Top Banner
Fasten your seat belts - An analysis of SAS’ competitiveness MSc. in Economics and Business Administration - Finance and Strategic Management Master’s thesis by: Alexander Glud 121185-XXXX Eivind Wedding 220684-XXXX Supervisor Dan Kärreman Department of Intercultural Communication and Management October 2010 - Copenhagen Business School Length Characters including spaces: 269.769 equivalent to 118,6 pages. Illustration: Svein Eide
133

Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

May 20, 2018

Download

Documents

vungoc
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Page 1: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seat belts -

An analysis of SAS’ competitiveness

MSc. in Economics and Business Administration - Finance and Strategic Management

Master’s thesis by:

Alexander Glud 121185-XXXX

Eivind Wedding 220684-XXXX

Supervisor

Dan Kärreman

Department of Intercultural Communication and Management

October 2010 - Copenhagen Business School

Length

Characters including spaces: 269.769 equivalent to 118,6 pages.

Illustration: Svein Eide

Page 2: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 2

Executive summary

Scandinavian Airlines System (SAS) have challenges competing with low cost carriers

(LCCs) and network carriers. Multiple airlines, declining prices on airfares, price sensitive

consumers and a moderate of degree of rivalry are keywords describing the Nordic airline-

industry in 2010. Thus, this thesis analyzes SAS‟ positioning and competitiveness since we

find it interesting to examine why SAS‟ performance tend to be weak.

Our analytical findings that SAS‟ revenue is declining and their cost structures are higher than

competitors‟. Moreover, their corporate strategy, Core SAS, appears to be rather weak,

unfocused and has a lack of clear and concise long-term objectives. It may be interpreted as a

static cost savings program, not a generic strategy for generating growth.

Their internal resources, capabilities and core competences are challenged as many of these

tend to be outdated, expensive and inflexible. Additionally, they are aiming at a declining

business segment and mature Nordic market, which historically have generated their main

revenue. Thus, SAS‟ appears to be resource started and have difficulties with creating

competitive advantages.

The industry is getting increasingly competitive especially from LCCs which attack SAS on

prices. SAS appear to have challenges when with dealing with suppliers, buyers and product

substitutes, due to poor bargaining positions as well as insufficient products.

SAS‟ performances on the operational levels have been analyzed and benchmarked with

notable competitors. Findings include that SAS perform roughly in-line with the industry, but

at significantly higher production factor costs.

We create four potential scenarios, which may, individually or combined, serve as ways out

of their situation. This provides a clear understanding of SAS‟ future strategic opportunities,

where an M&A is most likely.

Our study connects the internal potential of SAS with the market in order to assess their

competitiveness. In addition to this, our study discusses and reflects over theoretical

frameworks and connects these in empirical contexts. Furthermore, we put our thoughts into

perspective, where we present notions, which could make a significant difference for SAS.

Our main findings illustrates that SAS is struggling due to declining internal competitiveness.

Their resources and capabilities are not geared to operate effectively in today‟s more dynamic

Nordic aviation market and their market positioning as well as objective is diffuse. Thus, our

study indicates that SAS‟ competitiveness is ineffective and declining.

Page 3: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 3

Contents

Chapter 1 – Introduction & Methodology 5

1.1.1 Introduction 5

1.1.2. Research Question ................................................................................................................ 7 1.1.3 Delimitation ........................................................................................................................... 8 1.1.4. Target group.......................................................................................................................... 8 1.1.5. Thesis Structure .................................................................................................................... 9

1.2. Methodology 10

1.2.1. Theoretical Perspectives ..................................................................................................... 10 1.2.2. Critique of theoretical perspectives .................................................................................... 14 1.2.3. Empirical data collection and critique ................................................................................ 17 1.2.4. Framework and research design ......................................................................................... 18

Chapter 2 – Analysis of SAS 21

2.1. History 21

2.2. The cost & revenue structures of SAS 23

2.3. Corporate Governance 27

2.3.1. Ownership structure, concentration and identities .............................................................. 28 2.3.2. Investor profiles .................................................................................................................. 29 2.3.3. Management structure and remuneration ........................................................................... 30

2.4. Corporate strategy - Core SAS 32

2.4.1. Porter‟s Generic Strategies on SAS .................................................................................... 35 2.4.2. Products and complementarities ......................................................................................... 35 2.4.3. The business segment and its preferences .......................................................................... 38 2.4.4. Ansoff‟s Product/Market Grid on SAS ............................................................................... 39 2.4.5. Part summary on corporate and product strategy ............................................................... 39

2.5. Findings from Chapter 2 40

Chapter 3 - Resources, capabilities and competences 42

3.1. Resources 42

3.1.1. Employees .......................................................................................................................... 42 3.1.2. Fleet .................................................................................................................................... 44 3.1.3 EuroBonus ........................................................................................................................... 45 3.1.4 Star Alliance ........................................................................................................................ 46 3.1.5 Hubs and route map ............................................................................................................. 47 3.1.6 Political resources ................................................................................................................ 49 3.1.7 Brand Value as a resource ................................................................................................... 50

3.2 Core Competences 51

3.2.1. Punctuality .......................................................................................................................... 52 3.2.2. Frequency ........................................................................................................................... 52 3.2.3. Eurobonus and Star Alliance .............................................................................................. 53 3.2.4. Transparent Prices and Simplicity ...................................................................................... 54 3.2.5. IT ........................................................................................................................................ 54

3.3. Findings from Chapter 3 55

Page 4: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 4

Chapter 4 – PEST and Industry analysis 57

4.1. Macroeconomic Level 57

4.1.1. Political Conditions ............................................................................................................ 57 4.1.2 Economic Conditions ........................................................................................................... 60 4.1.2.1. Fluctuations in oil price and currency. ............................................................................. 61 4.1.3. Social and Technological Conditions ................................................................................. 61

4.2. Industry forecasting 62

4.3. Part summary of PEST and industry forecasting 63

4.4. Industry level – Porter’s 5 Forces 64

4.4.1. Threat of New Entrants ....................................................................................................... 65 4.4.2. Threat of Substitute Products or Services ........................................................................... 66 4.4.3. Substitutes & Complementarities ....................................................................................... 70 4.4.4. Bargaining Power of Suppliers ........................................................................................... 71 4.4.5. Rivalry ................................................................................................................................ 75 4.4.6. Part Summary of Porter‟s 5 Forces ..................................................................................... 77

4.5. Findings from Chapter 4 79

Chapter 5 – Operational performance & benchmarking 81

5.1 SAS operational performance 81

5.2. SAS’ performance compared to notable competitors on European services 85

5.3. Findings from Chapter 5 88

Chapter 6 – Analytical findings and discussion 90

6.1. Main analytical findings 90

6.2. Discussion 93

Chapter 7 – Potential future scenarios for SAS 100

7.1. SAS succeeds and remain independent 100

7.2. M&A with Lufthansa 103

7.3 Intercontinental expansion 105

7.4. Liquidation 108

Chapter 8 – Conclusion & Perspectives 109

8.1. Perspectives 113

Bibliography 116

Appendices 120

Page 5: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 5

Chapter 1 – Introduction & Methodology

1.1.1 Introduction

During the more monopolistic eras solid earnings were obtained due to the regulated industry.

During these times, licenses were needed in order to operate routes and SAS had beneficial

exclusive licenses to serve lucrative destinations. As a result of this, SAS were successful and

profitable. The Nordic airline-industry was deregulated in the mid-90s, which allowed airlines

to compete on equal terms, i.e. on route network and departure times. Competition increased

and new airlines were established rapidly, often with a low fare-objective. These airlines are

commonly known as low-cost carriers (LCCs) and have rapidly gained market shares. LCCs

tend to have more satisfactory cost-structures than mature companies, as well as innovations

and cost reductions have made it possible to offer lower airfares. In short, new and attractive

opportunities for travel became a reality.

Weak margins and strong rivalry resulted in numerous LCC-bankruptcies during the 90s1.

Today, there are fewer, but stronger and more competitive LCCs, which represents major

threats for SAS, e.g. Norwegian, Ryanair, easyJet, etc. We find this competitive situation to

be of particular interest, especially as research has indicated that SAS operate with less

beneficial cost-levels than LCCs. Among several reasons, this has been a motivation for us to

assess the competitive landscape, thus SAS‟ resources in accordance with the industry.

Several, perhaps vague, corporate strategies have been the roadmap for the airline, and they

have often been replaced with other programs, e.g. Strategy 2011 was replaced by Core SAS

in 2009. The latter is still being implemented and aims to create a competitive SAS. Moody‟s

and Standard & Poor‟s, known for their credit ratings, claims that SAS possess high (poor)

credit risk, face uncertainty and challenges with meeting their long term financial

obligations2,3

. Thus, we find it interesting to analyze if Core SAS can actually improve SAS‟

competitiveness and financial situation in the long term perspective. Airline professionals

claim that aviation recently has undergone their toughest years ever4. The fact that SAS have

received government-bailout confirms this. An interesting observation for us is that LCCs

have survived without taxpayers‟ money. Thus, perhaps LCCs are better equipped to succeed

in this industry compared to SAS.

The operational performance of SAS is interesting to analyze and benchmark since it will

provide us knowledge of where they face challenges and/or opportunities. Resources,

1 Doganis 2 http://www.business.dk/transport/konkurstrussel-over-sas-fordufter 2 http://www.business.dk/transport/konkurstrussel-over-sas-fordufter 3 SAS‟ credit ratings: Moody‟s = Caa2 & Standard & Poor‟s = B- (according to data from Business.dk) 4 http://www.iata.org/pressroom/pr/Pages/2010-01-27-01.aspx

Page 6: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 6

capabilities and core competences influence operational KPIs, which is why these are

interconnected. Therefore, resources such as the fleet, employees and route map are

interesting to assess since they can give us a better understanding SAS‟ operational

competitiveness. A known example is that employees‟ unions are considered strong in SAS

and clashes between employees and employers have often been a reality, which decrease

competitiveness.

SAS‟ financial situation is strongly connected with the macroeconomic development, which is

why a macro-analysis is constructed. External factors, such as ongoing terror-threats, impact

of pandemics, the political and economic development, have inspired us to devote significant

resources in order to thoroughly construct a macroeconomic analysis.

As argued for above, we aim to assess SAS‟ performance and competitiveness. Rather than a

pure valuation of the airline, we find it highly relevant and interesting to conduct a scientific

analysis of SAS. In our opinion, an assessment of their competitiveness would create more

value for stakeholders compared to a valuation due to SAS‟ financial distress. Valuations of

SAS, by previous students, already exist and therefore we differentiate ourselves since

important internal resources and the connection with external market possibilities are more or

less neglected in previous research. In order to assess their competitiveness, proper

knowledge of the internal perspective needs to be assessed. Most scholars apply popular

economic and business models, frameworks, perspectives, etc, such as 5 Forces, PEST,

Diamond, Blue Ocean Strategy, 4 Ps, BCG Matrix, etc., to create SAS‟ market potential and

this may be limited since it neglects the crucial internal view. Therefore, we argue that our

analysis will significantly contribute to the literature, since a relatively small amount of work

has been conducted on SAS with a deep internal scientific perspective. We aim to analyze

SAS from a “new” angle and our connection between SAS‟ internal resources, and external

risks and possibilities, is rare. In our view, this connection should substantially benefit SAS‟

stakeholders.

We wish to generate a picture of the strategic surroundings in order to understand why SAS is

struggling and how their positioning could develop in the future. A strategic positioning is

interesting since it illustrates how SAS is performing in the industry, as well as assessing the

external factors influencing the corporation. We wish to create a strong scientific theoretical

foundation by reflecting over applied literature. Scientific reflections are the core of our

research and the empirical case study of SAS have emerged from scientific views.

Finally, we hope that the strong scientific and theoretical reasoning will inspire future

Page 7: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 7

students to emphasize the importance of the internal view and the possible connection with

market opportunities.

Our thesis looks at a firm from a “new” angle and we highlight that it may be insufficient, as

our framework may have certain limitations, where notable will be discussed in chapter 8. We

hope that our work can inspire future scholars to further-develop our notions about SAS and

the applied theories, since much more theoretical and empirical (scientific) research can be

done in this area.

1.1.2. Research Question

We highlight that the objective of this thesis is to analyze SAS‟ competitiveness and strategic

position in the market. Their strategic position is influenced by internal resources and

capabilities, external micro –and meso factors, as well as macroeconomic forces. Therefore,

our main research question is:

What is SAS’ current strategic position in the market?

Which internal and external factors influence this?

What are the future opportunities?

This main question will serve as the underlying catalyst throughout the thesis. In order to get

a holistic of SAS‟ positioning, the internal and external factors as well as their

competitiveness, we need to further explore and analyze:

SAS‟ resources, capabilities and competences

Their corporate strategy

The product/service portfolio

External factors influencing SAS

Factors influence the Scandinavian aviation industry

Their operational performance

The future strategic options for SAS?

The internal view is crucial, since resources, capabilities and competences can create

competitive advantages. An analysis of the internal potential will provide us with a better

understanding of SAS‟ competitiveness. The corporate strategy is an interesting aspect since

Page 8: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 8

SAS implemented the Core SAS program to enhance profitability, competitiveness, etc. The

product/service portfolio provides us with a more comprehensive understanding of SAS‟

offerings for customers. Assessing the macroeconomic environment is also important due to

SAS‟ strong correlation with its development. An industry -and benchmarking analysis is

conducted in order to understand which industry forces that exist and how they influence

SAS. The benchmarking indicates SAS‟ performance and competitiveness. Finally, we

present future scenarios for SAS, which can serve as ways out of their present situation.

1.1.3 Delimitation

During our research we have encountered several limitations, which this section will address.

Firstly, our focus is mainly on the Nordic and European markets and the main data collection

ended at July 31, 2010. Furthermore, we focus entirely on SAS‟ passenger traffic (by far the

biggest revenue stream), which excludes divisions like cargo, ground services, etc. Besides

this, it is difficult to analyze and benchmark products in this industry, since the price and

condition of the product is highly influenced by dates, time, duration, destinations, reservation

system, etc.

The authors of this thesis are graduate students at CBS‟ Finance and Strategic Management

(FSM) program. The expertise is within these fields and we are highly influenced by the FSM

courses and its contexts, i.e. bounded rationality influence the writers. Additionally, CBS

have certain official rules, regulations, etc. which creates certain limitations and boundaries

for our research.

Applied theoretical perspectives have limitations, which we are aware of. This will be

explicitly stated when we criticize frameworks and theories later on. Additionally, we

highlight that the target group of this thesis are scholars with knowledge of business and

economics on Master‟s level, or equivalent. Therefore, “basic” theories and notions will not

be explicitly derived unless else is stated or the authors feel a certain need to do this.

1.1.4. Target group

Our research is primarily aimed towards CBS and our supervisor. However, our analysis of

SAS‟ competitiveness can also bring value for various other stakeholders, such as journalists,

analysts, scholars, students as well as SAS themselves. Thus, our work aims at a large scope

of stakeholders.

Page 9: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 9

1.1.5. Thesis Structure

The thesis consists of eight chapters as illustrated in Figure 1. Throughout the thesis we have

created part summaries in order to make it easier for the reader to derive main findings and

maintain a holistic view. These part summaries also include brief bullet points, where notable

findings are presented. Chapter 1 provides the reader with knowledge about our reasons for

examining SAS, research question and delimitation.

Source: Own creation

The methodological part also consists of data collection, where we present and criticize

applied theoretical perspectives. We end the chapter with a critique of empirical sources. In

Chapter 2 we analyze their history, cost -and revenue structures, corporate governance, their

corporate strategy as well as the products and services offered. Chapter 3 continues the

microeconomic view by analyzing SAS‟ internal potential. We are applying notions from

various theories, such as The Resource Based View, Dynamic Capabilities, Core

Competences and Asset Specificity in order to assess SAS‟ resources, capabilities and

competences. Chapter 4 expands the microeconomic view as SAS and their context is

analyzed. We construct a macro –and meso economic analysis by applying models, such as

PEST and Porter‟s 5 Forces, which will provide valuable information about industry and

macroeconomic conditions and developments. Chapter 5 focuses on SAS‟ operational

performance, which also are benchmarked toward notable competitors. Next chapter will

illustrate our main analytical findings synthesized in SWOT-presentation, notable main

findingss are discussed. Chapter 7 presents our view on potential future scenarios for SAS,

Figure 1: Thesis structure

Page 10: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 10

before we in Chapter 8 will present our conclusions. Additionally, we finish the thesis by

putting some of our thoughts and reflections into perspectives.

1.2. Methodology

This section presents our methodological framework, which is illustrated in Appendix A. This

is done by applying the works of Steinar Kvale (2009) and Ib Andersen (2005). We will start

out by presenting and criticizing theoretical perspectives, as well as empirical data, since

these is an important aspect of conducting a valid and reliable scientific analysis. Afterwards,

we present our research design.

1.2.1. Theoretical Perspectives

This section aims to present, reflect and criticize applied theory. We will go through internal

perspectives, strategic models and tools for industry analysis. The resource-based view (RBV)

and dynamic capabilities (DC) are applied since they look at a firm‟s resources and

capabilities instead of looking at the end products like traditional economists. Thus, we find

them interesting to apply since they provide a better view of a firm‟s resources and thereby

future competitiveness and potential. DC is applied in order to cope with dynamic contexts

and learning. Besides these, several perspectives come from The Positioning School, which is

dominated by renowned strategy-guru Michael E. Porter and management consultants

(Mintzberg et al., 1998). Here we apply Ansoff‟s Growth Matrix (1957) and Porter‟s work on

generic strategies (1979). These views will provide us with a better theoretical understanding

of corporate and product strategy. Moreover, we have supplemented the mentioned theories

with Kumar‟s strategic framework for competing with low cost rivals (2006). This is because

it is highly relevant in the case of SAS.

The Internal View

The essence of the RBV is that, in order to create competitive advantages, one must have

superior resources available (Barney, 1991; Wernerfelt, 1984). Barney introduced four

important notions a resource should possess in order to provide competitive advantages.

Strategic assets (Amit & Schoemaker, 1993) should contain conditions, which can be labeled

“VRIN”-features, i.e. Valuable, Rare, Inimitable and Non-substitutable. Thus, market power

appears to arise from controlling key (scarce) resources. Barney & Hansen (1994) categorized

the resources as being physical, human, or organizational capital, which are used to develop,

manufacture and deliver solutions to customers. In other words, they view a firm‟s resources

Page 11: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 11

as a mix of tangible and intangible assets, which should be optimized in order to create

competitive advantages. Thus, a resourced based view might imply that strategy is about

balancing between exploiting current resources and creating new ones.

In order to cope with dynamics and learning, we synthesize the RBV-literature with dynamic

capabilities (DC). DC should be flexible, open for adaptation and change since they build,

integrate or reconfigure other resources (Teece et al., 2007; Eisenhardt & Martin, 2000).

Moreover Mintzberg et al. (2009) argue that these notions are derived from the RBV and their

transformation happens through strategic learning. If we develop these notions further, DC

and VRIN may improve competitiveness.

Transaction Cost Economics (TCE) theory can be beneficial when explaining strategic

conditions of SAS‟ assets. Transaction costs are normally categorized as costs of conducting

an economic transaction or exchange (Coase, 1937). Williamson (1981) identifies three

important characteristics regarding transactions, which are: Frequency, uncertainty and asset

specificity. Asset specificity is by far the most famous and influential notion, which is why

this will be further elaborated upon. If conditions of assets and capabilities are dedicated for

one or few specific transactions, the less flexible it is for being used elsewhere. Put

differently, asset specificity is about an asset‟s ability to be redeployed and/or transformed.

Williamson presents several types of asset specificity like physical (specific tools), site

specific (location specific assets like airport hubs), and human specificity (training), together

with reputation (brand value and loyalty) and dedicated assets (assets which are dedicated

toward a specific purpose or customer). Additionally, favorable asset specificity may improve

a firm‟s competitiveness.

Prahalad & Hamel (1990) argue that we can neglect the strengths of our competitors by only

looking at their products, which classical economists did (Mintzberg et al., 1998). This is

partly why we have included the RBV, dynamic capabilities, core competences and the TCE

perspectives. In addition to this, Prahalad & Hamel (1990) provide us with three tests to

evaluate if it is a core competence or not: Core competences should: 1) Give accesses to

new/more markets, 2) contribute significant to its customers and 3) be difficult to imitate.

Creating competitive resources and capabilities can often be time-consuming, expensive and

complex. Thus, inter-organizational collaboration may provide shortcuts to competitive

advantages. Fine (1998) stated that a corporation is its chain of capabilities, which is business

partners and their own capabilities. Haakansson & Snehota (1989) apply a geographical

metaphor by deriving that “no business is an island”. This is the very essence of network

Page 12: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 12

theory and the later perspectives on supply and value chain management. Thus, firms should

focus on their primary activities, or core competences, as Porter‟s (1996) “Value Chain”-

model suggests. Barney (1999) extended the RBV of a firm into an inter-firm (network)

perspective. He claims that gaining access to additional resources can be achieved by: 1)

cooperating with firms that possess the needed capabilities, 2) by developing the needed

capabilities internally or, 3) through M&As. Powell (1990) argued that firms were

institutions, which were all a part of a network influencing each other. Instead of looking at

organizations like they were in an isolated iron cage, the network perspectives extended the

orthodox economic way of looking at a firm. Networks make it possible to: gain access new

technology, economics of scale and scope, tap into others firms‟ resources, share risk, create

synergy, know-how, tangible resources, pooled negotiation power, coordinated strategies, etc.

