SAS: Significant Negative Results Due To Covid-19

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FEBRUARY 2020–APRIL 2020

  • Revenue: MSEK 5,264 (9,871)
  • Income before tax (EBT): MSEK -3,722 (-1,216)
  • Income before tax and items affecting comparability:MSEK -3,714 (-1,211)
  • Net income for the period: MSEK -3,470 (-933)
  • Earnings per common share: SEK -9.15 (-2.44)

SIGNIFICANT EVENTS DURING THE QUARTER

  • SAS temporarily halts most of its traffic due to effects of COVID-19
  • SAS initiates processes to reduce future workforce by up to 5,000 full-time positions
  • Ongoing and constructive discussions with largest owners on a recapitalization plan to secure adequate levels of funding and equity for the future

SIGNIFICANT EVENTS AFTER QUARTER END

  • SAS signs a SEK 3.3bn revolving credit facility agreement
  • Magnus Örnberg appointed new CFO of SAS

NOVEMBER 2019–APRIL 2020

  • Revenue: MSEK 14,971 (19,276)
  • Income before tax (EBT): MSEK -4,809 (-1,792)
  • Income before tax and items affecting comparability: MSEK -4,792 (-1,935)
  • Net income for the period: MSEK -4,331 (-1,402)
  • Earnings per common share: SEK -11.49 (-3.69)

SIGNIFICANT NEGATIVE FINANCIAL RESULTS DUE TO COVID-19

The COVID-19 pandemic has created a global crisis for the aviation industry, including SAS. What started with travel restrictions to mainland China quickly led to global travel restrictions, quarantines and strict advice against unnecessary travel. Effectively, these measures eliminated the core foundation for our business model, and almost our entire fleet was grounded from mid-March. At the end of the quarter, SAS primarily operated limited domestic networks in Norway and Sweden, supplemented with a few international repatriation flights. For the first time in the history of our company, SAS offered no scheduled international flights to/from Scandinavia.

FINANCIAL SUMMARY

We started our fiscal year with high demand for our services and with a robust operational performance in terms of regularity and punctuality. We reported strong passenger numbers, increased revenue and improved market shares. However, as the second quarter progressed, the full effects of the COVID-19 pandemic became evident. In April, our capacity was down 94% and the number of passengers fell 96% compared to last year. As a direct consequence, our quarterly revenue fell nearly 50% to MSEK 5,264.

The decline in demand immediately triggered SAS to implement a broad range of measures to radically reduce costs. In total, these reductions of fixed and variable cost amounted to SEK 2.4 billion compared to the same quarter last year. As of today, approximately 90% of our workforce is on temporary layoff schemes and we have announced a permanent reduction of 5,000 positions to adapt to predicted market conditions. Moreover, we have enforced a significant reduction of our network, reduced our sales & marketing spend, renegotiated supplier agreements, and postponed IT projects and investments. We also reduced capital expenditures by deferring aircraft deliveries and reaching agreements on payment holidays with most of our lessors.

SAS, like many other airlines has a very high level of fixed costs, whereby the cost reductions have not fully offset the sharp revenue decline, as a result of which we ended the quarter with a pre-tax loss of SEK 3.7 billion. Another focus area has been to preserve cash to the extent possible, and our cash position ended at SEK 4.2 billion, down SEK 2.4 billion in the quarter.

Shortly after the quarter ended, we were able to secure a three-year SEK 3.3 billion revolving credit facility, 90% guaranteed by the Danish and Swedish states. The facility strengthens our financial situation in a difficult period, with an expected negative operating cash burn in the range of MSEK 500–700 per month until end of fiscal year 2020.

COMMUNITY SUPPORT AND SAFE TRAVEL

Despite closed borders, SAS continues to play a vital role in supporting overall society. Early on during the outbreak, SAS operated special flights to repatriate Scandinavian citizens from countries such as Peru, Brazil and Pakistan. We have ensured air bridges for essential medical supplies in close collaboration with the three Scandinavian governments and the Knut and Alice Wallenberg foundation.

