines System

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Scandinavian Airlines System

Ulvsundavagen 193
S-161 87 Stockholm-Bromma
Sweden.
46-8-780 10 00

Public/State-owned Company
Incorporated: August 1,1946
Employees: 19,000
Sales: SKr 19.84 billion (US$ 2.917 billion)
Market value: SKr 2.55 billion (US$ 364 billion)
Stock Index: Copenhagen, Oslo, Stockholm

SAS, the Scandinavian Airlines System, is a unique example of international cooperation between three culturally similar but independent nations. Late in the 1930’s three independent Scandinavian airline companies, Det Danske Luftartselskab (DDL) of Denmark, Det Norske Luftfartselskap (DNL) of Norway and Aktiebolaget Aero-transport (ABA) of Sweden, made plans for a collaborative trans-Atlantic 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 downpayment 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 trans-Atlantic 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 was also 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 are each 50% owned by the governments of Denmark, Norway and Sweden, respectively. Together the three companies form the SAS Consortium. DDL and DNL each own two-sevenths of the SAS Consortium while ABA owns three-sevenths. The SAS Group includes a number of businesses, the largest of which is their airline consortium. 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 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% of that company’s total capital of $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.

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 of 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 which offered cooperative operational and technical services. As one unit they were better able to compete with major airlines such as BO AC, Air France and Lufthansa. SAS spent much of the 1970’s 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 like Freddie Laker’s trans-Atlantic “Sky-train.” 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 man chosen by the board of directors 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 compaign to standardize and improve the company’s business class passenger service. As a result, one year later SAS recorded a $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.” And 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%, 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.

In 1984, SAS began operating hovercraft between Copenhagen Airport and the southern Swedish port of Malmó. Malmó is a busy port for passenger traffic from southern Sweden. The 17 mile trip across the Oresund strait directly to the airplane tarmac in Copenhagen can be made in 30 minutes. The hovercraft (British Hovercroft Corporation AP-188s) are impervious to water, land and ice. Although they are owned by DSO (a subsidiary of Danish State Railways), SAS operates the hovercraft under its name with its own personnel.

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

SAS is currently investigating 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. Due to its size and pragmatic character SAS has been compared with Delta Air Lines in the United States. SAS flies to 90 cities in 40 countries, operating 96 aircraft, including DC-8s, DC-9s, DC-10s, B-747s, and F-27s. The airline will accept delivery of 16 new aircraft to cover expansion plans for the 1988-1990 period. Its air cargo business, with a hub in Cologne, West Germany, is one of the most sophisticated in the world. The facility’s computerized cargo system was developed by SAS. Presently the company is offering to sell the model for this system to airlines which don’t compete with SAS in the same markets.

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

Principal Subsidiaries

SAS Service Partner; Vingresor AB (Sweden); Nyman & Schultz Affarsresebyraer AB (Sweden); AB Olson & Wright (Sweden); Danair A/S (Denmark); SAS Royal Hotel A/S (Hotel Scandinavia) (Norway); SAS-Invest A/S (SAS Royal Hotel) (Denmark); A/S Dansk Rejsebureau (Denmark); SAS Cargo Center A/S (Denmark); Hotel Scandinavia K/S (Denmark).