(Powell, 1990; Goold & Campbell, 1998). Additionally, alliance-formation may also bring

added credibility and brand value. Furthermore, international partners have different

comparative (location specific) assets and advantages, which can be beneficial for the overall

alliance (Teece, 1986). From a RBV-perspective, firms are not only interested in accessing

their partners‟ VRIN-resources through collaboration, but also to protect their own VRIN.

Macro- and industry level

We cannot analyze SAS‟ competitiveness without assessing the macro context due to their

strong correlation. Thus, the PEST-analysis is applied in order to get a better macroeconomic

view of SAS‟ contexts and focus on political, economic, social and technological conditions.

Conducting a PEST analysis is important for airlines due to the strong correlation between the

macro and industry development. Additionally, Troelsen (2003) argue that macroeconomic

analysis is even more important in industries where the public has a big interest, e.g. like

aviation.

The industry-level is of utter importance to SAS since the industry has undergone tremendous

changes. An industry-analysis is conducted due to our goal of assessing SAS‟

competitiveness, which cannot be done without some external reflection. The industry is

influenced from the following 5 forces: Entry barriers, suppliers, buyers, substitutes and

rivalry. Threat of new entrants is our first force. Entry barriers are created through:

Economies of scale, product differentiation, capital requirements, cost disadvantages

(experience curve effects), access to distribution channels as well as government policies. The

second force is bargaining power of suppliers. Poor supplier relations can lead to higher costs

Page 13: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 13

(and thereby prices), which decrease competitiveness. If there are few (large) suppliers, i.e.

high supplier concentration, this will reduce the bargaining position of the buyer. It is also

important to analyze how crucial the purchased components are for the focal firm. Unique

components (such as aircrafts) can build up switching cost that increases the supplier‟s

bargaining power. Finally, the power over suppliers is also influenced by buyer‟s size.

Next force is the buyers, which may be the ultimate stakeholder. Buyers are powerful

stakeholders if they are concentrated, and, like in the supplier-scenario, buyers ordering large

volumes will become powerful since they will dominate suppliers‟ revenue stream. Similar

reasoning goes with strong product differentiation, which enhances supplier power. However,

if buyers want to purchase (homogeneous) standardized solutions, which multiple suppliers

can provide, this will give the buyers bargaining advantages. We argue that customers may be

the most influential stakeholder and force since they can punish and bless firms.

The next force is substitution. The more standardized solutions, the more competition may

exist in the market. Highly skilled and complex products and services can be difficult to

substitute or imitate. This implies that higher product quality increase barriers. Buyers‟

willingness to switch products (and the cost of doing so) also affects the industry competition.

Rivalry is the 5th

and final force and is influenced by numerous factors. For effective

competition to take place, competitors should have roughly the same size and power. Thus,

incumbent market leaders might reduce the rivalry within the industry. High switching costs

will also reduce rivalry since it will be difficult/expensive/inconvenient for buyers to switch

products and perhaps substitute products are not even available. The corporate strategies also

affect the rivalry, since incumbents may have a more defensive and reactive strategy, where

the objective is to “milk” the market, whereas smaller firms (LCCs) might apply aggressive

generic growth strategies.

Until now, we have touched important theoretical notions from RBV, DC, CC, TCE, PEST

and the 5 Forces. In order to assess a firm on a strategic level, we also feel the need to get a

better understanding of the actual corporate and product strategy, which is next.

Corporate- and product strategy

SAS‟ corporate strategy is analyzed by applying the “Generic Strategies”-framework from

Porter (1980). The essence is that, a firm can choose to target a narrow or broad segment, by

applying a low cost leadership or differentiation (niche) strategy. In other words, firms should

decide upon a specific strategy, in order to create competitive advantages. If multiple

Page 14: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 14

strategies and objectives are chosen, the firm will be “stuck in the middle”, which appears to

be the worst position for a firm due to vaguer competitiveness. Regarding product strategy,

we apply Ansoffs‟ “Growth Matrix” (1957). The matrix includes four growth strategies,

which are market penetration, market development, product development and diversification.

Market penetration is a less risky growth strategy, since it focuses on serving existing markets

with existing products, i.e. increasing market share. Market development is a bit more risky

since it involves penetrating new markets. Product development is about creating new

innovative products towards the existing market or customer segment. The final strategy is

diversification, which is the most risky since it involves innovative product development in

new markets with much ambiguity and uncertainty. This matrix will get us a better

understanding of how SAS perform product and market development.

Porter‟s important notions on generic strategies are synthesized with Kumar‟s framework for

fighting low-cost rivals (2006), figured in Appendix C. This is applied since SAS is extremely

pressured by LCCs. Kumar argues that a price-war, perhaps aiming at low cost leadership,

can have severe consequences for incumbents, due to low-cost rivals‟ (LCCs) more attractive

cost structures. Moreover, this supports notions from our internal perspectives, as low-cost

rivals possess more satisfactory resources and capabilities. Put differently, if an LCC can

capture customers, an incumbent will have difficulties competing on price. Therefore,

differentiation is crucial, but only if customers are willing to pay extra for this. Kumar‟s

framework creates significant value for our thesis, since it aims specifically at incumbents

competing with low-cost rivals.

1.2.2. Critique of theoretical perspectives

The RBV has been criticized for being too static and having a homogenous view. VRIN-

resources might enhance a firm‟s competitiveness, but we argue that this is insufficient in

order to maintain and sustain competitive advantages. Peteraf (1993) stated that VRIN-

resources need to be heterogeneous, due to the fact that if competitors had similar

homogenous resources, the resource would not provide competitive advantages. We can argue

that the RBV represent a useful tool to scientifically analyze resources. It is questionable,

though, how RBV will perform during dynamic changes or even hypercompetitive contexts

(D‟Aveni, 1994). We highlight the Nordic aviation market is not hypercompetitive, but it is

becoming more dynamic. When contexts becomes dynamic, new innovative resources are

required in order to defend and develop competitive advantages, i.e. competitive advantages

should be won over and over again in a dynamic environment (Fine et al., 2002). The

Page 15: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 15

importance of incremental organizational learning is emphasized and this is neglected in the

RBV-literature. Therefore, in order to cope with learning and dynamics, we found it

interesting to apply notions from the dynamic capabilities-framework. Mintzberg et al. (2009)

argue that transforming resources and capabilities (through learning), into competitive

advantages, is central. Additionally, Kay (1993) argues that the real core competences might

be the ability to learn and adapt your resources toward the environment‟s expectations.

Strategizing toward stakeholder and market demands seems to be a more reactive than

proactive strategy. These notions may belong to Mintzberg‟s “Environmental School”.

We support the internal analysis with Williamson‟s (1985) notions regarding asset specificity.

The degree of asset specificity enhances our knowledge about SAS‟ resources and

capabilities, dynamics and how easy it is to redeploy SAS-assets. On the basis of this, we

claim that there may be a theoretical positive correlation between low asset specificity,

dynamic capabilities and competitive advantages. By this, we also (indirectly) argue that there

may be a correlation between high asset specificity and scientific management. Employees

(human assets) trained by beliefs inspired by Taylor (1911) may be difficult to reconfigure to

other types of work. This is due to the staffs‟ highly skilled (but narrow, and perhaps static)

core capabilities.

Moreover, we apply important notions from network and alliance-theory, although we

criticize it for being too narrow. Inter-firm actions may create synergy and competitive

advantages, but can, however, also lead to reduced (strategic) control of internal VRIN.

Networks are tradeoffs between being able to procure VRIN-resources from other actors

without losing control of internal VRIN-resources through unintended spillover effects.

Moreover, network-perspectives often neglect the importance of internal knowledge-creation,

which leads to competitive advantages. On the other hand, joint-collaboration can lead to

improved efficiency and effectiveness. In order to remain successful in the long-term

perspective, internal knowledge creation has to occur, i.e. innovations will not happen without

investments in internal capabilities. Alliances also offer trust challenges between actors, as

well as agency problems, conflicts of interests, free-riding, etc. Another downside of

alliances, seen from a stakeholder perspective, is the lack of transparency. Daniel Sokol,

professor at University of Florida, claims that when alliances enter difficult financial times,

they increase collaboration and thereby create potential cartels5, i.e. they can share risks and

5 http://www.ugebreveta4.dk/2009/200934/Baggrundoganalyse/Kartellerne_blomstrer.aspx

Page 16: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 16

costs.

Therefore, it may be difficult (or even impossible) for external stakeholders to analyze who

contribute with what within a strong partnership. Put differently, external stakeholders such as

customers, authorities, NGOs, etc. might have high transaction costs when making

transactions with alliances. They have to spend time and resources on evaluating the potential

of one alliance-partner and what it is actually capable of. From a RBV-perspective, we could

argue that it is difficult to analyze, which partners contributes with VRIN-resources in the

alliance and which are free riders.

It is also important to make the connection between corporate strategy and RBV. The strategy

formulated by management is highly influenced by the organizational resources, capabilities

and core competences. At least the strategy should be formulated by taking internal potentials

into consideration. Thus, corporate strategy and internal capabilities are inter-connected. We

apply Porter‟s “generic strategies”-framework on SAS, but we argue that the model neglects

important internal capabilities. Applying a given strategy from the matrix is good, but it

should always be synthesized with available resources. Put clearly, a firm should not apply a

“low-cost leadership”-strategy if they do not have the cost structures, resources or

competences to perform this strategy successfully. Perhaps Porter was inspired by Ansoff‟s

earlier work on the growth matrix during the 50s, since we observe similarities regarding

strategy and market segmentation. They differ in a way that Ansoff integrates product strategy

as a growth mechanism, whereas Porter mainly focuses on corporate strategy and competitive

advantages. Ansoff also integrates the potential of entering new markets. Thus, we synthesize

Porter and Ansoff‟s matrices in order to get a better understanding of SAS‟ products and

corporate strategy.

Regarding “Porter‟s 5 Forces”- model, we criticize it for being too static. Emerging and

dynamic industries can be difficult to analyze with the 5 Forces tool, since it may require

some degree of stability when assessing the forces. In a more scientific manner, Porter‟s 5

Forces might not perform well under “Hypercompetitive” environments (D‟Aveni, 1994). For

SAS, this becomes relevant since the Scandinavian aviation-industry once were monopolistic

and static, but now have become more dynamic than ever. Mintzberg et al. (2009) also

highlight time difficulties within the framework. They claim that the industry-analysis will be

based on the historical and present development of the industry. In other words, we assess the

future by applying data from the past, i.e. a time gap. Mintzberg et al. (2009) also emphasize

that Porter neglects internal capabilities and resources, or as we put it, VRIN, dynamic

Page 17: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 17

capabilities and core competences. Basically it implies that individual company performance

is highly influenced by different forces like the market, suppliers, competitors, etc. We

highlight, however, that company performance is also influenced by internal capabilities. This

is because competitive advantages and profitable positioning cannot occur without VRIN-

conditions. Additionally, we criticize Porter‟s main entry barriers, since we believe that the

importance of knowhow and capabilities are neglected. Inexperienced new entrants will face

severe challenges even though they may have large capital resources in the airline-industry.

Experience, knowledge and capabilities do not come easy, which is why new entrants will

have a steeper experience curve than existing firms. To synthesize our internal perspectives,

dynamic VRIN-resources and core competences will create competition barriers towards

competitors (especially new entrants), and thereby enhance the firm‟s strategic positioning

and competitiveness. In other words, organizational learning and capabilities are important, as

well as it might be worth mentioning that the 5 Forces framework can bring important notions

about market positioning. Unfortunately, it does not create a strategy.

It might also be worth mentioning that the 5 Forces framework can bring important notions on

market positioning, but it is not a tool for creating a true corporate strategy (Hamel, 1997).

Conducting a 5 forces analysis has never created a strategy as it rather identifies industry

factors. Harvard strategy professor Robert Kaplan applied a different view on the 5 Forces

model, during a lecture at Copenhagen Business School in May 2010. He argued that Porter‟s

5 Forces is in fact a tool for risk management. This is because it focuses on risks that

industries face (forces pressuring the industry). We support this claim and extend the view by

arguing that the framework can be used to identify various downside and upside risks. Thus,

the 5 Forces framework can be interpreted to be more than a tool for industry-analysis. It can

also be viewed as a way of assessing stakeholders or as a risk management model.

1.2.3. Empirical data collection and critique

We have tried to get primary data from SAS, which made it clear that they do not wish to

provide any additional information beside what is already stated in their public material. We

interpret this defensive stakeholder policy of closure as a bad sign. According to the old

saying: “If you have nothing positive to say, do not say anything at all”, this information

policy towards stakeholders do not provide positive assumptions. However, we have still

managed to remain objective. In various publications from SAS, we have encountered

strongly biased information regarding the airline. Thus, we interpret the annual report as

being biased and perhaps a marketing publication towards investors. Therefore, we are highly

Page 18: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 18

critical toward published information in SAS‟ reports since they often try to place themselves

in an optimal position. However, the financial information should be valid and comply with

international financial reporting standards (IFRS). Significant mount of data comes from

respective airlines‟ annual reports, monthly traffic reports and newspaper articles. SAS

Annual report 2009 is the airline‟s latest yearly report and is one of our main sources of data.

We have also found great value from “Flying Off Course” by Rigas Doganis. He practically

wrote the book on airline economics and is generally considered among industry analytics,

scholars, etc., as a reliable and valid source. However, we are aware that Doganis may have a

more commercial. On the other hand, he has valuable industry experience from managing a

larger European airline. Essentially, the book gave us a better understanding of the economics

and background in the industry.

We have used secondary data from several media, such as Børsen, Business.dk, boarding.dk,

the Economist, ekonomifakta.se, IATA, Business Week, DagensNæringsliv, Kapital, etc.

Some of these sources tend to have a negative view on SAS. However, they do provide us

with valuable industry knowledge. In addition to this, we tried to supplement our empirical

data collection with investment analysis from investment banks. During our contact with

investment banks, we were told that there is limited interest for SAS in the market. However,

financial institutions in Scandinavia (e.g. First Securities) often follow SAS, largely due to

their rival Norwegian which (financially) may be more attractive.

We have collected valuable qualitative macroeconomic data through various governmental

websites, the International Monetary Fund, OECD, World Bank and other NGOs. These have

been helpful when assessing the macroeconomic context. Our benchmarking-section also

offers qualitative data, which is used to derive airlines‟ performances. Much of this traffic

data is published by the airlines themselves, which may make them biased. Therefore, we

have remained highly critical toward material used in order to stay objective.

1.2.4. Framework and research design

During this project we have encountered several limitations regarding the framework and

research design. We have chosen to focus more on annual reports, investor analysis and

presentations, industry analysis, traffic reports, etc. This means that we have chosen to reject

primary data from SAS since they were not interested in collaborating. By not collaborating

with SAS, we have gotten more “freedom” and time to conduct our analysis and interpretation

in areas, which we find most interesting. As a result of this, SAS have not created limitations

for our work. On the other hand, primary data may provide useful information and we could

Page 19: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 19

have avoided unnecessary “noise” from secondary data. However, this information would

also be biased. Data collection methods such as interviews and questionnaires have been

excluded since we felt that secondary sources would provide a better outcome. During our

research, we encountered that stakeholders generally have rather negative views on SAS,

perhaps due to the negative media attention. Moreover, by applying secondary data we have

also saved time, which were spend on creating a better analytical foundation instead of

collecting data and operationalizing questionnaires, interviews, etc. (Andersen, 2005).

According to Andersen (2005) projects are influenced by formal requirements, rules,

resources, the purpose and the thesis stakeholders, i.e. framework limitations. For us, this

means that CBS and the Danish Ministry of Education provides certain formal requirements

and boundaries for our work, e.g. time duration, page limitations, etc. Additionally, SAS

could also have certain requirements if they wished to collaborate. The purpose of our

research is influenced by our (previous and current) knowledge and resources with this field.

Our resources, knowledge, interests and competences within this area are influenced by CBS-

courses, professors, CBS library, books, etc. Both of the authors currently obtain a bachelor in

economics and business administration, have studied finance and strategic management on

master‟s level as well as having several managerial electives. All these factors influence our

knowledge and therefore our research. Thus, our interests are within strategy, management

and competitiveness which influence the work. Regarding stakeholders, we find that our main

stakeholder is the recipient of the thesis, i.e. our supervisor. Our supervisor‟s knowledge and

interests within management, strategy and SAS have influenced our work significantly. We

believe that the main motivation for our supervisor is to receive a good well structured

project, which obtain innovative research. Thus, we emphasize that it is important for us to

satisfy our supervisor, but we had a strong focus on conducting individual research in order to

leave our own markings on the thesis.

Andersen (2005) highlights that the research process possess certain limitations like the

research question, theoretical foundation, empirical delimitation, project organizing, access to

data, research design and data collection techniques. Andersen highlights that a well-

constructed static research question may help the researcher throughout the process. However,

in our research, we have integrated the research question in a more dynamic manner. We

argue that creating strong static research questions in the beginning of a project may provide a

certain degree of structure, deliberate strategy, but also create severe limitations. During our

research process we have gathered information incrementally and applying a static problem

Page 20: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 20

statement may offer challenges with this. Put differently, we have chosen to reject a deliberate

strategy and applied a more emergent form. Our research question gave us structure, but was

more an ongoing process and under continuous development in order to cope with

incremental learning.

Our empirical delimitations are created in order to narrow down and specify our research

area. This has provided the researchers with a better structure and clarity, especially during

the data collecting stages. The project organizing was, among others, an ongoing dialogue

with our supervisor by e-mail and meetings. Correspondence by e-mail gave us brief answers

on current challenges and our meetings generally obtained a deeper discussion of empiricism

and science. This guidance provided us with great value.

We apply quantitative data in this thesis when we have extracted traffic figures, operational

performance, macroeconomic indicators, etc., i.e. in chapter 5. These are measurable

developments which have been created and influenced by external stakeholders. However, as

Andersen (2005) argues, there often exists a tendency to believe that quantitative data may be

more reliable, if it is created in a proper methodological manner. In addition to this, we have

applied secondary qualitative data such as news paper articles and analyst reports. Another

(primary) qualitative data could emerge through the meetings with our supervisor. Theoretical

knowledge was “easier” to find as our course materials and the CBS library offer excellent

opportunities to find information. During the process of data collection we have reflected in

relation to the data‟s validity and reliability. In short, validity “measures” the connection

between relevance and the applicability of the data when connecting it to the research

question. Put in a more academic manner, validity may measure the connection, or gap,

between empiricism and theory. In essence, to which degree is the data relevant for us when

we wish to answer our research question. On the topic of reliability, we find it important to

consider to which extent our data actually measures what we want to analyze. How applicable

and reliable is the information? An example of diffuse or challenged reliability could be our

operational benchmarking. Airlines tend to merge with other airlines (merge statistics and

performance), change methodology regarding traffic statistics, etc. These may, all things

equal, question the reliability. In addition to this, we apply deductive reasoning. An example

could be when we analyze the corporate structure. Here we apply theoretical notions to

examine the empirical data. The essence of our methodology process is that we have had a

strong dynamic connection between the research question, theoretical perspectives,

empiricism and our findings, as Andersen suggests (appendix A).

Page 21: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 21

Chapter 2 – Analysis of SAS

In this section we start with a brief historical presentation of SAS and factors which have

influenced the Nordic airline-industry. Afterwards we turn our attention toward the cost -and

revenue streams of SAS, which are of utter importance for our analysis. Then will we move

on to the corporate governance-section in order to assess the ownership structure of the airline

before we analyze SAS‟ corporate –and product strategy.

2.1. History

Figure 2: Notable historical events influencing Scandinavian aviation

Source: SAS investor relations

In Figure 2 we have listed notable events influencing SAS from 1940 to present.

Scandinavian Airlines System (SAS) was formed in 1946 from Det Danske Luftfarselskab

A/S (DDL), Det Norske Luftfartselskap (DNL) and Svensk Interkontinetal Lufttrafik AB

(SILA – the daughter company of Swedish firm Aktiebolaget Aerotransport - ABA). The

same year the airline opened services to North –and South America. Already by 1947 the

airline had carried more than 18,000 passengers over the Atlantic, earning a reputation as a

pioneer within the industry. In 1951, DDL, DNL and ABA formed the present SAS

consortium, where the ownership was allocated as the following: 2/7 Danish, 2/7 Norwegian

and 3/7 Swedish. SAS had an exclusive license to fly to various destinations within the United

States from the Scandinavian countries and in the mid-50s, the airline established a base at

Søndre Strømfjord in Greenland, which made it possible to fly to long-distance over the North

1940- 1970

• World War 2 ends

• 1946: SAS formed from Det Danske Luftfarselskab A/S (DDL), Det Norske Luftfartselskap (DNL) and Svensk Interkontinetal Lufttrafik AB (ABA)

• 1951: DDL, DNL & ABA merges

• 1960: First Hotel is opened - SAS Royal Hotel Copenhagen

• 1965: SAS introduces electronic reservation system

1971- 1990

• SAS pruchases the popular Boeing 747, the "Jumbo Jet"

• 1973: Oil crisis

• 1979: Oil crisis

• 1980: SAS opens first non-Scandianvian Hotel, SAS Kuwait Hotel

• 1982: SAS is awarded "Europe's most punctual airline"

• 1984: SAS awarded "Airline of the Year" by Air Transport World

• 1986: Spanair is founded

• 1989: Fall of the Berlin Wall

1990-1999

• 1991: Dissolution of USSR and end of the Cold War

• 1992: The current EU is created through the Maastricht treaty

• 1992: Eurobonus is introduced

• 1994: Deregulation of the Scandinavian airline industry

• 1995: SAS creates AirBaltic in a JV with the Latvian state

• 1997: SAS is a co-founder of Star Alliance

• 1997: Asian financial crisis

• 1997: SAS acquires Widerøe

• 1999: SAS acquired Air Botnia, nowadays' Blue1

2000-2006

• SAS stock is listed on exchanges in Stockholm, Copenhagen & Oslo

• 2001: 9/11 attacks & invasion of Afghanistan

• 2001: Braathens aquired

• 2002: The € is created

• 2003: Iraq war

• 2003: SARS epidemic

• 2003: SAS aquires 49 % of Estonianair

• 2003: LCC subsidiary Snowflake was created

• 2004: Snowflake gets terminated

• 2004: EU East expansion

• 2005: SpanAir controlled

• 2006: SAS divests Rezidor Hotel Group

2006-Present

• 2007-2008: Dramatic increase of oil price

• 2007: Finance crisis

• 2009: Cores SAS is initiated

• 2009: Spanair sold off for 1 €

• 2009: AirBaltic divested

• 2009: SAS awarded "Europes most punctual airline" again

• 2009: Swine flu

• 2009: Treaty of Lissabon is signed

• 2010: Volcano eruptions on Iceland

• 2010: SAS receives financial support from investors.