Furthermore, our committed employees have engaged in relieving the very strained healthcare sector, assisting in carrying out public COVID-19 tests and volunteering as substitute teachers in elementary schools.

The safety and well-being of travelers and employees is always our highest priority. Therefore, SAS has reviewed the entire customer journey, and imposed some changes to ensure the safest travel experience possible. As a starting point, we urge all travelers to follow the general recommendations set by the health authorities in the respective countries.

Our boarding procedures have been adapted to facilitate social distancing and we have temporarily closed all SAS Lounges. Onboard, our aircraft are equipped with effective HEPA filters that significantly reduce the risk of airborne contamination, our service concept has been re-designed to reduce physical contact and all aircraft are cleaned and disinfected on a more frequent basis. Moreover, passengers will be seated with as much personal space possible, non-essential loose items onboard have been removed and hand luggage allowance is limited. Passengers are required to bring and use protective face masks during travel.

TRANSFORMATION TO ADAPT TO A NEW REALITY

Countries will gradually re-open, but the pace and prerequisites will not be the same in all geographies and regions. Furthermore, the pandemic has led to an economic downturn, resulted in behavioral changes in favor of more digital meetings and caused a general health concern among many customers. Therefore, we expect a longer recovery period than experienced in previous downturns. We expect that the recovery will start with increased domestic demand followed by European and then Intercontinental destinations. But, it will most likely take until 2022 before we see demand in line with what we experienced before the COVID-19 outbreak.

With the ongoing crisis, SAS will once again need to demonstrate its ability to transform to meet a new and very challenging reality. As a response to an environment characterized by lower passenger numbers and revenue generation, SAS is pursuing a revised business plan generating SEK 4 billion in further improvements by 2022.

The savings will come from a broad range of measures. A reduction of the workforce by up to 5,000 positions, combined with a zero-based resizing of our administration. Productivity improvements in the range of 15-25% are required in all collective bargaining agreements to cater for changing market conditions and seasonality aspects. Continuation of strict cost control procedures, imposed during the crisis, including renegotiated contracts with suppliers, reduced spend on marketing, product, IT development and other projects. Additionally, we plan to adapt the fleet size, through postponements and adjusted future deliveries of aircraft from Airbus and lessors until demand returns.

Our commitment to a more sustainable future remains firm, and the plan includes additional initiatives to maintain and accelerate our efforts. To achieve this, SAS will continue to upgrade its fleet, rightsize aircraft usage to demand and increase usage of sustainable aviation fuels to significantly reduce our emissions.

Given the impact of COVID-19 and the time it will take to recover to a more normalized situation, SAS will need to secure further funding in order to continue as the most important airline infrastructure provider in Scandinavia. This will require support from the Scandinavian governments. As a first step the Danish and Swedish governments have provided 90% guarantees for the SEK 3.3 billion revolving credit facility. SAS also continues its efforts to secure support from the Norwegian government.

SAS is currently in active, intensive and constructive discussions with the company’s major shareholders and selected stakeholders on a recapitalization plan to ensure the future of SAS. This includes realization of its key business priorities of necessary increased productivity and a continuation of the green transition.

Any potential solution will require both government and market participation, as well as burden sharing measures involving internal, external and financial stakeholders in the company. Different options are currently being considered, and we aim to present a plan to the market in June 2020.

Once a plan is in place, I am confident that we can overcome the current challenges and start to rebuild our business based on the strengths of SAS, including committed and dedicated employees, a strong brand and a valued customer offering.

We’re experiencing an unprecedented situation at the moment, that creates significant challenges for SAS. I would like to express my sincere appreciation to all SAS employees for their dedicated efforts and support during the crisis. SAS is determined to re-start operations as soon as possible. On behalf of all of our employees, I’m truly looking forward to once again welcoming you on board a SAS flight in the near future.

Rickard Gustafson,

President and CEO