Page 22: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 22

Pole. In 1960, SAS opened their first hotel in Copenhagen, SAS Royal Hotel and five years

later they introduced the world‟s first electronic ticket-reservation system for airlines. After

surviving the energy crisis in the 70s, SAS were awarded “Airline of the Year” in the 80s.

The airline‟s success could largely be attributed to the longest-serving CEO of SAS, Jan

Carlzon, who had an ambition to create the business man‟s airline. This required the

introduction of several programs with the aim to improve customer service, i.e. “charm

schools” for their employees, as well as the mileage-program Eurobonus. The program was

launched in 1992 and still remains the most awarded frequent flyer program in the industry.

The 90s meant political changes due to the deregulation of the Scandinavian airline-industry,

which resulted in increased competition. Moreover, the treaty of Maastricht and the

dissolution of the Soviet Union meant new Eastern European possibilities for SAS. They

entered a joint venture with the Latvian state and airBaltic was founded in 1995. Two years

later, in 1997, Star Alliance was founded by five airlines: Air Canada, Lufthansa, SAS, Thai

Airways International and United Airlines. The overall idea was to create a global network of

code share flying and thereby offering better, faster and more flexible opportunities for

travelers. The SAS-share was listed on the stock exchanges in Stockholm, Oslo and

Copenhagen in 2001. The catastrophic events of 9/11 resulted in tough times for aviation.

Increased terror-alerts have also increased the need for efficient security processes, which

apart from increasing safety-levels also affect security costs6. Moreover, the SARS-epidemic

worsened the situation for the global airline-industry. In 2003 SAS entered the low cost

market through their LCC-subsidiary Snowflake. The initiative, however, was terminated few

years after. 2003 also meant a new Baltic expansion as SAS acquired 49% of the shares in

Estonian Air. More recently, SAS divested their hotel. Apart from the increased competition

in aviation and general low airfares, the industry has been influenced by the increasing oil

price, which peaked in 2008. The financial crisis also began to take off, which resulted in the

desire to create a more cost-efficient and lean SAS. Core SAS was introduced, which implied

divestments of various airlines. In 2009 SAS were awarded the most punctual European

airline. Early 2010 SAS (again) needed support from investors, as well as the implications

from the Icelandic volcano eruptions. Thus, we see that SAS and the Scandinavian airline

industry are highly sensitive towards political, economic and environmental changes. Today,

the SAS Group consists of Widerøe, Blue1 and SAS.

6 http://www2.parl.gc.ca/Content/LOP/ResearchPublications/prb0572-e.htm

Page 23: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 23

Destructive extraordinary events for SAS

SAS have been involved in several unfortunate incidents the last decade. In 2001, SAS

experienced their most fatal accident in Milan where 118 peoples lost their lives7. In 2007

SAS had three accidents due to problems with their Dash 8-400 planes. Again, in 2008,

Spanair had an accident in Madrid where 150 people were killed. In 2001, SAS and Maersk

Air engaged in a cartel on the Copenhagen-Stockholm route and were fined almost €40

million by the EU Commission8. Again, in 2007, SAS was investigated concerning possible

cargo-cartels and were prosecuted by the EU Commission. In 2008, SAS Cargo was fined 250

million DKK for breaking the American antitrust law. Once more, in 2010, SAS were accused

of illegal industry espionage on Norwegian and had to compensate Norwegian for damages in

the amount of 160 million NOK. Thus, it seems that SAS cannot obey the rules and norms of

standard decent business behavior, which their owners to a certain extent create. These

incidents during the last century have certainly damaged SAS‟ credibility, brand value and

maybe revenue potential.

2.2. The cost & revenue structures of SAS

Appendix B illustrates the income statement for the

SAS Group (2007-2009) and we observe that that

SAS‟ operating expenses have declined almost 13%

from 2008-2009 and accounted for 43,4 Billion SEK

in 20099. The specific costs are presented Table 1,

where we note that their main cost factors are payroll

expenses and jet fuel. Flying expenses are

characterized as direct operating costs and account for

roughly 70%10

. Airline professionals claim that a

healthy percentage should amount to 55-70% of total

costs (Doganis), i.e. SAS‟ are in the upper area of this

scale. Passenger-related expenditures are characterized

as indirect operating costs and account for roughly

30% of the SAS Group‟s costs11

. Next we will elaborate upon the most important costs.

7 http://www.business.dk/transport/sas-faar-elendig-placering-paa-ulykkesrangliste 8 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/01/1009&format=HTML&aged=0&language=EN&guiLanguage=en 9 Operating expenses, however, does not include leasing costs, depreciation, share of income in affiliated companies or capital gains/losses 10 Flying expenses include payroll expenses, maintenance, jet fuel, leasing costs and government user fees. 11 These costs include catering, handling, selling and computer and IT costs, which are not directly dependent of aircraft operations.

Table 1: The

SAS Group's

costs

2007

2008

2009

Payroll

expenses

34,9% 34,8% 38,9%

IT 4,5% 4,4% 4,6%

Technical

aircraft

maintanance

6,9% 6,1% 2,6%

Handling costs 3,9% 3,5% 3,8%

Catering costs 2,8% 2,6% 2,6%

Government

fees

9,2% 8,9% 9,5%

Jet fuel 16,4% 18,5% 16,6%

selling costs 1,4% 1,3% 1,3%

leasing costs,

aircrafts

5,2% 4,4% 5,0%

Other 14,8% 15,6% 11,3%

Environmental

costs

1,0% 1,0% 1,0%

Total 100,0% 100,0% 100,0%

Source: Own creation based on data from SAS annual reports

Page 24: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 24

Payroll expenses: In 2007-2009 accounted for 34,9%, 34,8% and 38,9% of SAS‟ total costs,

respectively. The 2009-increase in payroll expenses may be related to the Core SAS-program

and staff reduction. We derive that salary are increasing on short-term basis due to layoffs. In

order to get a better understanding of salaries at SAS, we have benchmarked with other major

European network carriers due to the similarities in cost-structures and business focus.

Table 2 show the annual expenditures for

airlines measured in US$ per 1000 PAX-KMs

(Doganis, 2010). This is a measure of

expenditures per passenger-levels per kilometer

and we observe that SAS spend more financial

resources on their passengers than competitors.

These passenger service costs could be due to

marketing, sales, administration and other

service processes. Thus, we derive that British Airways have 0,2 % lower passenger services

expenditures compared to SAS. Air France has 5,2 % lower expenditures, Lufthansa 15,9 %

and Finnair 28,4 %. This table shows that SAS have substantially higher expenditures than

notable network competitors.

Table 3 presents the expenditures

related to pilots and cabin attendants.

Regarding pilots, SAS actually performs

more satisfactory than Air France, but

significantly worse than British

Airways. With regards to the rest of the

cabin crew, SAS is performing lower than the notable competitors. Air France has 14% lower

expenditures on their cabin crew, Lufthansa is 40 % lower and British Airways 48 %. In

addition to this, we highlight that the cost-difference gap is even higher on intercontinental

and LCC-flights. American and Asian airlines tend to operate with 50-60% lower salary-

levels than SAS and similar trends are observed with Norwegian, Ryanair and easyJet12

.

Higher salary-levels among staff are usually associated with a higher activity-level. However,

according to a study by Sydbank in 2008 on annual flight hours for pilots, SAS‟ pilots are

working less than their colleagues in other airlines13

. EU have a maximum security limit on

flight hours for pilots, which is 900 hours per year and SAS‟ pilots have an average of 570

12 Doganis p. 100, table 5 13 http://www.business.dk/transport/sas-piloter-arbejder-mindst

Table 3: Annual Pilot and Cabin Attendant costs

(US$000s)

Airlines Pilots Difference

to SAS

Cabin

attendants

Difference

to SAS

SAS 233,8 97,2

Air

France

316,7 35% 83,3 -14%

Lufthansa 225 -4% 58,7 -40%

BA 178,8 -24% 50,8 -48% Source: Own creation based on data from Doganis

Table 2: Annual passenger services costs

Airlines

US$ per

1000 PAX-

KMs

Difference to SAS

SAS 19,75

BA 19,71 -0,2%

Air France 18,73 -5,2%

Lufthansa 16,61 -15,9%

Finnair 14,15 -28,4%

Source: Own creation based on data from Doganis

Page 25: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 25

hours per pilot per year. The general trend for European pilots is that pilots, on average, have

39% more flight hours than in SAS. In essence, SAS‟ pilots work considerably less than the

industry average and are paid significantly more for their services. Reasons may include the

strong Scandinavian unions and shorter routes, which may lead to reduced flight-time and

block hours. Thus, SAS‟ three hubs require coordination.

Another important aspect of payroll expenses is that SAS have built up significant pension-

obligations, which are properties newly-started LCCs do not possess to the same extent as

SAS, hence, they operate with lower cost-structures. This is supported by a Norwegian

financial magazine, Kapital (February 26, 2010), which wrote an article on the new

accounting-rules taking affect from 2012, where pension-obligations should be included in the

balance sheet. They claim that this will have severe consequences for SAS.

Jet fuel: This is SAS‟ biggest expenditure after

salaries. In 2007-2009, this accounted for

16,4%, 18,5% and 16,6%, of the annual costs,

respectively. Figure 3 shows a graphical

illustration of the jet fuel cost development for

SAS. We observe that the costs increased in

2007-2008 which may be related to the increase

in oil prices. The recent decline may be related to Core SAS since reduction of operations

may influence jet fuel consumption –and costs. According to Goldman Sachs (2010) fuel-

costs may increase by approximately 20% from 2010-2011. It may, however, be reduced

through factors such as hedging and modernizing the fleet. SAS have a policy where they

hedge 40-60% of their anticipated fuel consumption14

. The remaining fuel is purchased at

market price. Lately, SAS have hedged in periods of 1 year, and in 2008 the group managed

to save $155.6 Million by hedging 53% of its fuel, compared to purchasing jet fuel at the

market price. Except through hedging, fuel cost may only be reduced by investing in new

fuel-efficient aircrafts, negotiating lower fuel prices with oil companies or by flight specific

means, such as lighter aircrafts, lighter baggage and lower cruising speed. However, SAS may

not have financial strength to renew their fleet and they have chosen to continue their

attractive baggage policy. The increased focus on short-haul flights may also influence jet-

14 SAS Annual Report 2009, p. 51

Figure 3: The SAS Group’s jet fuel costs

Source: SAS annual report 2009

Page 26: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 26

fuel costs. This is due to increased fuel-consumption when a plane takes off and the time

before it reaches their preferred altitude compared to the actual cruising (Doganis, 2010).

Thus, longer flights leads to lower jet-fuel consumption per kilometer, as illustrated in

appendix D. As a result of this, the focus on short-distance flights may become an expensive

fuel strategy. Additionally, if the Scandinavian governments choose to enhance their green

profile by increasing oil taxation, this will also influence SAS negatively.

Technical aircraft maintenance: These are costs related to maintenance of aircrafts. From

2007-2009, this accounted 6,9%, 6,1% and 2,6% of SAS‟ costs, respectively. The significant

2009-reduction may be related to the divestment of SAS Ground Services, downsizing of the

fleet or the use of operational leasing.

Other notable costs are related to government fees, IT, handling, leasing, environment as well

as sales costs which are low due to use online booking and sales. The last category is “Other”,

which we cannot interpret since the annual report does not elaborate upon these expenditures.

Now that we have presented cost structure we will turn our attention towards the revenue.

Revenue

Appendix B illustrate that SAS‟ revenue have

declined 15% from 2008-200915

, and their

revenue amounted to 45 Billion SEK in 2009.

Table 4 illustrate the revenue created by the

different airlines in the group from 2007-2009.

Due to the implementation of Core SAS,

Scandinavian Airlines is operated as one

company in the group, together with the two

airlines Widerøe and Blue1. Thus performance is

measured on the entire Group. It is to be observed

that 88,5% of SAS Group‟s revenue is linked to

SAS operations. Widerøe and Blue1 account for 7,4% and 4,10% of revenue, respectively. In

addition to this revenue construction, Appendix E shows the revenue allocated on various

segments. It shows that the annual passenger revenue (the main source of revenue) has

decreased by approx. 15 %, from 2008 to 2009. Thus, we have generated a picture of SAS‟s

15 SAS Annual Report 2009, p. 45

Table 4: SAS Group's revenue breakdown

2007 2008 2009

Scandinavian

Airlines

88,5%

SAS Norway 21,4% 22,4%

SAS Danmark 18,5% 19,0%

SAS Sweden 14,0% 13,5%

SAS

International

12,1% 12,7%

Widerøe 4,9% 5,5% 7,4%

Blue1 3,2% 3,2% 4,1%

SAS Ground

Services

9,6% 10,0%

SAS Tech 7,7% 8,4%

SAS Cargo 5,3% 5,4%

AirBaltic 3,2%

Total 100,0% 100,0% 100,0%

Source: SAS Annual reports 2007, 2008, 2009

Page 27: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 27

revenues and derived that the main source of revenue, which is declining, comes from

transporting passengers. As a result of this, we wish to get a better understanding of which

customer groups that are important for SAS.

Figure 4 illustrates the revenue by

different customer categories. We

clearly observe that business travellers

are the biggest customer segment for

the SAS, leisure is the second largest

source of income and charter travel

account for 10 %. Thus, we derive that

the business segment is of utmost

importance to SAS.

Revenue is influenced by increased competition, especially from LCCs and charter-firms due

to more options for customers. Therefore, LCCs and charter-firms may reduce the market

share for SAS (especially on the leisure-market). As charter-companies continue to expand

their value chain and operate own flights, we see challenges for SAS in this segment. As

leisure and charter segments become more challenging contexts, the importance of the

business segments increases. The tendency, which will be derived later on, indicates that

corporations tend to increasingly focus on price (short-haul). This makes competition from

LCCs even more challenging. In short, SAS‟ revenues from charter, leisure and business

segments will be tested further in the future, especially on the short-haul market.

Now that we have covered both costs and revenues, we will move on to our corporate

governance-section in order to get a better idea of SAS‟ investors‟ influences and objectives.

2.3. Corporate Governance

This section aims to analyze the ownership structure of SAS and how it influences corporate

strategy. The essence of corporate governance was pointed out by Adam Smith (1776), who

stated that directors of companies, managers of investor‟s money, cannot be expected to

watch over it with the same attention with which they watch over their own. In other words,

Smith derived that what economists nowadays label as agency problems and these are at the

core of theory of the firm and corporate governance. Since the objectives of SAS should be

the same as their investors‟, i.e. similar utility functions (Frank, 2003), it is important to

analyze the ownership structure, investor profiles and management incentives.

Source: SAS annual report 2009

Figure 4: SAS' customer categories measured on revenue

Page 28: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 28

2.3.1. Ownership structure, concentration and identities

Appendix F illustrates that firm value and performance is influenced by ownership

concentration (Thomsen, 2008). It shows that it might be beneficial to have large investors,

although a too high ownership

concentration will result in

diminishing performance. The

ownership of SAS is described in

Figure 5 and we observe that 50

% of SAS is government-owned.

The largest state-owner is

Sweden (21,4%) and the

Norwegian and Danish state own 14,3% of the airline, each. Institutional investors have 30-

35% of SAS and private hold the remaining 15-20 %. More specifically, Appendix G

illustrate that other notable shareholders include a Wallenberg Foundation, an American

pension fund, the Danish National Bank, etc. In addition to this, it is to be noticed that

Swedish investors hold almost 50% of the airline‟s shares. SAS have a high ownership

concentration since four investors own almost 60 % of the company. This implies that they

have an incentive to perform active ownership, which involves: Hiring and firing board

members, as well as select management and influence the corporate objective, mission, vision

and strategy. Put differently, they have incentive to monitor and control management in order

to reduce agency-costs, i.e. perform active ownership (Thomsen, 2008). A downside of this is

that these investors may hire executives based on (nationalistic) nepotism instead of

capabilities. Another weakness of having large investors (governments) is that these owners

may become risk averse, which again may reduce possible innovations and competitive

advantages. With respect to SAS, governments are investing taxpayers‟ money and politicians

who defend SAS may lose popularity largely due to bad performance of the airline. Thus,

several politicians want to sell their governments‟ shares16,17

. Another reason for selling

shares is conflicts of interest with other investors. The Scandinavian governments all have an

interest in having a strong, efficient and profitable (multi)-national airline, which is important

to keep in mind. They wish to maximize firm performance and value, but also maintain an

effective air infrastructure in the Nordics. In addition to this, some might even argue that

aviation is also a matter of national security. Thus, their interests may differ with other more

16 http://www.dr.dk/Nyheder/Indland/2010/04/27/053534.htm 17 http://borsen.dk/investor/nyhed/176190/

Source: SAS annual report 2009

Figure 5

Page 29: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 29

profit-oriented investors, which may influence the corporate strategy. Owner identity becomes

critical in SAS since they possess different utility functions and ways to maximize it, i.e.

efficient infrastructure vs. mere financial objectives. Thus, we elaborate upon this topic next.

2.3.2. Investor profiles

The Scandinavian governments may have common goals with SAS. However, respective

countries‟ infrastructure may be especially a wish for governments as well as increasing their

countries‟ international competitiveness. For instance, Danish politicians may want to focus

more on a SAS, which optimize the Danish airline market rather than maintaining a domestic

route-map in e.g. Norway. Financial profitability aside, investors have different views on the

“right” corporate strategy. Hart et al. (1996) argue that governmental ownership also means

an increased focus on output instead of financial return. Scandinavian governments may want

a strong profitable SAS, but also an efficient transportation infrastructure domestic in the

respective countries, together with intra-Scandinavian and European routes. Besides a

developed route map, they may also show special interests in affordable ticket prices for

customers, safety, employment relations and other factors besides profitability, i.e. “softer”

non-financial key performance indicators (KPIs). Put differently, “non-profit” maximization

is often a governmental objective in welfare economies since large governments are expected

to correct market failures (Arrow, 1969). This may be a reason for why some government

enterprises, e.g. SAS, are performing unsatisfactory financially. Even though, when looking at

other parameters, i.e. efficient infrastructure for Scandinavian citizens, then they may perform

satisfactory.

Scandinavian governments are usually considered to be wealthy, which is why the financial

performance of their enterprises may be met with patience. Another aspect of governmental

investors is that the governments‟ shareholder positions are ultimately managed by ministries

and top-management here is usually politicians. Thus politicians have a controlling influence

on SAS‟ corporate strategy since these politicians indirectly can hire and fire board members,

influence corporate strategy, etc. Politicians generally aim for a strong and profitable SAS,

but they also want votes so they can remain in power. This implies that SAS may be operating

inefficient and unprofitable routes in order to please voters, and these routes may reduce

competitiveness. On the other hand, voters might be tired of financing SAS through their

already high taxes.

The most significant and interesting institutional investor, for us, is the Swedish Knut and

Alice Wallenberg Foundation, which own 7,6 % of SAS. The family has investments in

Page 30: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 30

multiple Swedish companies and SAS is just one of their many portfolio investments. This

type of institutional investor is considered patient, a low degree of risk aversion, long time

horizon on their investments, possess substantial financial resources and is mostly occupied

by financial gains (Thomsen, 2008). The strong focus on financial success means that they

have a different investment profile than governments. The Wallenberg Foundation engages

active ownership through Jacob Wallenberg, whom is a member of the board at SAS.

We will now assess the top executive management-level, in order to assess if management

serve their owners‟ interests.

2.3.3. Management structure and remuneration

The majority of investors have Swedish roots and we

argue that this influence the managerial structure of the

company. When analyzing the historical CEOs of the

SAS18

, we observe that the majority of CEOs have been

Swedish, which is also illustrated in Figure 619

. In other

words, we argue that there seems to be a correlation

between investor nationality and their preferences

regarding hiring CEOs, in our SAS-case. Put

controversially, perhaps the major Swedish investors

promote and hire managers based on some sort of

nationalistic nepotism instead of competences and

meritocracy. Hiring foreigners, that may have a different

view on the situation, may prove to be beneficial for SAS

since they can offer new blood, knowledge and ideas.

We argue that it may be easy for SAS to attract highly

skilled top-managers, since there is much pride and prestige of managing a large MNC like

SAS. However, it is also a tough job description where the “failure rate” is high. Thus, being a

top-manager in SAS is a risky career move, which could scare off potential competent

leaders. This is supported by CBS-Professor in Strategy and Management, Steen Poulfelt20

.

SAS is headquartered in Stockholm, perhaps due to investor demands. However, we find

difficulties explaining the connection why the majority of the investors are Swedish, the

CEOs have traditionally been Swedish, the headquarter is in Stockholm and the biggest hub is

18 SAS Investor Relations 19 http://www.sas.dk/da/Om-SAS-Danmark2/Historie/SAS-koncernchefer/ 20 http://borsen.dk/nyheder/karriere/artikel/1/190538/ekspert_ny_sas-chef_skal_vaere_energibombe.html

Figure 6: CEOs of SAS

Source: Dagens Næringsliv, 11/8-2010

Page 31: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 31

located in Copenhagen. Stockholm possesses the majority of the managerial knowledge and

financial resources. The operational levels, however, are located in other countries, which

may result in inefficiencies and increase the importance of knowledge sharing, learning and

reporting.

Creating incentive systems and aligning owner-manager interests are important aspects of

proper corporate governance. Performance pay is present in SAS, but is exercised in a more

Scandinavian social-democratic manner compared to incentive-systems in other countries

(Thomsen, 2008). The Board of Directors has great influence on managerial remuneration,

due to the high ownership concentration being present. According to SAS Annual Report

2009, President and CEO, was employed on the January 1st 2007 and mainly remunerated as

the following21

:

A Fixed yearly salary of 10.000.000 SEK

A variable salary of maximum 20 % of the yearly fixed salary

A premium contribution pension plan of 35 % of his fixed salary

A pension lump of 8.000.000 SEK if he is still employed on 31st of December 2011

Severance pay accounts for 12 months of salary (9.400.000 SEK) if the CEO resigns due to:

SAS is acquired by any industrial or financial owner(s) and cease to exist as an

independent firm.

An external owner acquires a controlling stake corresponding to at least 30 % of the

votes in SAS

Above we have listed the most notable conditions in SAS‟ CEO-contract. If we make a

hypothesis that the Scandinavian governments will sell their shares early 2012, the SAS-CEO

will be remunerated with a fixed salary of 9.400.000 SEK per year (783.333SEK per month),

pension lump of 8.000.000 SEK and severance pay of 9.400.000 SEK. Thus, SAS-CEO may

have an incentive to sell SAS after early 2012, as this will result in personal financial gain.

This, however, could also be a part of the governments‟ interests, as several politicians want

to sell SAS. Hence, both owners and management have incentives to sell SAS.

From our corporate governance and ownership analysis we now move on to describe the

corporate strategy.

21 SAS annual report 2009, p. 68

Page 32: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 32

2.4. Corporate strategy - Core SAS

Core SAS is the airline‟s corporate strategy and was

launched in February 2009. It aims to enhance the

Group‟s positioning, profitability and competitiveness

and focuses on five pillars as illustrated in Figure 7:

1: Focus on Nordic home market.

2: Focus on business travelers and strengthened

commercial offering.

3: Improved cost base.

4: Streamlined organization and customer-oriented

culture.

5: Strengthened capital structure.

The pillars will be elaborated before we present the latest status update from SAS.

Pillar 1

In order for SAS to maintain their strong position in the Nordic market, secondary non-core

activities are being divested or outsourcing. Examples of non-core activities are ownership in

airlines, catering business, administration, SAS Ground Services, SAS Tech, etc. Thus, Blue1,

SAS and Widerøe are the core-businesses and by divesting or outsourcing airlines, divisions

and business units, SAS aim to reduce business risk –and complexity of the organization. In

addition to this, it will help the SAS management to focus on their core activities.

Pillar 2.

Business passengers are SAS‟ largest customer group and in order to increase earnings, Core

SAS aims to improve the focus on profitable business destinations as well as strengthening

commercial offerings. In other words, services on the leisure-segment should be downsized or

at least not have as much focus as the business segment. As a result of this, an enhanced

Eurobonus, customized corporate offerings, SAS Credits, “convenient services (mobile

check-in), etc. becomes increasingly important. Additionally, minimizing travel-time for

customers (improved punctuality and flexibility) becomes interesting. Moreover, Svenske

Jernbaner (SJ) and SAS have started up a partnership to link air and rail services22

. Frequent

travelers may choose to travel by SJ‟s rail services, which can be faster and more convenient

22 http://www.sj.se/sj/jsp/polopoly.jsp?d=13753&a=107003&l=sv

Source: SAS annual report 2009

Figure 7: Core SAS

Page 33: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 33

on shorter domestic Swedish services, given that the customer buy a SAS yearly pass23

. These

initiatives aim to enhance loyalty, convenience and satisfaction among travelers.

Pillar 3.

Core SAS has a strong focus on cost-savings and the time-line for cost-savings is illustrated in

Appendix H. It is to be observed that after the implementation of Core SAS, the airline have

saved 7,8 Billion SEK as of March 2010. These cost-savings aim to close the cost-gap with

competitors and ensure future profitability. Means include freezes –and reduction in salaries

for employees, changes in working conditions as well as improved product development. In

addition to this, 8800 full-time employees are affected by Core SAS

Pillar 4

Core SAS aims to create a more customer-oriented

culture through various means, such as simplifying

the organization, divesting sub-companies, etc. This

involves that different units should have

responsibilities for different services, i.e. long –and

short-haul flights. An example of this is SAS‟

increased focus on long distance flights from

Stockholm and Copenhagen and not Oslo. This

should result in shorter time-to-market, simple and convenient contact with customers and

other stakeholders, etc. As observed in Figure 8, and in Appendix I, decision-making have

been centralized to a merged joint administration and production. The argument is that SAS

will become more efficient and transparency. The corporate structure has been simplified and

centralized, i.e. increased power to central management. Centralization of ownership and

decision making could result in increased simplicity, easier decision making and enhanced

overall organizational performance, according to Mintzberg (1979).

Pillar 5.

This pillar aims to enhance capital structure in order to implement Core SAS, improve

balance sheets as well as make SAS able to deal with economic downturns. SAS invited

23 http://www.dr.dk/Nyheder/Udland/2010/05/25/142323.htm?rss=true

Figure 8

Source: SAS annual report 2009

Page 34: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 34

shareholders to participate on a rights issue in March 2010. This should strengthen

shareholders‟ equity in relation to total assets. Financial KPIs are expected to improve due to

these activities, as well as net debt is expected to decrease from approximately 19 Billion to

14 Billion SEK. Loans and credits have also been renegotiated by expanding maturity dates.

Latest status on Core SAS

Figure 9 shows the latest status update on Core SAS, with Pillar 1-5 and the respective

initiatives. According to this, Core SAS is proceeding as planned. SAS still need to reduce the

fleet and capacity by additionally 10 and 20 %, respectively. Moreover, cost reductions of 4

Billion SEK still needs to be implemented. However, divestments of non-core activities and

increased amount of outsourcing are now a reality, and the Service & Simplicity-initiative has

been launched. Moreover, the organizational structure has been simplified and the capital

structure is strengthened.

SAS is now moving from being a broadly diversified group, to being an airline focusing on its

core services and markets. This transformation aims for a more customer-oriented, cost-

efficient and profitable SAS. The airline aims to become stronger in its home market by

offering attractive routes and services, especially targeting the business segment. In order to

analyze the airline in a more scientific manner, we will now apply the work of Porter next.

Figure 9: Status on Core SAS

Source: SAS Investor Relations. Tele Conference 4Q2009

Page 35: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 35

2.4.1. Porter‟s Generic Strategies on SAS

Porter‟s framework on generic strategies

applied on SAS is illustrated in Figure 10. Porter

(1985) argues that competitive advantages can

be created through differentiation or cost

leadership, together with targeting specific

segments. We derive that SAS‟ historical

corporate strategies have had a strong focus

on differentiating themselves through

investments in other airlines, Snowflake,

hotels, catering business and various service-functions. The target group of the airline is broad

since the product/service portfolio integrates multiple different services aimed at business

travelers, leisure, governmental travelers, private and business customers, etc.

The launch of Core SAS has transformed the differentiation-strategy into being more narrow,

transparent and simple. The increased focus on cost reduction (instead of differentiation),

implies that SAS move toward the left side of the matrix. Cost reduction, however, does not

mean cost leadership since SAS operate with different cost-structures than LCCs. Even

though SAS is working on improving their cost levels, they are still making an effort to be a

differentiator. Examples contributing to differentiation include Eurobonus and Star Alliance,

which LCCs at present time cannot match. SAS are focusing on business travelers – a

customer group, which implies a narrow target. Thus, we can derive that SAS believes in a

narrower target segment, cost reduction and some degree of differentiation. This corporate

strategy places SAS somewhere in the middle of Porter‟s matrix, due to focus on both

differentiation and costs. Porter categorizes this as being “stuck-in-the-middle”, which refers

to companies who performs below industry average, has few choices and niches. He could

very well be talking about SAS and their low degree of competitiveness. Thus, we argue that

a weak strategy with several focuses (low cost prices, differentiation and new intercontinental

flights) may become challenging. We will now move from Corporate Strategy to the products

and services SAS provide, before we are able to assess how SAS is a differentiator.

2.4.2. Products and complementarities

This section will analyze SAS‟ products and complementarities. Flying is the airline‟s

Figure 10: Generic strategies and SAS

Source: Porter (1985)

Page 36: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 36

primary service, but in today‟s dynamic industry, airlines compete on complementarities as

well. Secondary services or supplements of the primary offerings could be Eurobonus and

Star Alliance. These are services travelers tend to value, which is why we will address these

and further analyze them in the RBV-section. For now, we consider them as products and

analyze SAS in a more „traditional‟ way.

Star Alliance is difficult to assess since a development of this service is mainly done by

expanding the alliance‟s route map. Therefore it may be more interesting to focus on

Eurobonus as a product. SAS offers three different ticket classes on their European flights,

illustrated in Appendix J, which are Economy, Economy Extra and Business Class. In

essence, prices, level of comfort and flexibility tend to separates these classes. Comfort at

SAS is related to factors of convenience, e.g. comfort at airport lounges, enhanced leg-space

during flights, etc. Means of flexibility include ticket change against fee or change without

any fee and full refund, meals served aboard the aircraft and Eurobonus mileage earnings. On

domestic services in Denmark, Norway and Sweden, only once level of comfort is available,

hence, the aircraft only offer one class. However, flexibility may differ. Economy Extra and

Business Class target the need of business or frequent travelers, SAS‟ largest source of

revenue. Additional comfort for the business segment include Fast Track Security (no

queuing and no waiting through security), the mid-seat free (Business Class only) as well as

travelers are credited with more EuroBonus points. To further target the business segment,

SAS Group have launched SAS Credits, which gives companies an opportunity to collect and

earn points when employees are travelling, besides just crediting the traveler.

For SAS, EuroBonus and Star Alliance are two important sources of differentiation. The

Eurobonous program is integrated into Star Alliance and vice versa. The multi-rewarded

bonus program is a good secondary service, which complements the primary flying services.

When travelers buy airfares, airlines are not solely chosen based on lowest price, departure

time etc. Travelers often consider flying with SAS or its Star Alliance partners as much as

possible since this will give then bonus points, easier baggage handling, gates located closer

to each other etc., i.e. a more comfortable and convenient travel experience. Thus, Star

Alliance and Eurobonus are important services offered to customers, and are a way of

competing and differentiating themselves from LCCs. The benefits from Star Alliance include

economics of scale due to cost savings on connecting flights (Peng, 2009) and access to a

global network of code-share flying, which brings significant value for travelers. For frequent

flyers, the program is even more beneficial since members can get upgraded to higher

Page 37: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 37

membership levels.

Table 5 shows the main differences

between membership levels of Eurobonus.

We observe that silver and gold members

get enhanced airport services, hotel

bookings and car rental conditions. We

also see that citizens who live in Norway

have easier access to gold status than the

Swedes and Danes. The essence of the

bonus program is, that, by frequent

EuroBonus usage, customers will benefit

financially and conveniently. The SAS

Group has multiple partners, besides Star Alliance partners. Examples include car rental

agencies, e.g. AVIS, SIXT and Hertz, various hotels chains, e.g. Best Western, Radisson and

Scandic Hotels, credit card companies, e.g. Mastercard and Diners Club card, etc.

Additionally there are also unorthodox agreements with Hugo Boss, Canal Digital, The

Economist, Apollo and others. SAS Eurobonus have also created the “SAS Eurobonus Shop”

which sells different merchandize, accessories, travel products and much more. Eurobonus

also have a feature called “Match Me”, which can match the amount of points the members

have with potential destinations. This feature is highly innovative and has been awarded a

“Loyalta Award”. Other notable Eurobonus conditions are that Apollo-travelers also receive

points on charter-travels operated by SAS and the Diners Club agreement got enhanced. Thus

we derive that the Eurobonus program is a highly competitive dynamic service, which adds

value for SAS customers.

Matts Janson recently opened up for a potential divestment of Eurobonus24

. We interpret that

SAS management sees Eurobonus as a secondary support activity, which do not create

significant value for the organization, since they wish to divest this. Other reasons may

include that SAS want to capitalize a valuable service and that they might get more potential

out of their bonus scheme with perhaps more dedicated owners.

Above we presented SAS‟ main offerings and the next section will present customer

preferences, in order to understand if SAS knows their customers.

24 http://www.na24.no/article2653163.ece

Table 5: The Eurobonus membership levels

Basic Silver Gold

Required points per year

for residences of:

Denmark 0 20.000 55.000

Norway 0 20.000 45.000

Sweden 0 20.000 70.000

Or one-way flights per year

for residence of:

All countries 0 20 40

Norway 0 20 35

% more points on flying 0 15 25

Enhanced airport services ++ +++

Enhanced car rental

conditions

+ ++ +++

Enhanced hotel conditions ++ +++

Source: Own creation based by data from SAS website

Page 38: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 38

2.4.3. The business segment and its preferences

IATA made a survey in 2007 on what business travelers

experience as most important factors when flying short-

haul. These findings are illustrated in table 6. According

to this study, business passengers tend to value price over

comfort on short flights. Moreover, factors such as

mileage programs, convenient (frequent) departures and

arrivals, seat comfort and punctuality tend to be

appreciated as well. However, non-stop flights, value for

money and low fares also score high. These are factors

LCCs specialize in.

We also argue that SAS‟ focus on factors such as their

route network, e-tickets, convenient airports, quality of

service may have limited value business travelers,

according to the study. Airport-location may have limited

meaning, as business passengers often use taxi services to

and from the airport. E-ticketing and route network also score relatively low. This may be

related to the well-developed market for air travel within Europe, as well as check-in today

usually is efficient and expected to be available. We can derive that SAS focus on certain

initiatives, which may have little or no value for their business travellers. Furthermore,

Eurobonus, punctuality and time departure has great value for customers and are also

integrated into the corporate strategy.

We highlight that the analysis is made prior to the crisis. There we interpret that today‟s

customers may be even more price-sensitive than in 2006-2007. This is also supported by

Carlson Wagonlit Travel, a world leading business travel management, who states that the

demand for expensive business class tickets on short haul in Europe is declining. Their

findings are presented in Appendix K, but their main conclusion is that nine out of ten

business travels inside Europe is on Economy Class. This illustrates that corporations are

getting more price sensitive on short-haul flights. Additionally we argue that business class

tickets may be too expensive compared to their value. Essentially, on short haul flights,

customers pay several thousand KRs more for, besides flexibility, a free meal, drinks and

coffee. There is less value for money, which may be why customers are abandoning

expensive business class tickets. Next section will integrate Ansoff‟s famous product matrix

Table 6: What

business passengers

value on short-haul

%

FF/mileage program 44

Most convenient dept/arr.

Times

31

Non-stop flights 30

Punctuality 28

Value for money 25

Seat comfort 21

Offered lowest fare 19

Safety standards 18

Quality of service 17

Connection time 16

Route network 16

Previous good

experience

15

E-ticketing available 15

Convenient airport 15

Best for connections 15

Several other factors all below 15%

mention

Source: Own creation based on data from

Doganis

Page 39: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 39

in order to get a better view of how SAS does product development.

2.4.4. Ansoff’s Product/Market Grid on SAS

In order to summarize what mentioned above

in a more scientific and theoretical manner then

we will see that SAS has a strong focus on

product development, differentiation and

maintenance their Nordic market shares.

Traditionally, SAS have had a strong focus

on innovation and developing through what

Ansoff label “diversification” or “product

development”. This was a more risky

expansion strategy. They focused on serving

markets with existing or new products. Figure 11 illustrates our interpretation of SAS‟ present

product strategy by applying Ansoff‟s matrix. SAS may focus more on serving existing

markets rather than trying to enter new markets, which places them in the bottom. The recent

decade‟s divestments have shifted focus towards serving existing (core) markets, i.e.

narrowing the market segments as our “Generic Strategies”-analysis derived. They apply both

“market development” and “diversification”, where market development may be more

present. An example of this is the strong focus on having an innovative Eurobonus system,

which creates significant value for. Eurobonus primarily targets existing Scandinavian

markets, which is why we argue that “market development” may dominate the product

strategy.

Besides performing innovative product development themselves, SAS could also choose to

become a second mover and thereby reduce R&D-expenditures and risk. By learning from

first movers, SAS may have advantages since they can avoid making the same mistakes as

first-movers. On the other hand, first-movers may possess advantages, such as early publicity

and pioneer-status, market know-how, internal development and asymmetric competition.

2.4.5. Part summary on corporate and product strategy

We derived that Core SAS aim toward the home market (Scandinavian business segment),

where they are strongest. SAS have changed their organizational structure in order to become

more transparent, effective and centralized. They have also divested and/or outsourced

various business and activities in order to focus on their primary activities. Cost reduction is

Figure 11: Ansoff’s Matrix on SAS

Source: Ansoff (1957)

Page 40: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 40

the essence of Core SAS and by March 2010, SAS have reduced costs by 7,8 billion SEK.

We argue that Core SAS is in fact a short term cost reduction program, perhaps not a long

term corporate strategy. Moreover, we argued that SAS is applying a mixed strategy of strong

differentiation and cost leadership. Thus, we found that SAS is “stuck in the middle”,

according to Porter‟ matrix. We interpret Core SAS as a reactive instead of a generic

proactive strategy.

SAS product strategy is highly focused on Eurobonus and Star Alliance, as a mean of

differentiation. Other means of differentiation appears through service and simplicity. We

derived that some of these service are initiatives, which the business segment do not value

that much any longer, i.e. the market is changing. SAS‟ product strategy focus on innovative

product development (mainly through Eurobonus, routes and Star Alliance) aimed towards

the home (existing) market. Thus, SAS do not try to penetrate new markets in a search for

high growth rates. Important notions from this section were:

Focus on the home market and cost reductions

Dual strategy focused on low cost and differentiation (stuck-in-the-middle)

Increased centralization of power and decision making

Not a corporate strategy, but a reactive cost savings program

2.5. Findings from Chapter 2

In Chapter 2 we derived that SAS‟ cost structures may be less competitive and the revenue is

declining, which leads to higher prices. Thus, SAS tickets are typically higher than the

industry average, which is why the passenger revenue is declining, since passengers choose

substitutes. We derived that the main costs are fuel, labor and government fees, as well as 60

% of their revenue come from the business segment. In short, SAS suffers from uncompetitive

cost structures and as we shall see later on LCCs‟ costs are even lower.

SAS‟ corporate governance is unique and a strength, but also a weakness. Governmental

owners tend to favor SAS in political and competition disputes. However, they may also

require the maintenance of potential unprofitable routes. The high ownership concentration

means that the major owners can, and do, perform active ownership. The managerial

remuneration is constructed in a way, that the CEO has a short term perspective, which we

find problematic.

Core SAS mainly focuses on cost reduction, the home market, a transparent structure, focus

on business travelers and a strengthened capital structure. We derived that SAS performs a

reactive strategy aimed at a market where they are already incumbents. SAS apply a mixed

Page 41: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 41

corporate strategy since it both favors differentiation and low cost leadership. Thus, SAS do

not appear to have a clear and concise corporate strategy. Their product strategy focuses

innovative initiates mainly within Eurobonus, the route map and Star Alliance. They typically

only aim at the existing market and do not really create “new” services. They expand their

original ones.

We argue that SAS is in a challenging situation due to that fact that they have:

Cost structure that are relatively higher than competitors

SAS‟ pilots (& cabin attendants) have high earnings, but works the least

Revenue is declining

Most important customer segment is business passengers

Higher ticket prices that pushes customer towards other airlines

Not created a long term corporate strategy with a clear focus

A strategy which in fact is a short term cost reduction program

Business passengers value mileage program, flight schedule, direct flights, punctuality

and value for money

Product development that emerge through the existing service platform

An overall reactive strategy aimed at a market

A hierarchical decision making structure

Governmental owners that have other goals than mere financial KPIs

A strong focus on a mature Scandinavian market, where SAS is already incumbents

Chapter 2 had a strong focus on aspects, such as SAS‟ history, their corporate and product

strategy, and the unique corporate governance. These are all topics that influence the

corporate strategy and market positioning. Besides this we believe it is important to assess the

internal resources and capabilities since these influence the strategy and positioning as well.

Thus, next chapter will focus on the important internal perspective which will be next.

Page 42: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 42

Chapter 3 - Resources, capabilities and competences

This section extends the traditional neoclassical economic way of analyzing a firm, which is

through examining prices, products and services, i.e. the output. Prahalad & Hamel (1990)

emphasize the importance of analyzing resources and competences since these, according to

various scientists, are the true competitive factors. We will analyze important resources, such

as employees, fleet, Eurobonus, Star Alliance, Route map, political resources and brand value.

There are several more, but we have chosen to focus on these since they influence SAS

significantly. Throughout this chapter it is important for the reader to remember the essence

of TCE, RBV, DC and CC, which we derived in section 1.2.1.

3.1. Resources

3.1.1. Employees

SAS have had several employee reductions in the past and this trend will continue in the

future due to Core SAS. The influence of employees and their labor unions on SAS will be

analyzed on a strategic industry-level later in the Porter‟s 5 Forces. For now we look at

employees as an important resource.

Conflicts of interests between SAS management and labor unions have existed for a long

time. This is especially due to layoffs, which might be due to those human capital resources

may be static and inflexible. Employees have generally been employed in SAS for many

years and achieved lucrative contracts and job descriptions. SAS wants to change this in order

to become more dynamic and competitive. Employees, like the cabin crew, have been a

valuable resource, due to their high qualification, which may enhance the flying experience.

Centuries ago, they were also rare, but today it is easier to train employee-resources. Thus, it

might be easy for competitors to create the same resources cheaper by hiring low cost

personnel. Put clearer, it is easier for competitors to substitute and imitate SAS‟ employee

capabilities since customer preferences are changing. It is not that big a deal to fly today as it

was earlier. Employees may not be dynamic, since they (or their unions), are highly unwilling

to change, adapt and reconfigure due to learning. This means that the resources become static

and inflexible, which hardly can create any form of competitive advantages. It is difficult to

reconfigure or manipulate the employees‟ implicit (and explicit) contracts since this will

promote union-clashes (Watson, 2006). Contracts may be very explicitly designed with little

room for implicit flexibility, which may reduce dynamics and agility, and this may result in

contractual hold-up problems (Hendrikse 2007) as we have seen with SAS.

Page 43: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 43

Changes in employee contracts and social construction may become problematic for pilots,

since their job designs may not match their initial work orientation. In the 80s it was

privileged to fly and pilots had a certain status in the society. Today, their role and prestige

tend to be reduced, perhaps due to LCCs like Ryanair, where pilots may function more as

“glorified bus drivers”, i.e. some employee groups get the identity changed from being a

worker with prestige, into being an “ordinary” employee. By reducing employee rewards

(salary, prestige, power, etc.), SAS is actually influencing the work orientation, and job

perception, since it is becomes more challenging to maximize monetary gains, career

potentials, social rewards, status etc. Thus, the initial argument for strategic exchanges

between employees and SAS is changing and conflicts appear due to contractual explicit and

implicit manipulation. These changes in employees‟ contractual conditions may lead to

alienation since workers may feel exploited. Moreover, this may lead to micropolitical

actions, like strikes, or other forms of mischief, as an emotional and economic response due to

exploitation.

Suppliers of human capital, like employees, have high asset specificity. This is due to that

employees are only capable, or allowed by their unions, to do what is stated explicitly in their

contracts (Hendrikse, 2007). The high degree of asset specificity also emerged from

Talyorism, which we assume to be significantly present within the airline business. Division

of labor is strong, since pilots only fly aircrafts, stewardesses only do service and security,

luggage units only handles luggage, etc. The strong degree of specialization means that

workers can focus on specific processes and create unique capabilities. However, it may also

enforce asset specificity since they then cannot be easily redeployed or transformed which

reduce strategic flexibility and operational agility. Transactions with the staff are frequent

since they occur daily. There is high uncertainty for SAS‟ transactions with employees since

they never know if employees will become dissatisfied. They have a big portion of senior

employees, which they have obligations towards. Contracts cannot be renegotiated easily, and

this may reduce the airline‟s flexibility. Thus, strong labor unions mean, that SAS‟ human

assets have high specificity, which reduces strategic flexibility and operational efficiency.

Besides the static capabilities of the workers, we also derived that they may be financially

uncompetitive due to their high salary costs and relatively low working hours. This

inefficiency was derived in section 2.2.

Page 44: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 44

3.1.2. Fleet

The SAS-fleet, their physical resources (Barney & Hansen, 1994), is relatively old compared

to notable competitors, as illustrated in Table 7. Old aircrafts are less fuel-efficient and

produce more CO2 than modern ones, which implies higher fuel –and environmental costs.

Table 7: SAS' fleet compared to notable competitors

SAS

Group

Lufthansa Finnair Norwegian Cimber British

Airways

Ryanair Easyjet

Fleet 240 722 66 44 26 245 181 181

Owned 104 571 38 5 n/a 105 135 101

% of total 43,3 79,1 57,6 11,4 n/a 42,9 74,6 55,8

Leased 127 151 28 39 n/a 80 46 80

% of total 52,9 20,9 42,4 88,6 n/a 32,7 25,4 44,2

Total 96,3 100 100 100 n/a 75,5 100 100

Future ordersnext

5 years

5 146 32 54 n/a n/a 119 35

Fleetexpansaion

(%)

2,1 20,2 48,5 122,7 n/a 65,7 19,3

Potential totalt

fleet 2015

245 868 98 98 n/a 300 216

Average age 12 11,2 6,1 10,5 12,8 11,6 3,1 3,4

Aircraft types

concentration

Multiple Multiple Multiple Medium n/a Multiple high high

Sources: Annual reports from SAS, Lufthansa, Finnair, Norwegian, Cimber, British Airways, Ryanair &

Easyjet. Airfleets.net

We observe that SAS own 43 % of their fleet and lease the rest. Some airlines purchase major

parts of their aircrafts and thereby are able to get beneficial discounts, i.e. they exploit

economies of scale and purchasing power. Here SAS could learn something, instead of

applying a mixed purchasing and leasing-strategy. We also observe that SAS has multiple

different types of aircrafts compared to Easyet, which has few and Ryanair which has one.

When airlines only operate few, or one, different aircrafts, cabin crew only need to gain

licenses and knowledge of operating and servicing one type of aircraft compared to several

ones. Thus, few aircraft types will reduce costs of employee training, complexity, as well as

enhance core competencies regarding flying a specific aircraft. We can also derive that SAS

have the oldest fleet, on average, together with Cimber.

With respect to the RBV, SAS‟ fleet resources are neither valuable, rare, non-imitable, or

non-substitutable. This is because competitors have newer aircrafts than SAS‟ old and less

efficient ones. Rare (expensive) aircrafts with new innovative technology involve significant

investments, resources SAS do not possess. SAS‟ old fleet may easily be imitated by

competitors. However, who would do this since it seems outdated? Thus, substituting

becomes easy for competitors in order to achieve competitive advantages. Regarding DC, we

Page 45: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 45

derive that the old fleet is static and is not really efficient according to the benchmark of

relevant competitors. Old, outdated technology and capabilities of the fleet may make it

difficult for SAS to redeploy, -integrate or –configure the aircraft assets in another way. An

example of an aircraft with dynamic features could be the Boeing 747, where passenger seats

can be removed so the aircraft can be converted into a cargo flight. This is an example of

dynamic capabilities.

Also the tied up capital makes it more difficult to redeploy aircrafts since a large portion are

owned instead of leased. Additionally, their mixed purchasing/leasing strategy may be

expensive, inflexible and may eliminate potential benefits from economies of scale. Finally,

aircrafts cannot efficiently be redeployed and used in another way than flying, which means

that these dedicated assets have high asset specificity.

SAS wants to increase their competitiveness and be more environmentally responsible.

Therefore, modernizing the fleet is required. SAS-management states that the company is

”waiting” to acquire new airplanes until they become even more fuel-efficient”25

. According

to economic rationality, this strategy seems good. However, this statement completely

neglects SAS‟ financial status. Moreover, this may be an expression of managerial pseudo

jargon where managers cover things up by expressions which stakeholders may not

understand (Watson, 2006). Thus, the real argument for postponing fleet-modernization is that

SAS currently do not have the required capital. Thus, according to our analysis, it may be

difficult for SAS to create competitive advantages from their fleet.

3.1.3 EuroBonus

Eurobonus is a valuable strategic asset since it captures traveler preferences. It is rare in a way

that other competitors (e.g. Norwegian) do not have the same variety, depth or flexibility

within their programs. It is difficult to imitate for these competitors, since some agreements

have been developed over the last decades. In other words, airlines such as Norwegian might

not have been able to negotiate the same lucrative agreements like SAS. SAS have had a

strong bargaining position and historical relationships with their partners. Eurobonus also

offers the important point system when flying with Star Alliance partners, which is almost

difficult to imitate for LCCs. Eurobonus is hard to substitute since SAS have an in-depth

version of their frequent flyer program, which may be difficult or impossible to substitute by

i.e. offering similar services or lower prices on tickets. We derive that Eurobonus is a VRIN-

resource, which offer a dynamic nature, since SAS keep upgrading, reconfiguring and

25 http://www.business.dk/transport/kriseramt-sas-vil-koebe-nye-fly

Page 46: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 46

adapting the program in order to capture customer preferences.

The bonus program has medium asset specificity, since SAS have the option to change offers,

conditions, features and services. However, it is important to realize that the bonus program

might be difficult to redeploy since it is very specific and customized towards the

Scandinavian travelers‟ needs. It is popular and lucrative for frequent flyers, which makes it

difficult to implement changes. Even though it is possible to transform the program, it will

affect customers‟ preferences, which is why there is a moderate degree of specificity present.

3.1.4 Star Alliance

Star Alliance was created 14th

of May 1997 by five airlines: Air Canada, Lufthansa, SAS,

Thai Airways International and United Airlines. The overall idea was to form a global

network of codeshare flying and thereby creating better, faster and more flexible opportunities

for the customers. By combining complementary resources and services, the airlines could

“capture” customers, by offering shared favorable services, and “force” them to fly within the

alliance network. In other words, airlines secure and exchange customers. Additionally, a

strong focus was on potential synergies between partners, such as shared resources,

knowhow, technology and environmental responsibilities.

Appendix L shows relevant Star Alliance‟s members‟ revenues, passengers, employees, fleet

and the year they joined. Late 2009, SAS accounted for approximately 4,5 % of the alliance‟s

revenue, 3,75 % of passengers, 3,27 % of workers and 5,6 % of the alliance‟s fleet. SAS may

have seniority advantages since they are one of the initial founders. We also see, for instance,

that the Lufthansa Group contributes more resources. Star Alliance offer excellent travel

possibilities and flexibility around the world through the network consisting of 26 member

airlines, approx. 4.000 aircrafts, almost 20.000 daily departures, more than 1.000 airports and

represented in more than 175 different countries around the world, just to make a short

presentation26

.

Since it is difficult, inefficient or expensive for SAS to operate long haul services themselves

then they exploit the American and Asian airlines‟ comparative advantages. Instead of

developing the needed capabilities themselves (Barney‟s second way of achieving resources),

they cooperate with partners/competitors (Barney‟s first notion) in order to be able to offer

efficient long distance services to SAS-travelers. Regarding Barney‟s 3rd

notion, gathering

VRIN-resources through M&As, Lufthansa is a good example of this due to acquisitions of

26 http://www.staralliance.com/en/about/airlines/

Page 47: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 47

Swiss, Austrian, etc. Put in a scientific manner, TCE associated with long-distance flying

services are medium. Some scholars argue that when firms‟ transaction costs regarding

economic exchanges are neither high enough to justify for internalizing, nor low enough to

purchase on the market, they should collaborate (Gereffi, Humphrey & Sturgeon, 2005;

Gulati; 1995; Williamson, 1985).

This network is a major advantage for SAS, especially compared to LCCs without alliance-

access, which brings SAS and their customers increased value and this is why we find it

important. The Star Alliance-asset is rare in the sense that external airlines (e.g. LCCs) do not

have access to the same effective network. Finnair‟s and British Airways‟ membership of

Oneworld and Air France-KLM‟s membership of Skyteam are similar initiatives, which are

competitors to the Star Alliance. For Scandinavian residents, Star Alliance may be the most

efficient and relevant program due to SAS‟ position as a market leader and offerings.

Additionally, Star Alliance is more advanced than competitors‟ network. This resource is

difficult to imitate and substitute since it offers additional lucrative services for the

Scandinavian residents. The resources are difficult to imitate since Star Alliance‟s dynamic

nature integrates new international airlines and generally enhances customer travel

experience. Star Alliance offer close cooperation for more than 13 years and this creates

competitive tangible and intangible assets. Thus we see the Star Alliance asset as a VRIN-

resource which also posses the crucial dynamic capabilities.

The Star Alliance-asset has high asset specificity, since SAS may have difficulties changing

or cancelling their membership. SAS has been in the alliance for more than a decade and is an

integrated unit inside the alliance. Switching alliance or going solo, is costly since it requires

creating a new frequent flyer program, shutting down and opening other routes, which are

more desirable according the new alliance, etc. As a founder of Star Alliance, SAS also

possess seniority, which will disappear if they entered another alliance. Thus, we argue that

Star Alliance is a vital and integrated part of SAS‟ resources and strategy, which cannot easily

be transformed or changed, i.e. asset specificity is high. As mentioned already, the network

enhances the individual airline‟s route map which is why this will be next resource.

3.1.5 Hubs and route map

SAS follow a hub-to-hub strategy, which implies subsidized transportation on connecting

flights. Moreover, SAS operates several “unprofitable routes”, perhaps due to political

reasons, which are being financed by the popular ones. The airline has three “main” hubs,

namely Copenhagen, Stockholm and Oslo. Challenges when operating services from more

Page 48: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 48

than one main hub includes extra attention towards ground handling, staff, coordination etc.

This result in increased crew, communication- and maintenance-expenses compared to the use

of one major hub, i.e. complexity and reduced economies of scale. Moreover, baggage

handling becomes more complicated when operating from more than one main hub, due to

connections. Basically, we argue that having one main hub may create significant economies

of scales, which SAS miss out on.

Benefits with operating a hub-network with more than one main hub may be that if one

airport experience a snowstorm or ash-skies, flights may be directed to other hubs in the

network, hence, a sense of diversification. Moreover, the geographical conditions in the

Scandinavian countries involve that more people have access SAS‟ flight networks by the use

of more than one main hub, i.e. infrastructure.

SAS‟ hub-network leaves the airline in a vulnerable situation from competitors. As an

example, LCCs often specialize in point-to-point services with low fares to/from cheaper

secondary airports. This threat and the low-cost model will be addressed later. SAS‟ Northern

European route map is shown in Figure

12 and European and World route maps

can be found in Appendix M. Our study

of the route maps illustrate that Northern

European air infrastructure is well

covered by either SAS, Widerøe or Blue1.

We notice the many destinations in

Norway, which may cause SAS problems

due to less demand on these routes.

Additionally, we also see that the Sweden

is well-covered and Denmark is only

covered marginally. Moreover, we

highlight that the SAS Group also operates several routes to/from and inside Finland.

Appendix M illustrate that Copenhagen Airport offers the largest portion of flights to

destinations within Europe (compared to Stockholm and Oslo). According to SAS Investor

Relations, SAS operates 86 scheduled destinations from three hubs – Copenhagen, Oslo and

Stockholm. In 2008, 21.5 Million passengers travelled with SAS through Copenhagen, 19.3

Million through Oslo, and 18.1 Million passengers travelled through the Stockholm-hub.

Figure 12: SAS Northern European route map

Source: SAS website

Page 49: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 49

Including Widerøe and Blue1, the group offers 134 destinations27

. Additionally, including

Star Alliance, more than 1.000 destinations are operated. To put in to context, Norwegian

serves 87 destinations, Finnair serves approximately 70 themselves and 700 through their

Oneworld-membership28

. In short, SAS and Star Alliance‟s route map is highly advanced and

valuable. It is rare since others do not have the same resources and thereby do not fly as

frequent as SAS. It is difficult and costly to imitate since imitation in practice will result in the

creation of new routes, which cost money, knowledge and time. It is challenging to substitute

and we assess the network as having dynamic capabilities, since the route map is

reconfiguring, adapting and upgrading in order to increase marginal value for the travelers.

Thus we derive that SAS has competitive resources in their route map, especially through Star

Alliance.

The map have a certain degree of asset specificity since opening new routes and terminating

others are costly, time consuming, require knowledge, experience and relations with new

airports. Thus, it is difficult to change routes. Additionally it is difficult to change the Star

Alliance route map since SAS might not have much to say about which routes Lufthansa

should focus on. The route map is an important resource for SAS, but perhaps not as

important as the political connections, which are crucial for SAS and will be analyzed next.

3.1.6 Political resources

Political resources are firm assets, human resources, capabilities or other resources that allow

the firm to use the political process to improve its efficiency and profitability (Frynas, Mellahi

& Pigman, 2006). It is no secret that the Scandinavian governments have been forgiving and

flexible towards SAS‟ performance. SAS get financial support from the governments, which

imply unfair competition within the Scandinavian airline industry. Thus we see SAS‟ political

resources as valuable since they provide SAS with additional (financial) resources. These

political resources are also rare since other Scandinavian airlines do not have access to the

same resources. Access to key government officials may result in a firm‟s advantageous

treatment by political decision-makers. For instance, Rigsrevisionen in Denmark criticized

SAS for performing 11,114 flights, from 2006 – 2009, without doing the required safety

procedures prior to departure29

. The report was conducted by Rigsrevisionen, which also

criticized the Ministry of Transportation and Statens Luftfartsvesen for not living up to their

standards and reprimanding SAS. This could be an example of SAS‟ lucrative political

27 SAS Annual report 2009, p. 3 28 http://www.finnairgroup.com/group/group_8.html 29 http://borsen.dk/nyheder/transport/artikel/1/188835/sas_foretog_over_11000_ureglementerede_flyvninger.html

Page 50: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 50

resources, which favor SAS. By neglecting these procedures, SAS save money, time, etc. and

therefore it is an advantage. Thus, the relationship with authorities (their owners) seems to be

favorable. Political resources are in scarce supply and difficult to obtain, i.e. very rare. They

cannot be imitated or substituted, so we derive the political resources as being a VRIN-

resource. This interpretation is supported by Frynas, Mellahi & Pigman (2006) who argues

that political resources or capital may be one way of gaining competitive advantages and

Shaffer (1995), who argued that governments biased influence on firms may provide

improved corporate performance.

Political resources are not dynamic and we believe that the political forgiveness and patience

might vanish in the future, especially in a democratic society where citizens are getting tired

of financing SAS through their already high taxes. This may become a problem for SAS since

they will have to compete on equal conditions as other airlines. SAS‟ political resources

cannot be redeployed. Thus, the asset specificity is high since they cannot, or do not want to,

survive without political resources.

SAS‟ political resources may diminish in the future, due to the public‟s and competitors‟

dissatisfaction towards SAS, since they compete on unequal terms. Thus, SAS seems to be

surviving on taxpayers‟ money, rather than on their actual operations. If the ownership

structure were about to change in the future, and private or institutional interests in the

company increases, SAS will have to become more profit-oriented and competitive since the

political assets may vanish. Thus they would have to finance themselves and compete on

equal market terms, which might provide challenges.

3.1.7 Brand Value as a resource

SAS‟ brand value has historically been seen as a competitive advantage, which competitors

cannot easily imitate. However, a strong brand can easily be harmed. The brand value and

reputation is challenged after years of negative media activity, employee layoffs, safety

problems and aircraft crashes, governmental political and economic support, general

inefficiency, low performance, creation of illegal cartels, industry espionage, fines, etc. On

the other hand, when passengers travel, especially on long distances, they may “feel like

home” as soon as they see the SAS-logo at the gate. For these passengers, SAS represent

some sort of Scandinavian pride and symbol. Additionally SAS offer hassle-free convenient

flying through their “service & simplicity” concept. Comfort, service, simplicity and high

quality are all conditions, which create warm associations towards SAS.

Put into a RBV-context, the brand value may be less valuable, rare, substitutable than before,

Page 51: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 51

but it is still non-imitable. The brand was once valuable, but today‟s poor media attention

against SAS, poor financial and operational performance, unfair competitive actions, etc. has

changed this. The brand is not that rare, since multiple other airlines all invests in brand

management as well. It is difficult to imitate SAS‟ brand since it is a national symbol. Thus,

we do not see, for instance, Norwegian having the same brand value as SAS. Nevertheless, do

customers really want to pay extra money to fly with SAS, compared to Norwegian, due to

the brand value? Declining sales and brand value say “no”. Thus we see declining VRIN-

potential and the brand also seems more or less static. However, this intangible asset could be

utilized better and applied as a differentiator.

SAS‟ brand value is not that strong, which means that customers are not that loyal towards

SAS. The intimate relationship with their core customers is gone. This means that the asset

specificity is low(er) since changes in the brand profile can only improve the customer

loyalty. The brand is not necessarily specific and the pride that Scandinavians feel toward

SAS may be decreasing. However, business passengers might have good associations with the

brand since they enhanced frequency, flexibility and comfort. Leisure, on the other hand,

tends to get higher fares compared to LCCs, which individuals have to finance themselves

and thereby get poor associations.

We believe that the brand value is crucial for a firm in SAS‟ position, since it is a strong mean

for differentiation from LCCs. The small Scandinavian region, together with increased

competition, makes the brand crucial. Creating intimacy and strong (tacit) relations with

customers, through branding, is vital in order to maintain, or even increase, the current

declining Nordic market shares.

3.2 Core Competences

In the previous section we analyzed SAS‟ resources, their capabilities and derived their

degree of asset specificity. Notions from that section will be applied in this, where we will to

a closer look at SAS‟ potential core competences. As mentioned earlier, Prahalad& Hamel

(1990) provide us with 3 tests to evaluate if it is a core competence or not. Core competences

should give access to new/more markets, contribute significant to its customers and be

difficult to imitate. These notions are important to have in mind throughout this section. There

are several other competences, but we have chosen to focus on punctuality, Eurobonus,

network flying, IT, service, comfort and flying frequency. These categories of core

competences are crucial when serving business travelers who are the main source of income

for SAS. This is why we find these competences interesting.

Page 52: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 52

3.2.1. Punctuality

In 2009, statistics showed that SAS were the 3rd

most punctual airline in the world, as well as

Europe‟s most punctual airline30

. Punctuality is

considered one of SAS‟ significant core

competences. In Table 8, we observe that Intra-

Scandinavian services operate with high

punctuality. We also see that flights to London

Heathrow operate with significant “worse”

punctuality compared to the Nordic market. This

may be related to airport size, i.e. Heathrow is

considered a “full” hub, thus, airlines need more

time to process through the hub31

.

Apart from efficient Nordic hubs, a lack of safety

procedures by SAS prior to flights, as mentioned

in section 3.1.6., may also positively affect

punctuality. In short, neglecting important safety procedures will save time and money for

SAS. A future observation will be if SAS‟ score on punctuality can be maintained when

stakeholders are aware of SAS neglecting safety procedures.

A high degree of punctuality and regulatory on SAS departures gives SAS‟ customers a

reliable added value. This core competence gives travelers lower uncertainty, higher

predictability and thereby SAS competitive advantages. Punctuality brings significant value to

travelers, it is difficult to imitate since value chain management (logistics) optimization is

complex and perhaps it also opens up new markets or attracts more corporations since

passengers can rely on SAS‟ time durations.

3.2.2. Frequency

SAS‟ three main hubs are located relatively close to each other in flying distance, and can all

be reached with a flight-time of 60-70 minutes from each other. Daily frequencies between

main Scandinavian hubs are illustrated in Appendix N and have approximately 20 departures

(to and from) every day. It is to be observed that SAS to a large extent offer the highest daily

frequency of departures on destinations where SAS perform relatively well. Exceptions from

30 http://www.sas.dk/da/Alt_om_rejsen/Traffikmeddelelser/Punktlighed/?WT.ac=Forside_Punktlighed

http://www.rejseliv.dk/sas-til-tiden-0 31http://www .telegraph .co.uk/tra vel/travel news/63973 46/Heathro w-voted-wo rst-airpor t-in-the-w orld.html).

Table 8: SAS' Punctuality on notable

business routes

Departure Arrival # Flights

operated

On

time

(%)

Stockholm-

Arlanda

Copenhagen 587 96%

Copenhagen Stockholm-

Arlanda

577 95%

Oslo-

Gardermoen

Stockholm-

Arlanda

333 96%

Stockholm-

Arlanda

Oslo-

Gardermoen

333 96%

Copenhagen London-

Heathrow

331 90%

London-

Heathrow

Copenhagen 329 93%

Oslo-

Gardermoen

Copenhagen 321 98%

Copenhagen Oslo-

Gardermoen

321 96%

Stockholm-

Arlanda

London-

Heathrow

304 87%

London-

Heathrow

Stockholm-

Arlanda

303 89%

Sources: flightstats.com & boarding.dk

Page 53: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 53

Appendix N include destinations like Amsterdam, Paris and Helsinki. These locations are the

main-hub for network carriers such as Air France-KLM and Finnair, and their customers

require easily accessible transport to and from these hubs. However, our research, indicate

that larger airlines, such as airlines within the Lufthansa Group, outperform SAS on

frequencies from Scandinavia to various points Germany, Switzerland and Austria. An

explanation might be the strategy the respective airlines follow, i.e. significant transportation

to and from their main hubs. Thus we derive that SAS‟ core competence of having high

frequency, mainly occur on routes with already tough competition and smaller margins, i.e.

SAS choose to focus on competitive routes, e.g. to London, where they have experience.

We find frequency an important core competence since it brings value to travelers. Imitation

is difficult, since starting up new routes is costly and risky due to SAS status as market

leaders on multiple routes. Finally SAS may seem attractive for new customers around

Europe who often travels to Scandinavia. Thus we find the flight schedule a core competence

since it gives SAS competitive advantages on certain routes.

Star Alliance supports SAS focus on frequency aimed for Nordic passengers since attention

can be held, to a certain extent, on transportation to and from the hubs. This means that SAS

may choose to “reduce” engagement on, .i.e. German routes. This is illustrated through

Lufthansa-departures operated by SAS and vice versa. Thus, Star Alliance and frequency is

inter-connected, and is why we choose to analyze Star Alliance and Eurobonus next.

3.2.3. Eurobonus and Star Alliance

Eurobonus can also be interpreted as a core competence. The program brings enhanced

flexibility, efficient partner-benefits when renting cars, booking hotels etc. Put differently,

Eurobonus-members get significant value compared to non-members, as illustrated by

numerous awards for the program. EuroBonus is an innovative and dynamic program, which

is difficult to imitate by competitors.

Star Alliance is also interpreted as a core competence. The global network brings significant

value to all SAS customers since they get increased flexibility, transfer of bonus points, more

available destinations, enhanced flight schedules and duration, alliance airport lounges and

also reliable smaller regional/domestic airline partners since airlines must have a certain

standard and quality in order to be a member of the alliance. In short, Star Alliance brings

significant value to customers. It definitely provides access to new markets since, e.g. code-

share flying gives SAS access to American travelers who travels to Scandinavia for instance.

The network, route map etc. is also difficult to imitate since it has taken years of development

Page 54: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 54

to reach status quo. Optimizing route maps through Star Alliance give SAS core competences,

which LCCs do not have. Thus we see Star Alliance‟s opportunities as a competitive

advantage for SAS. Star Alliance simplifies travel, and through transparent pricing, SAS‟

customers benefits. We will now analyze simplicity and transparent prices next, since these

may enhance competitiveness.

3.2.4. Transparent Prices and Simplicity

At first glance, one may not think that competitive advantages involve transparent prices.

Some LCCs, such as Ryanair and Norwegian, are “creative and innovative” when it comes to

adding/creating costs for travelers. They are often accused of having low price transparency

since they “force” travelers to spend money on web check-in, baggage, (often unnecessary)

insurances, and certain fees like administrational, service or sales costs. However, this may be

interpreted as innovation since LCCs are good creating new revenue streams. Transparent

prices mean that customers can rely on the initial price they see when they choose departures,

which make customers more satisfied. The pricing-strategy can of course be imitated by the

LCCs mentioned above, but this would mean that their initial price could increase and thereby

not seem as “competitive” as before. Additionally, SAS also flies to main airports and not

smaller ones far away from city centers in order to reduce airport taxes. Sometimes travelers

have to add extra traveling time and costs by flying with LCCs. With SAS it is simple -

travelers pay for what they see and get what they pay for, i.e. no unpleasant fees will be

added. Thus we see price transparency as a core competence since it may enhance customer

experience and satisfaction. Additionally, this may lead to new markets and customers, as

corporations become more and more aware transparent pricing.

3.2.5. IT

SAS know the possibilities offered by efficient use of IT, i.e. the opportunities the internet

offers, mobile services and others. Their SMS check-in service is one function which might

enhance the travel convenience for travelers32

. Efficient use of IT services enhances travel

convenience. IT may not give access to new markets, and can probably be imitated by

competitors, but by being innovative, or perhaps even a pioneer, will always attract

customers. Additionally, it is free of charge to check in online or by SMS compared to other

airlines. As a new IT-initiative, SAS have also installed Skype in their lounges so that

32 http://www.sas.dk/no/Travel-Info/Check-In/SMS/

Page 55: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 55

travelers can call their business partners or loved ones33

. Thus we derive that SAS‟ IT

capabilities are a core competence but perhaps not as strong as the others we have mentioned.

For SAS‟ internal point of view, effective use of IT can reduce employment costs, as IT-

systems are standardized and customers can check-in themselves.

3.3. Findings from Chapter 3

Table 9 is a summary of our analysis on VRIN, DC and asset specificity. We derive that

employees are a valuable but not rare human asset. They can be substituted, imitated and

might not possess dynamic capabilities, since reconfiguring is difficult due to potential

clashed with employees and their unions. Thus, they possess high asset specificity. The Fleet

is old compared to competitors‟ and this does not grant status as VRIN-resources or having

dynamic capabilities. They have high asset specificity since aircrafts cannot be redeployed in

other transactions or processes. Eurobonus, Star Alliance and the route map are true strategic

assets since they possess several VRIN- and DC-conditions. They provide dynamic and

innovative solutions and processes for SAS and many of its stakeholders, i.e. they add

significant value for the travelers and partners. Furthermore, the asset specificity is high since

it is difficult to transform the assets without impacting internal and external stakeholders. The

political resources are also VRIN-resources since they give SAS advantages, which other

airlines do not have. The brand value is significant for SAS compared to LCCs. The historical

presence as a national flag carrier and Scandinavian symbol is beneficial. However, industry

changes, negative media attention, strikes, crashes, etc., are activities which might harm the

33 http://www.sas.dk/da/Alt_om_rejsen/For-rejsen/Lounges/Lounge-services/Arbejdsfaciliteter/?vst=true

Table 9: Summary

of findings on

Resource/Features

Valuable

Rare

Non-

imitable

Non-

substitutable

Dynamic

Capabilities

Asset

specificity

Employees YES (-) NO NO NO HIGH

Brand value No NO Yes NO YES HIGH

Fleet NO NO NO NO NO HIGH

Eurobonus

YES YES YES YES YES Medium

Star Alliance YES YES YES YES YES HIGH

Route Map YES YES YES YES YES HIGH

Political Resources

Source:

Own creation

YES YES YES YES NO HIGH

Page 56: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 56

brand value. Thus, the brand value is struggling.

The core competences of SAS are punctuality, frequency, service and simplicity, Eurobonus,

Star Alliance and IT. These are effective competences that create value for (premium)

passengers. However, we must highlight that SAS seems resource-starved and that their

competitiveness is declining due to less significant resources, capabilities and competences.

In order to summon up, our main findings from this chapter are:

Employees and the fleet do not offer competitive dynamic VRIN conditions

Eurobonus, Star Alliance and route map obtain VRIN-features

Political and brand resources have, historically, offered VRIN, but may be declining

Core competences include Eurobonus, Star Alliance, punctuality, service, frequency

Competitive advantages is mainly created through competences like Star Alliance

collaboration, Eurobonus, punctuality and service

Declining competitiveness

Until now, we have analyzed SAS‟ and their internal potential. This has been done since it

influences their market positioning and strategy. Besides the internal view, SAS‟ market

position is also influence by other external stakeholders, such as industry competitors,

political and economic developments, customers, suppliers, etc. Thus, next chapter will

analyze the important macro and meso level.

Page 57: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 57

Chapter 4 – PEST and Industry analysis

It is important to assess the external factors influencing the aviation industry and is enabled

through a PEST-analysis, which assesses certain political, economic, social and technological

conditions having an impact on the industry. Porter‟s 5 Forces will give us an idea of the

forces, which create pressures on the airline industry, i.e. we will present the competition

intensity within the industry. This chapter will focus on macroeconomic and meso-level.

4.1. Macroeconomic Level

SAS is influenced by several macroeconomic factors,

which are important to analyze when assessing the

potential of SAS today and in the future. PEST-

mapping is especially crucial when it comes to firms

that operate in areas in which the public shows great

interests in (Troelsen, 2003), e.g. the aviation. Thus, we

will start out by creating a Scandinavian PEST analysis,

shown in Figure 13, in order to get a better understanding of the macro context. Additionally,

we will create an industry forecasting in order to present industry economics.

4.1.1. Political Conditions

Denmark, Sweden and Norway share roughly similar political and economic beliefs, history,

culture, religion, traditions and languages. One main difference is Denmark‟s EU membership

dating from 1973 and Sweden from 1995 whereas Norway has yet to become a member. The

EU membership enhances the opportunities of European trade, which are highly beneficial

and of utter importance to the Danish and Swedish economies since these are highly

dependent on their exports. However, since Norway is a member of the Schengen-community

and the EEA, they share roughly similar opportunities regarding European trade. The close

geographical proximity and limited Scandinavian markets increase the importance of having

efficient exportation towards the rest of EU and the globalized world. Thus it is important for

the governments to secure sufficient aviation services. In the SAS-case, the relationships with

the Scandinavian governments are unique in the way that governments act as investors.

Figure 14 illustrate effectiveness of the Scandinavian governments from 1996 – 2008,

assessed by the World Bank. The percentile ranking shows that the Scandinavian countries

governments‟ effectiveness is higher than 95 %, which implies that authorities are efficient,

reliable and predictable.

Figure 13: PEST

Source: Own creation

Page 58: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 58

In essence, since the start of the new millennium, the governments have become more

effective, which makes it easier for corporations to operate.

Figure 15 shows the development of the Scandinavian political stability, which looks very

promising, except in Denmark. The Danish stability is more volatile, perhaps due to political,

religious and cultural clashes as well as wars in Iraq and Afghanistan.

Denmark also had problems due to the infamous Muhammad-drawings, which created severe

political issues for its citizens and corporations. Norway and Sweden have experienced

similarities, but not as severe as in Denmark. We highlight that wars, terror, epidemics, etc.

will have an influence on the political and economic development and especially on the

aviation industry. Appendix O shows a political instability world map, created by the

Economist Intelligence Unit, where we observe that Scandinavia has low political instability

(strong stability) in an international context.

The Scandinavian governments‟ policies promote fair and free trade in general, but recent

year‟s performance of SAS questions whether fair competition actually exists in the industry.

SAS have multiple times gotten financial support from the governments which could be seen

as a distortion of the competition. Other airlines like Norwegian, Cimber, Malmö Aviation

9596979899

100101

1996 1998 2000 2002 2003 2004 2005 2006 2007 2008

%Figure 14: Government Effectiveness in Scandinavia 1996 - 2008

Denmark

Norway

Sweden

Source: Own creation based on data from the Worldbank , Governance Matters 2009

75

80

85

90

95

100

1996 1998 2000 2002 2003 2004 2005 2006 2007 2008

%

Figure 15: Political Stability in Scandinavia from 1996 - 2008

Denmark

Norway

Sweden

Source: Own creation based on data from the Worldbank , Governance Matters 2009

Page 59: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 59

etc. do not have access to this additional cash flow (or subsidize), which therefore gives SAS

financial (and political) advantages. The governmental financial support is mainly financed

through corporations‟ and households‟ taxes, which is why taxation will be briefly presented.

Governments‟ taxation policies, powerful political economic tools, influence consumers‟ and

corporations‟ disposable income and thereby travel possibilities. As a result, an increase in

taxes may reduce the disposable income and thereby consumption budget (Frank, 2003;

Salvatore, 2003). Appendix P presents the tax burdens for Scandinavian citizens and EU-15

as well as corporate tax rates. In essence, Scandinavian household taxes are significantly

higher than the EU-15 average. On the other hand, the gross income (before taxes) is also

higher in Scandinavia. Personal income taxes are important for companies since an increase in

these, all things being equal, would reduce consumption resources for citizens. Corporate

taxation is also important for SAS in multiple ways. Taxation affects profits, but since SAS

do not have these we do not analyze this. Economic rationality implies that lower corporate

tax rates in Scandinavia should attract MNCs. These MNCs would then place offices in

Scandinavia and need SAS services for stakeholders, such as their workers, customers,

suppliers, etc. The average corporate tax in EU-27 is 23,3 % in 2010. The Danish corporate

tax rate is 25 %, the Norwegian is 28 % and Sweden is 26,3 %. Thus, we derive that our

corporate taxes are higher than the rest of the EU, which could reduce international

competiveness, especially when trying to attract FDI. In short, an increase in corporate and

private taxes may reduce the travel-budgets for households and corporations, the disposable

income, hence, an increase in taxes will, all things equal, have a negative effect on SAS.

A taxation on bonus-programs is currently being

developed in Denmark34

. We argue that this tax

proposal would lower the attractiveness of

Eurobonus and further increase the competitive

situation for LCCs35

. Our final important

taxation tool is green taxes. Scandinavian

politicians may wish to improve the

environmental situation, as well as our national

brands as responsible countries, by introducing

green taxation.

34 http://www.flyertalk.com/forum/archive/t-84162.html 35 http://www.sas.dk/da/Misc_Container_Page/Help_and_Contact/Policies/EuroBonus-conditions/?vst=true

Figure 16: Comparison of CO2 emissions

Source: Prockl 2009

Page 60: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 60

Having a greener political profile is important and this trend may strengthen in the future.

Figure 16 show the different levels of CO2-emissions associated with trucking, shipping and

flying. Emission levels for aircrafts are higher than trucking and shipping, which implies that

politicians may want to reduce the damages from the aviation industry. A green tax would

influence SAS negatively, since this would lead to higher environmental costs, fuel costs, etc.

Moreover, as higher “production costs” often leads to higher product prices, the real losers

might be the customers, since these would finance the taxation indirectly by increased prices.

From the political perspective, we will now move on to analyzing the economic situation in

Scandinavia, which influences SAS significantly. The economic crisis has had a severe

impact on the airline industry, which is why we find it important to assess next.

4.1.2 Economic Conditions

The economic growth from 2004-2014 of Denmark, Norway, Sweden, EU and the World is

presented in Table 10. We see the annual percentile development in GDP measured in

constant prices in order to reduce the inflation effect, since this differs among countries.

Table 10: GDP annual growth %, constant prices

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Denmark 2,3 2,4 3,3 1,6 -1,2 -2,4 0,9 1,5 2,6 2,6 2,3

Norway 3,9 2,7 2,3 3,1 2,1 -1,9 1,3 1,8 1,9 2,0 2,1

Sweden 4,1 3,3 4,2 2,6 -0,2 -4,8 1,2 2,5 3,0 3,5 3,9

EU 2,7 2,2 3,4 3,1 1,0 -4,2 0,5 1,8 2,3 2,4 2,5

World

Source: IMF

4,9 4,5 5,1 5,2 3,0 -1,1 3,1 4,2 4,4 4,6 4,5

The respective economies go through positive cycles until approx. 2007-2008. In the end of

year 2007 the financial/economic crisis begins and its effect is still seen today in the table.

The Danish growth from 2007-2011 is limited and if we add the inflation rate, we might get

an economic growth, which is less than the inflation, i.e. a recession. The Norwegian

economy shares similar trends as the Danish except the recession have been weaker. Sweden

has also experienced recession in 2008-2009, but according IMF, they will bounce back and

achieve higher growth rates from 2011-2014, compared to Denmark and Norway. All things

equal, according to the IMF, Denmark and Norway will have growth challenges towards

2014. The Swedish economy, however, seems to be more dynamic and volatile and may have

future higher growth rates.

Page 61: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 61

According to a study by Boeing, the GDP-development influences the demand for air travel.

Figure 17 show that when GDP increases 1 %, air travel demand increases by 2,5 %, i.e.

positive correlation. This means that the aviation industry is more volatile than the general

economic development and that the industry is highly vulnerable toward economic changes.

Figure 17: Correlation between GDP and air travel demand

Source: Boeing – Current Market Outlook

In times of recession, airlines are especially vulnerable, which is illustrated by the poor

development within the industry the past few years. Besides the current economic situation,

we also see a need to assess the current and future potential for the airline industry. This will

be assessed next.

4.1.2.1. Fluctuations in oil price and currency.

The increases in oil and jet fuel prices, which are positively correlated, are illustrated in

Appendix Q. We observe the sharp increase in prices from 2007 – 2008 and for SAS this

meant 25% higher costs than expected. Thus, they have to reduce these and other costs in

order to respond to the changes in factor prices. The general uncertainty regarding oil price

development, make hedging of jet fuel crucial for SAS, which was also mentioned in section

2.2. SAS is also highly exposed towards currency fluctuations and risks since revenue and

costs flows are done in various currencies. Thus, operating with US$, Euros, SEK, NOK,

DKK, GBP, etc., requires an effective financial risk management in order to reduce potential

losses. From the economic analysis we will now move on to analyze which social conditions

that influence SAS.

4.1.3. Social and Technological Conditions

Social conditions can be distribution of income, population growth, age distribution, labor

mobility, education, living conditions, etc. These are all important factors which will affect

the way a company operates and its strategies. According to certain limitations, we will not

analyze the social development and income distribution since we feel it is common

knowledge, that the Scandinavian countries are welfare states, which promotes a more equal

income and social distribution compared to more liberal countries. Moreover, its citizens are

Page 62: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 62

generally considered having significant financial resources and living standards. However,

labor mobility is interesting since unemployment influence households‟ disposable income.

Higher unemployment-rates lead to reduced corporate –and private spending on travel.

Therefore SAS is vulnerable towards fluctuations in unemployment and growth. Appendix R

shows the unemployment rates in Denmark, Sweden and Norway computed by OECD.

Unemployment has increased due to the crisis, but may decrease in the near future, which

lead to an increase in consumer disposable budgets. The downside for SAS is that when more

people are employed, all things equal, salaries may increase due to the law of (less) supply

and (more) demand for aviation staff.

Regarding the technical conditions, authorities have much power and influence when deciding

on safety requirements and procedures in the airline industry, especially post 9/11. For

airlines to succeed, or even be allowed to operate, they need to invest in new technology as

required by the governments in order to increase passenger safety. It becomes important to

purchase new machinery (technological assets) and also train and upgrade the staff‟s (safety)

capabilities, so they can understand and use new technologies efficiently. Additionally it is

important to have access to advanced and new aircrafts since these might offer cost reductions

on the operating level and of CO2-emissions. Other basic industry requirement includes

efficient communication channels as well as consumer-efficient booking systems. In this

industry, IT is extremely important since it offers new opportunities for the airlines, especially

on the operating level (Check-in) and in marketing (SMS, E-mail, newsletters).

Since GDP rates provides a picture of the general economic development in a society, then we

supplement this analysis with an industry forecasting. This is done in order to present the

industry economics in the Scandinavian aviation industry.

4.2. Industry forecasting

A forecast computed of the

Scandinavian airline industry

development is presented in Table

11. From 2008 to 2010 the total

airline market value has decreased

in all countries. We can also derive

that the industry may bounce back after 2010. Having IMF‟s estimate on the future GDP-

development in mind, a future industry improvement may seem reasonable to assume. The

Danish market value will increase significantly; the Swedish market will increase more

Table 11: Market Value Forecast from 2008 - 2013 in

Denmark, Norway & Sweden in billion US$

2008 2009 2010 2011 2012 2013

Denmark 3,3 3,2 3,3 3,4 3,6 3,9

Growth % -5,2 -2,8 3,2 4,9 6,1 6,8

Norway 4,8 4,8 4,8 4,9 4,9 5

Growth % -2,4 0 0,5 1 1 1,1

Sweden 2,9 2,8 2,8 2,9 3 3,1

Growth % -1,9 -4,8 1 2,2 3,4 3,8

Source: Datamonitor

Page 63: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 63

moderately, whereas the Norwegian one seems to be moving slowly. In short, the Norwegian

market value may seem mature and larger, whereas the Swedish and Danish market value

growth seems more dynamic.

Table 12 presents the three markets

measured on passenger levels and

we observe that Norway has the

biggest amount of travelers. The

geographical size of Norway and

Sweden makes air transportation

more important and relevant than in Denmark, which might be the reason for Denmark‟s

lower figures.

Our brief industry forecasting illustrated that, when measuring on market value and passenger

levels, the largest airline market is Norway. It is, however, the one with the lowest growth,

which might be a sign of a mature market. Thus, we derive that the Swedish market may have

more potential due to higher growth rates in passenger levels, market values, and also GDP-

development as illustrated in section 4.1.2. However, IATA predicts that 2011 will be a bad

year for aviation since capacity will increase by 6 %, but demand only 5 %36

. They worry

about state budget debts of several European countries, which may have a damaging influence

on aviation. Moreover, they argue that margins are small and the total industry earnings will

be reduced from 8,9 billion dollars in 2010 to 5,9 billion dollars in 2011. They further

highlight that the slow growth in demand is a big concern and conclude that the aviation

industry has lost money in the last 7 out of 9 years.

4.3. Part summary of PEST and industry forecasting

Our PEST-analysis showed that the Scandinavian countries‟ political effectiveness and

stability are performing well. Political (green) taxation is gaining popularity in Scandinavia

and this will influence SAS. Additionally, we showed how taxation policies may have a

severe influence on SAS, due to changes in corporations‟ and household‟s disposable budgets.

In addition to this, we presented the essence on a “Eurobonus”-tax, which is currently under

development in Denmark. The economic development in Scandinavia is improving and

Sweden seems to achieve higher growth rates. We have showed the important correlation

between GDP development and air travel demand, which is why macroeconomics are vital for

this industry. We demonstrated that unemployment are stagnating and may decrease in the

36 http://borsen.dk/nyheder/transport/artikel/1/191665/triste_udsigter_for_flyselskaber.html

Table 12: Passenger Forecast from 2008 - 2013 in Denmark,

Norway & Sweden (millions )

2008 2009 2010 2011 2012 2013

Denmark 13,2 12,4 12,8 13,3 14 14,8

Growth % 2,4 -6 2,7 4,2 5,3 5,9

Norway 20,6 20,3 20,8 21,5 22,3 23,2

Growth % 0,9 -1,2 2,1 3,6 3,8 4

Sweden 17,1 14,5 15 16,1 17,8 19,8

Growth % 3,2 -16 3,2 7,4 10,7 11,1

Source: Datamonitor

Page 64: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 64

future. Moreover, when corporations lay off employees, then there will be fewer business

passengers for SAS. Thus, unemployment is a serious issue for SAS. The technological

development in Scandinavia influence SAS, since efficient use of IT may improve SAS‟

competitiveness. Thus, technological development, especially within marketing, sales and the

operating core, is very important.

Regarding industry economics, based on passenger levels, market value and GDP we derive

that based on market value, passenger levels and GDP-development that Sweden has the

highest future growth rates, whereas Norway is mature. In addition to this, we also highlight

that SAS‟ strong presence in a mature region may reduce their competitiveness compared to

airlines operating in more emerging markets. Moreover, our main findings from our PEST-

analysis and industry forecasting are:

Political environment is stable, effective and predictable in Scandinavia

The economic situation is improving

The aviation industry is dependent on the macroeconomic and –political situation

The Norwegian market is the biggest, but also has the lowest growth rates

The Swedish market may have bigger potential due to higher growth rates

The social conditions are improving

The technological development, and legal requirements, is of utter importance to SAS

Year 2011 will be a tougher year for aviation with declining demand and earnings

We have now illustrated that SAS, and the industry, is highly volatile and vulnerable

regarding changes in the macroeconomic and –political setting.

4.4. Industry level – Porter‟s 5 Forces

In this section we create an industry analysis by

applying “Porter‟s 5 Forces” (Porter, 1979).

Figure 18 shows how this model could look like

in the Scandinavian airline industry. This model

is to be kept in mind during the rest of Chapter

4, where we will analyze various forces and

stakeholders that influence the Scandinavian

industry.

Figure 18: Porters 5 Forces in SAS’ industry

Source: Own creation

Page 65: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 65

4.4.1. Threat of New Entrants

New firms will face trouble when entering the Scandinavian markets since SAS‟ (political)

assets create entry barriers and biased competition. SAS might be in a position where they can

get access to additional capital easier than other competitors since government policies tend to

favor SAS. New entrants should invest in building up an efficient route map, know-how,

purchasing or leasing planes, renting buildings and gates in the airports, hire and develop staff

capabilities, etc. All these processes are expensive, time consuming and risky since the airline

industry is generally considered volatile. To enter and succeed within the Scandinavian airline

market is difficult since airlines like SAS, other Star Alliance partners, Cimber, Finnair,

Malmö Aviation, Norwegian and other LCCs creates an aggressive competitive environment.

New entrants may have scale –and cost disadvantages compared to SAS due to lack of

customer base and experience.

Regarding production experience, BCG founder Henderson (1973; 1979) argued that as a

cumulative production doubled, the marginal production cost per unit would decrease, which

is the essence of the “Experience Curve”. As a result of this argumentation, we highlight that

new entrants may face a steeper experience-curve, when entering the market, which may

result in inefficiencies, higher costs and perhaps output prices. Access to distribution channels

may also become problematic for new entrants as well as “damage” the experience curve

effects. Another example could be lower initial punctuality due to a less satisfactory

experience curve.

Besides this, SAS have long-lasting relationships with suppliers and partners, which may

provide SAS with beneficial terms and conditions regarding their transactions. This creates

industry barriers that lead to more challenges for newcomers. Porter also mentions

“Government policy” as a factor, which can create industry entry barriers. We emphasize the

importance of this barrier due to SAS‟ governmental ownership, which provides SAS with

competitive advantages. Finally, product differentiation and brand value also increases entry

barriers and the SAS-brand has been developed over 60 years, which is challenging to

compete with for newcomers.

New entrants emerges though expansion of route maps

New entrants do rarely arise from dust. Increased competition is typically from LCCs, other

European, North American or Asian airlines, which expand their already existing route map,

i.e. Lufthansa might increase the frequency of flying to and from (new) Scandinavian hubs.

Page 66: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 66

Thus SAS should not fear competition on the intra-Scandinavian market from Thai Airways,

but focus more on the increased international competition between Scandinavia and Asia, to

give an example. Expanding existing route network may be easier for airlines since they may

already possess the needed capabilities and resources required to start up new destinations.

This implies that network-airlines entering the Nordic market may have experience and

capital, which may enhance their experience curve costs.

New competitors arise from M&As in aviation and vertical integration

Poor performing airlines are often purchased or merged with competitors and alliance

partners. Examples of M&As are KLM and Air France (2004), Swiss and Lufthansa (2005),

Delta Airlines and Northwest Airlines (2010), etc. Additionally, new entrants also arise

through vertical integration. An example is the fast-growing charter industry, where travel

agencies, such as TUIfly and Thomson Holidays, now also operate their own flying services,

which implies vertical integration since they expand their value chain. Charter companies

where once partners and/or customers of SAS, but are becoming major competitors as well

since they impose on SAS‟ leisure territory.

4.4.2. Threat of Substitute Products or Services

The degree of substitutable products and services also influence the competition intensity,

since, all things equal, standardized outputs tend to bring increased competition. Thus, skilled,

complex and high quality products and services can be difficult to substitute or imitate, which

creates industry barriers. Moreover, buyers‟ willingness to switch products, as well as the cost

of doing so, also affects the industry competition level. For instance, SAS offers a beneficial

route map for travelers in Scandinavia. Customers, which depend on this route map, as well as

frequency, flexibility, etc., may face increased costs or inconvenience, reduced flexibility and

quality when switching to Norwegian since they do not offer the same favorable route

network. Thus, switching barriers exists. Additionally, we highlight the importance of having

competitive complementary services, since this will affect the competition as well. This will

be elaborated in section 4.4.3. The Scandinavian airline industry has multiple substitutes,

which we divide into three categories: Short, medium, and long distance substitutes, as

illustrated in Figure 19. Notable substitutes will now be elaborated.

Page 67: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 67

Figure 20: Train advantages

Cheaper travelling

Reduced duration

Offers more stops – also minor cities

Train typically stops in city centers

No luggage restriction

More environmentally friendly

Trains offer internet services

Better conditions for working

Less inefficient waiting time

Source: Own Creation

Figure 19: Substitutes for SAS

Sources: Own creation

Train and water transportation

The train system is well developed in most of Scandinavia, and cover major, medium and

minor cities. Trains are major competitors on short and medium distances and some

advantages with the train systems are presented

in figure 20. In short, trains may offer

cheaper travelling, reduced time, more

convenient stops, no luggage restrictions,

more environmentally friendly, internet

services, less waiting time at the station, etc.

Trains will become an even bigger

competitor in the future now that especially

DSB and SJ are focusing on international

travel as well. Routes to most of Germany,

Amsterdam, Prague, etc. are increasing and will

compete with Northern European airlines37,38

. Furthermore, the potential arrival of high-speed

trains (TGV) will influence the short distance aviation market in the future39

.

Water-transportation is also a competitor, since multiple locations within Scandinavia are

located close to the water, e.g. Copenhagen, Århus, Stockholm, Gothenburg, Malmö, Oslo,

Bergen and Sandefjord. Citizens who want to travel from Copenhagen to Oslo might choose

the Oslo-ferry instead of flying since it may be an experience to be on a cruise, i.e. this makes

shipping a substitute. In addition, on cargo, ships can transport bigger loads of goods than

airplanes and are more environmentally friendly according to Figure 16 (section 4.1.1.).

37 http://www.dsb.dk/Find-og-kob/Rejser-udlandet/Rejser-til-udlandet/Orange-udland/ 38 http://www.dr.dk/Nyheder/Udland/2010/04/09/215446.htm 39http://www.business.dk/transport/flyselskaber-trues-af-hoejhastighedstog

Short Distance Substitutes (Intra-Scandinavia)

•Car, Taxi, Bus

•Trains

•Ships

•Telecommunication

•Charter companies

•Low cost airlines

Medium Distance Subtitutes (Scandianvia - Europe)

•Car, Bus

•Trains

•Ships

•Telecommunication

•Charter companies

•Low cost airlines

•Traditional network airlines

Long Distance Substitutes (Globally)

•Ships

•Telecommunication

•Charter companies

•(Low cost airlines)

•Traditional network airlines

Page 68: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 68

IT-communication

Another substitute to flying is telecommunication. Internet and (cheaper) telecommunication

provide people and corporations with excellent possibilities to connect via communication

providers like Skype. Firstly, it may be cheaper or even free to talk on the phone or through

video conferencing. Secondly, regarding companies‟ need for arranging international

meetings, improved IT solutions might become a real substitute for flying. Online or video

conferencing may be efficient since employees do not have to wait hours in airports or sit in

planes where they might be more inefficient than if they were in their offices. An example of

this is Grundfos and the Maersk Group, which save time and money by investing in these new

IT solutions40

. Besides these benefits, efficient use of IT also gives them a greener profile

since they reduce CO2 emissions due to less travelling. Moreover, it could also reduce

workers‟ stress levels, jetlag and time away from family and friends. Grundfos also states that

IT will never eliminate their need for flying to a customer five times a year, but they may

reduce frequency to 2-3 times, which makes IT a substitute.

Traditional Network Airlines and regional competitors

The Scandinavian airline industry is affected by major global network carriers and regional

airlines. Network carriers typically organize themselves in alliances (or networks) like Star

Alliance, Skyteam or Oneworld. Thus, SAS competes with other network carriers, but

competition is also between the respective alliances.

Regarding SAS‟ own view on their competitors, they argue that their main Nordic

competitors are Norwegian, Malmö Aviation, Skyways and Finnair41

. When we expand to a

more international view, SAS also competes with Lufthansa, Air France-KLM, British

Airways and Continental. These are of course all valid competitors, but we wonder why SAS

do not update their view on competitors. To mention a few examples where network

competitors fly on the same routes as SAS, there is: Aeroflot fly on same routes as SAS from

Scandinavia to Moscow42

, Thai Air fly to Bangkok43

, Iberia and Spanair to Spain4445

, Czech

Airlines to Prague46

etc. These are just common examples of competitors that fly the exact

same routes as SAS, which are excluded. The same goes with travels to America and Asia.

40 http://www.travelbroker.dk/uploads/files/borsen_071008_videokonferencer%20afløser%20rejser.pdf 41 SAS annual report 2009, p. 19 42 http://wwww.aeroflot.ru/templates/polet_en/map.html 43 http://www.thaiair.com/index.htm 44 http://www.iberia.com/OneToOne/v3/destinos.do?cntCat=EUROPA&tabId=3&menuId=02100000000000 45 http://www.spanair.com/web/en-gb/Services/ 46 http://denmark.czechairlines.com/en/portal/passengers/where_we_fly/our_destinations.htm

Page 69: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 69

Figure 21: Properties of the low cost model

Better fleet utilization

Fewer types of aircrafts

More seats available per flight (volume)

Single-class cabin only

No business lounges

No connecting flights

Cheaper secondary airports

Lower remuneration

Bonus salary schemes

Fees on services

Fewer obligations

Source: Own Creation

The increasing popularity of Asian travels, especially vacation spots like Thailand, means that

Thai Air will become an even bigger competitor in the future. The same goes with SAS‟

expansion towards America, which will result in “new” competitors from the American

markets. Thus, we think that SAS should rethink who their competitors are and what their

market position is. Other competitors include LCCs, which have been teasing SAS for years.

These firms have different business models and strategies, which will be assessed next.

The Low-Cost model

The market for low cost point-to-point flying has

experienced a boom after the deregulation and this has

had a huge impact on the Scandinavian airline industry.

Airlines such as Ryanair, easyJet, Air Berlin,

Norwegian, Cimber, Transavia, GermanWings, etc., use different cost structures and are able

to push down prices, which damages major airlines significantly. Table 13 illustrates the costs

of flying 1 kilometer and we observe that SAS operates with highest costs.

This supports our claim that SAS have high cost structures, which we also derived earlier in

section 2.2. As a result of this, LCCs can operate with lower costs, and fares, than SAS.

Reasons for this are presented in Figure 21. These aspects, together with the need for

achieving higher cabin load factors, are

necessary in order to break even for LCCs.

Put differently; volume and economies of

scale are at the core of the LCC business

model. The highly competitive and price-

sensitive market means that SAS is forced

to integrate notions from LCCs into their

business model in order to compete

efficiently. Examples are that SAS-

passengers have to purchase meals and

drinks aboard (excluding the business

segment), higher utilization of the fleet,

single class cabins on domestic flights, one-way tickets, lowered salaries, etc.

Another mean of cost-minimization, is that LLCs often fly to secondary airports, which are

cheaper. In addition, LCCs may offer cheaper flying on the European continent, but they

Table 13: Cost of flying 1 KM (NOK)

SAS 0,99

Norwegian 0,49

Ryanair 0,29 Source: Own creation based on data from

Dagens Næringsliv, 15/2/2010

Page 70: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 70

rarely operate on intercontinental routes. Since these organizations do not enroll in alliances,

they do not offer efficient long distance flying, i.e. on long distance routes SAS may not

interpret LCCs as a competitor, for now. We believe that it could very well exist in the future.

An example of this is Norwegian, which already has flights to Dubai and Morocco47

.

Furthermore, Finnair and Norwegian have discussed collaborations on intercontinental routes

to Asia48

. Norwegian does not offer these routes, and Finnair wants more customers on these

routes. Thus, the collaboration would include Norwegian transferring passengers from all of

Scandinavia to Helsinki, where Finnair would fly them to Asia.

One weakness of the low cost model is the often criticized lack of transparency, strong

restrictions on luggage, an effective mileage program often do not exist, no alliance-

membership, no intercontinental flights, seat selection costs money, lack of flexibility, etc. In

short, every additional service besides the actual flight is charged extra. Thus, LCCs may

offer severe inconvenience for frequent travelers.

Network airlines also offer low cost services for passengers and examples of this could be

Lufthansa through German Wings and Air France-KLM who manage Transavia. Put

differently, Lufthansa and Air France-KLM both attack SAS on “traditional flying”, which

focuses on comfort, speed and the flexibility. Additionally, they also pressure SAS on price

through their respective LCCs49

.

4.4.3. Substitutes & Complementarities

Charter companies offer flying services, which make them competitors to SAS. When

customers order their full vacation packages at for instance MyTravel, they get hotel, flight,

local transportation, etc., included in the deal. This means charter companies impose on

commercial airline territory by doing these services themselves and expanding their value

chain. Charter companies are also partners. SAS and Apollo have signed major deals in the

past where SAS did the flying and Apollo provides hotel solutions and sell the packages.

Online travel agencies and flight databases, e.g. Expedia.com, are more or less acting as

brokers. They influence the industry in different ways since it may be easier to compare

airline prices, duration etc. on specific flights. Online agencies have access to a huge

international consumer segment and sometimes they can even offer lower prices than the

official sales channel of the airline, e.g. SAS‟ websites‟ booking system. Thus, online travel

agencies and brokers can both be competitors and partners to SAS. These distribution

47 http://www.norwegian.dk/fly/rutekort/ 48 http://borsen.dk/nyheder/investor/artikel/1/190825/norwegian_i_alliance_med_finnair.html 49 http://borsen.dk/investor/nyhed/178005/

Page 71: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 71

channels may replace SAS‟ official booking system to some degree, which is why we

definitely see them as threats for SAS. On the other hand, they may also give SAS access to

bigger markets and their core competences may be marketing and sales, which are not SAS‟

core competences.

When customers choose an airline, there are obvious parameters like price, duration, comfort

etc., but some supplementary products and services may be equally important as well.

Examples could be a membership program, which offers multiple benefits like bonus points

(miles) and cheaper fares on car rental, hotels, airport lounges, enhanced IT check-in systems,

access to a global alliance flying network, etc. Put differently, frequent flyer programs, like

Eurobonus, offer supplementary services which provide its members with multiple benefits.

These secondary services, or complementarities (Porter, 2000), are important in today‟s

industry since they complement the primary product, air traffic, and thereby makes it more

attractive for customers to prefer travelling with specific airlines or inside the same alliance.

4.4.4. Bargaining Power of Suppliers

This section will analyze the bargaining power of suppliers, such as employees, aircrafts,

airports and financial capital, since we see these as the main suppliers for SAS. One could

also interpret SAS‟ alliance-partners as suppliers, since they supply (exchange) customers to

SAS. Bargaining powers of suppliers is essential in an industry since poor supplier relations

leads to higher costs and prices as well as reduced strategic and operational competitiveness.

Employees

For several years SAS have experienced challenges with their workers‟ unions, especially the

cabin crew. In Scandinavia, there is a strong tradition for workers to organize themselves in

unions, in order to enhance their working conditions and bargaining power. This trend is

problematic for SAS, which have been cutting down on employees for several years.

Table 14: SAS' average number of employees from 2000 - 2010

Year 2002 2003 2004 2005 2006 2007 2008 2009

Average # of employees 35.506 34.544 32.481 26.727 25.323 23.538 24.635 18.786

Change -962 -2.063 -5.754 -1.404 -1.785 1.097 -5.849

%-change -2,71 -5,97 -17,71 -5,25 -7,05 4,66 -23,74

Source: Own creation based on data from SAS website

The annual (and average) number of employees is illustrated in Table 14 and we observe

Page 72: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 72

yearly reductions from 2002 to 2009, except in 2008. According to Core SAS, SAS still need

to lay off 1700 more employees before reaching an acceptable level. These layoffs mean that

workers may become dissatisfied and thereby organize themselves in unions in order to

optimize their (individual and collectivistic) contractual agreements. Labor unions have been

fighting with SAS management for a long time, which is why we will briefly present how

these influence the industry.

SAS Group‟s labor union structure is illustrated

in Figure 22. Simple calculations show that

there are 14 different Danish labor unions, 15

Norwegian and 6 Swedish. In total, SAS‟

employees are represented by more than 35

different independent Scandinavian labor

unions, which are demanding unique attention.

Moreover, here we have not even included

potential foreign unions (non-Scandinavian)

and other types of NGOs. This makes

negotiations, and layoffs, extremely complex

since employees and their unions have different

interests, goals and requirements. It might be

difficult to satisfy all unions at once since

making standardized agreements seem

impossible. In addition, labor rights and working conditions differ in all countries, which do

not make it easier.

Besides this, unions fight each other in order to get their individual claims and interests

through. This was the case in early 2010 where especially Swedish and Norwegian unions

criticized the Danish union, CAU, for not being in touch with reality, open minded or flexible

enough50

. The Swedes were afraid to lose governmental (financial) support if the Danes could

not meet an agreement. Thus, we derive that it is difficult, or nearly impossible, for SAS

management to create a broad and effective work agreement, which satisfy all work related

stakeholders. SAS have a poor bargaining position towards the Scandinavian employees and

their labor unions, but things might be improving since most unions may have realized that

employee and cost reductions are necessary in order to save SAS. A potential bankruptcy

50 http://www.dr.dk/Nyheder/Penge/2010/03/11/074906.htm

Figure 22: SAS Group’s labor union structure

Source: SAS annual report 2009

Page 73: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 73

would not be in any ones‟ interests, especially the workers.

Aircrafts

The industry for aircraft manufacturers seems to be rather concentrated consisting of two

major players, Boeing and Airbus. This means that buyers like SAS have poor bargaining

positions towards the suppliers, since relatively few suppliers exist. It is also interesting to

analyze the purchased components and their importance for the focal firm. Aircrafts are

crucial for SAS because without these, they are not able to fly, i.e. it is impossible for SAS to

find substitutes for this asset. Unique components can build up switching costs, which

increase the supplier‟s bargaining power. For SAS, this means that it might involve costs

switching from Airbus to Boeing products since aircrafts might function differently and use

different technologies. This means that cabin staff will need to upgrade their capabilities in

order to maneuver other aircrafts efficiently, which cost money and time. A way of resolving

this could be notions from alliance theory. Perhaps airlines could do group purchasing

through their alliance and thereby achieve a better deal. This could be another advantage of

being in Star Alliance. The supplier power is also dominated by how important the industry

and customer is to the supplier and here SAS may be looked upon as a (small) regional airline

with limited financial resources. We assume that SAS is not a major customer of Boeing or

Airbus, which decreases the bargaining position of SAS.

Airports

One could argue that it is impossible for airlines to be self-sufficient, which is why economic

exchanges between partners in the value chain occur and the condition of interdependence

might increase. In short, it may be inefficient to be self-sufficient. Thus, SAS need to organize

economic exchanges between relevant stakeholders that can perform certain activities more

efficient than others. SAS cannot efficiently maneuver all aspects of the value chain, which is

why some processes are outsourced or allocated to other partners. Airports offer services to

SAS, and vice versa, which increases interdependency. There is strong interdependence

between SAS and airports and they exploit each others‟ resources and competences, hence,

they may reach an individual and common goal: Increased efficiency and revenue. Even

though there is strong interdependence, Copenhagen Airport is creating the new CPH Swift

low cost terminal in 2010. SAS will get increased competition and the airport will increase its

cash flow from multiple (new) airlines. Thus, if we apply Porter‟s argument regarding buyers-

concentration and its importance to the supplier, when the amount of airlines increase in the

Page 74: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 74

airport, SAS‟ impact on the airport‟s revenue might reduce. This will decrease the bargaining

power of SAS since the airport now have possibilities of earning revenue through multiple

channels, i.e. SAS‟ importance gets reduced. However, we also highlight that SAS is the

biggest customer for many Scandinavian airports, which is why they still have a good

bargaining position. However, airports may be threatened since their biggest customer is

struggling financially. This could be one reason, why CPH Swift is created. As we shall see

later on, SAS may have exploited their customer status towards the CPH Swift project, by

“forcing” increased costs from the airport to the LCCs. In order to assess how buyers affect

the industry, we will now move to this part of the value chain.

Bargaining position of the buyers

Since SAS has operated as a monopolistic firm for many years, liberal market reforms will of

course reduce their monopolistic status and behavior. The bargaining positions for private and

corporate buyers have increased significantly during the last decades. Multiple competitors

offer several alternatives (substitutes) than flying with SAS, i.e. switching costs have been

reduced. In additions to this, we predict that CPH Swift will further promote this development

and improve the bargaining positions of buyers. Thus, we argue that there seem to be a

positive correlation between number of airlines and travelers‟ bargaining positions (thereby

travel alternatives).

Charter agencies‟ bargaining positions are enhanced due to the increased opportunities in the

market. Additionally, charter companies, which rented aircrafts from airlines before, now also

perform airline activities as well, i.e. internalization perhaps due to high TCE associated with

economic exchanges with monopolistic airlines like SAS. Governmental, frequent and

business travelers have also gotten their bargaining power enhanced significantly since the

price has decreased due to increased competition. Moreover, SAS and its Star Alliance

partners offer a more efficient global travel route map than for instance Norwegian, which is

beneficial for frequent travelers. Also there are investor-ties, since governments invest in

SAS, which might provide the government with more lucrative services. When synthesizing,

we observe that customers bargaining power is significant, i.e. a buyer‟s market. This market

condition force airlines to compete on parameters like price, service, flexibility and comfort.

Put differently, airfares are declining due to competition and also industry innovations.

In the next section we will turn our focus toward the rivalry within the industry, in order to

assess the degree of competition between airlines.

Page 75: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 75

4.4.5. Rivalry

In order to get a better understanding of

the rivalry within the Scandinavian

airline market, we have chosen to

analyze the markets shares of SAS.

Figure 23 illustrate that the SAS Group

has a total Nordic market share of 37%

in 2009. The highest market share is in

Norway (54%), then Denmark (43%),

Sweden (33%) and Finland (15%).

Compared with the previous year

(2008), we observe that the market share

in Norway was 59%, Denmark 46%,

Sweden 35% and Finland 16% in. Thus,

the Norwegian market share has

declined by 5%-points, Swedish with

2%-points, Danish with 3%-points, but

the Finnish market share has actually increased

by 1%-point. Thus, we derive that SAS‟

Scandinavian market shares are declining.

Figure 24 shows the markets share of the

Nordic region in 2009, where the SAS Group is

benchmarked to competitors. By measuring in

ASK we get a better idea of the true operational

potential and capacity. SAS is by far the

biggest actor in front of Norwegian, Finnair,

Ryanair, etc. However, we find it problematic

that the Lufthansa Group is not represented since

these are main competitors. Nevertheless, Figure 24 supports our argumentation regarding

interpreting SAS Group as market leaders in the Nordic region. Since the business segment

contributes 60 % of the group revenue, it becomes interesting to analyze SAS‟ market share

on key business destinations.

Figure 23: SAS Group market shares

Figure24: Markets shares based on ASK

Source. SAS annual report 2009

Source: SAS annual report 2009

Page 76: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 76

This development is shown in Figure 25

and we observe that SAS‟ market share on

routes to London and Brussels has a

volatile decline after 2009. This is

probably due to increased competition

from other airlines, changed customer

preferences and the economic situation.

SAS‟ markets shares on business routes

to Frankfurt, Paris and Amsterdam have

not been influenced to the same amount

as London and Brussels. An explanation

of this could be that the competition intensity is higher on Scandinavia routes to London and

Brussels, than to the other European metropolises. All things equal, tougher competition may

lead to less consolidated market shares.

In order to get a numerical version of the rivalry, we apply the Herfindahl Index (HI), also

known as Hirschman-Herfindahl index (HHI), which measures the industry structure and

competitor concentration. The extreme monopolistic market structure has a HI = 10.000,

whereas perfect competition has a value close to 0 (Lotz, 2006). The mathematical formula

for HI is:

HI = s12 + s2

2 + s3

2 + ... ... + sn

2

The HI-formula sums up the market shares of the specific companies within an industry and

for the Nordic market it could look like this:

= (32

By applying the HI-formula, we get an index value around 1.400. The methodology is

problematic since our SAS-data lacks Nordic data from Lufthansa, Cimber and other

important airlines. We also see difficulties getting a correct view of market shares through the

use of ASK. ASK measures capacity and says little about demand and profitability. However,

all things equal, the “true” HI-value for the Nordic airline industry must lie below 1.400 since

Source: SAS annual report 2009

Figure 25

Page 77: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 77

competitors such as the Lufthansa Group, Cimber, Malmö Aviation, etc. will increase

competition and thereby reduce the HI-value. 1.400 equals a moderate amount of competitor

concentration and competition. The airline industry has progressed compared to the old

monopolistic days where the HI-value might have been closer to 10.000. Moreover, the

creation of CPH Swift will most likely further reduce the “true” HI-value.

In section 1.2.4., we criticized Porter‟s 5 Forces and presented several of its‟ limitations and

one might be the time challenges as Mintzberg argued. Industrial forces might work more

static today (t=0) than in the future (t=1), which is more dynamic due to increased

competition and economic development. This illustrates the time gap, which Mintzberg et. al

(2009) mentions. For us this mean, we have to apply historical cost structures and industry

development in our analysis to predict what will happen in the future and this time gap may

create problems.

The framework also focuses too heavily on industry factors and Mintzberg et al. argued that

Porter neglects the internal capabilities and resources of the firm. An empirical example could

be SAS‟ LCC subsidiary, Snowflake. The market for LCCs was booming (e.g. Ryanair and

easyJet was successful), but SAS did not have the needed resources, capabilities or

competences to manage a LCC efficiently. Not only SAS was unsuccessful with this strategy.

Most major airlines launched LCC-subsidiaries during the 1990s and Peng (2009) state that

since:

“…all these operations have been shut down or sold off, indicative of both a lack of

organizational capabilities and a lack of ability to learn new tricks”

(Peng, 2009, p 262).

Thus, there exists a gap between the external potential (which was present) and the internal

capabilities (which SAS lacked), which is why we analyzed the resources and capabilities of

SAS. In addition to this, we also highlight that our Porter‟s 5 Forces analysis do not create a

market positioning or strategy for SAS. It is merely an easy tool for identifying risks, factors

and stakeholders as well as their influence on the industry.

4.4.6. Part Summary of Porter‟s 5 Forces

New entrants have difficulties in entering the industry due to high entry barriers. Entrants

typically do not emerge through true entrepreneurship, but rather through vertical integration

by industries related to aviation (e.g. charter), M&As between airlines, route map- and LCC-

expansions, etc.

Page 78: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 78

We derived that there are substitutes to flying, such as car, bus or train. Especially, trains may

become a bigger competitor in the future (as observed in Central Europe) since it offers fast

services to city centers, may be cheaper and produce less emissions. Telecommunication is

also a competitor since innovative technology can substitute some of the need for flying,

which is a trend that may further increase. Charter companies and LCCs also offer substitute

services, which might be less complex. Vacation packages might reduce SAS‟ leisure

potential, i.e. from Charter companies offering full-scale services.

LCCs offer competitive products if we neglect parameters like comfort, frequency, points and

network flexibility. On certain routes, LCCs are not substitutes for SAS, since business

travelers might require high frequency of flights, intercontinental services, mileage points,

transfer to main hubs, etc. The last substitute is the services offered by other alliance-

members. These actors share similar features as SAS‟, which is why these may be stronger

competitors on the business-segment than LCCs. Today‟s developed airline-industry also

offers additional complementary services in order to maintain and enhance customer

preferences. Membership programs, airport lounges, alliance-formation and beneficial

discounts are created in order to capture consumers. Thus, airlines do not only compete on

flying services, but also on secondary complementary services, which can be a mean of

differentiation.

Aircraft manufacturers like Airbus and Boeing have a good bargaining position towards SAS

due to the supplier concentration argument and the relatively small size in a global

perspective. However, SAS may benefit from group purchasing with (alliance)-partners, as

alliance theory imply. Airports and SAS may be seen as having strong interdependence since

neither can function efficiently without the other. However, due to the increased competition

by new airlines, SAS‟ impact of the airports‟ income will be reduced over time, which

increases the bargaining position of the airports. In addition to this, CPH Swift may give

Copenhagen Airport more power. Suppliers of human capital, the employees, have a strong

bargaining position towards the industry, which influence all airlines. SAS-employees are

represented by more than 35 different labor unions, which all demand unique attentions,

which increase negotiation complexity and reduce the bargaining power of SAS.

The buyers‟ bargaining position has been enhanced significantly due to increased

competition. Alliance-formation can be a respond to this development which can lead to anti-

competitive behaviors which SAS‟ have been punished for several times. However, we

interpret today‟s markets as a “buyer‟s market”. Especially travel brokers have added to this.

Page 79: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 79

Rivalry is present and intense due to the political deregulation and stronger competition. We

computed an approx. HI-value around 1.400. Thus, moderate competition in the airline

industry exists and will increase further in the future (lower HI). SAS is the market leader in

Scandinavia, but aggressive competitors might reduce the lucrative market shares of SAS. In

addition to this, SAS‟ competitiveness may be declining due to poor bargaining positions

towards buyers and suppliers, strong substitutes and increasing rivalry. Therefore, our

industry study derives that:

High entry barriers exist due to capital and knowledge requirements and unequal

competition in the market

Strong substitutes already exist from charter companies, LCCs, train, bus, car, etc.

Competition and differentiation is done through complementary services

SAS‟ bargaining position towards suppliers and buyers is generally weak

The market is influenced by a moderate degree of rivalry, which is increasing

4.5. Findings from Chapter 4

Our PEST-analysis showed that the Scandinavian countries are performing well regarding the

political environment. The economic situation is improving and we derived that Sweden may

have higher growth rates. We also showed the positive correlation between GDP development

and air travel demand. The Norwegian market, based on market value and passenger

forecasting, is the biggest in Scandinavia, but also show signs of maturity. As a result of this,

the Swedish and Danish markets seem more promising.

Our industry analysis showed that new entrants may experience difficulties in entering the

industry due to high entry barriers. Therefore, entrants typically emerge through M&As,

vertical integration, route map expansions, LCCs, etc., i.e. not entrepreneurship. Notable

substitutes to flying are car, bus, train and Telecommunication. Charter companies and LCCs

also offer competitive products if we neglect parameters like comfort, frequency, points and

network flexibility. LCCs are rarely seen on intercontinental flights, where network carriers

are dominant and share similar features, business models, services, etc. as SAS‟. We also

emphasized the importance of complementarities like Eurobonus. SAS generally has a

declining bargaining position against buyers and suppliers. Rivalry is increasing and we

calculated an approx. HI-value, which was approx. 1.400. Thus, moderate competition exists

and this may increase in the future and lower the HI-value. During Chapter 4 we derived that:

Political environment is effective and the economic situation improving

The aviation industry is vulnerable towards the macro development

Page 80: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 80

The Norwegian market is biggest, but the Swedish market may have more potential

The technological development, and legal requirements, is of utter importance to SAS

High entry barriers due to capital and knowledge requirements, unequal competition

Strong substitutes already exist from charter companies, LCCs, train, bus, car, etc.

Competition and differentiation is done through complementary services

Airlines also compete through alliances and complementarities

SAS‟ bargaining position towards suppliers and buyers is generally weak

The market is influenced by a moderate degree of rivalry, which is increasing

Until now we have analyzed SAS by assessing their strategy, resources, and competences as

well as illustrated important macroeconomic and industry factors. The next chapter will

analyze SAS‟ operational performance and benchmark these with notable competitors.

Page 81: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 81

Chapter 5 – Operational performance & benchmarking

In this chapter, we will analyze SAS‟ performance and productivity by assessing the most

important airline ratios. We will apply specific industry terminology, which is why we will

briefly explain the applied performance indicators. Revenue Passenger Kilometers (RPK)

measures the total revenue SAS may receive from passengers multiplied by the flown

distances. Available Seats per Kilometer (ASK) measures the actual capacity of a flight, i.e.

how many seats are available during the flight multiplied by the distances. This, we have to

keep in mind during this chapter. An expression of this is the Danish ratios, which will be

lower mainly due to geographic. Mathematical versions of RPK and ASK are:

In addition to these, the passenger load factor (PLF), sometimes called cabin factor, measure

how much of the capacity (seats) that is occupied by passengers, i.e. how much of the aircraft,

in percentile, that is full. Passenger levels (PAX) measures how many passengers SAS

transfer and the yield is an expression of profitability and return on investments.

5.1 SAS operational performance

Passengers levels (PAX) of SAS can be observed in Figure 26, and is further explained in

Appendix S. PAX are relatively volatile and increasing after April 2010. We observe a

reduction in these levels from June 2008 - January 2009, which is related to Core SAS and

challenging times for the industry. The reduction of PAX in March-April 2010 is related to

the Icelandic volcano eruptions.

40.000

540.000

1.040.000

1.540.000

2.040.000

Nu

mb

er

of

Pas

sen

ger

Source: Own Creation based on SAS Investor Relations

Figure 26: Passenger levels (PAX) on SAS' markets

Intercontinental

Europe

Intrascandinavia

Denmark

Norway

Sweden

Page 82: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 82

We observe that most passengers travel with SAS on the Norwegian -and European markets,

and levels are followed by their Intra-Scandinavian -and Swedish services. There are

significantly fewer passengers on the Intercontinental routes and the Danish market. This

might be related to a larger focus on the Nordic home market (Core SAS) and short distances

(together with well-developed infrastructure) in Denmark.

Available Seats per Kilometer (ASK) is illustrated in Figure 27. It is measured in Millions

from June 2008 to June 2010. ASK on the European market possess declining tendencies

from mid-2008 – late 2009 and has higher volatility than other markets. This implies a

shrinking capacity and can be related to their corporate strategy as well as the financial crisis.

Excluding the impacts of the Icelandic volcano eruptions, an increase in ASK is observed

from early 2010, as a response to demand. The development in ASK is characterized with

relatively low volatility and they have remained fairly stable. Recently, demand has increased

for intercontinental services and SAS aim to respond to this trend51

, even though it is against

their corporate strategy. This will increase the intercontinental-ASK. Revenue passenger

kilometers (RPK) on various markets are illustrated in (Millions) in Figure 28.

It can be derived that revenue for European and Intercontinental services possesses the

51 http://www.business.dk/transport/sas-flere-langdistanceruter-i-stoebeskeen

0

500

1.000

1.500

2.000

Mill

ion

s

Source: Own Creation based on SAS Investor Relations

Figure 27: Available seat per KM (ASK) in millions on SAS' markets

Intercontinental

Europe

Intrascandinavia

Denmark

Norway

Sweden

0

500

1.000

Mill

ion

s SE

K

Source: Own Creation based on SAS Investor Relations

Figure 28: Revenue passenger per KM (RPK) of SAS' markets

Intercontinental

Europe

Intrascandinavia

Denmark

Norway

Sweden

Page 83: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 83

strongest volatility. Revenue is mainly gathered between April-October, especially due to

more demand for travel in these months. Moreover, the European and Intercontinental

services are affected by longer distances flown than e.g. domestic within the Nordic countries,

together with a larger demand for these services. The trends for the Norwegian, Swedish and

Intra-Scandinavian possess roughly similar trends, which can be related to a stable demand

and their hub-to-hub system. The Danish RPK is relatively low due to the Danish geographic,

but we highlight the importance of good hub-connections to Copenhagen. The highly

competitive environment has resulted in sales campaigns (e.g. Low fare calendar), and

together with subsidizing of connecting flights and short distances, this would result in a

relatively lower RPK. Additionally, high frequency between hubs may increase RPK but it

may reduce the load factor. Passenger load factor (PLF) will be assessed next.

PLF for SAS is illustrated in Figure 29 and we observe that European –and Intercontinental

routes perform well due to high demand and frequency compared the hub-to-hub model.

Excluding intercontinental services, we observe that the Danish – together with the European

market operate with the highest utilization. The relatively low score on the Norwegian and

Swedish market may be related to “political” destinations, which are served in order to offer

efficient infrastructure for citizens. Examples could be some Northern Norwegian routes,

which was presented earlier in the route map in Figure 12, section 3.1.5. Hence, there is a

need for these services, but they operate with free capacity. Moreover, more competition may

also exist on the Swedish and Norwegian market. Here LCCs operates with lower fares which

will captures travelers and reduce SAS‟ PLF. Moreover, the intra-Scandinavian PLF roughly

follow the same percentage as Nordic markets, and is related to the need for providing high

frequency between the Nordic hubs. It is emphasized that PLF is a good indicator on demand,

but it neglects a view on profit.

50556065707580859095

%

Source: Own Creation based on SAS Investor Relations

Figure 29: Passenger load factor (PLF) for SAS' Markets

Europe

Intra-Scandinavian

DK

NO

SWE

Intercontinental

Page 84: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 84

From Figure 30 it is observed that SAS‟ yield is less volatile than the one of Norwegian. The

rapid expansion and low-cost strategy of Norwegian may explain the unsatisfactory yield-

growth of Norwegian in 2010.

For SAS it is observed that their yield growth shows signs of improvement even though it still

is negative. Put differently, SAS is becoming less unprofitable, and it is noticed that SAS

really performed bad in aviations‟ dark years 2008-2009 and 2010 could only show

improvement in the yield-growth. In Norwegian‟s case we might interpret 2008-2009 as

“average” years, whereas it does not take much to give them a low score in 2010. We argue

that low-fare strategies serve important purposes (e.g. gaining market shares, increasing PLF),

but that it also provides challenges with achieving high yields and profitability. Here volume

is important, as derived in section 4.4.2.

As a sum-up, efficiency on SAS‟ services follow roughly the same trends and we argue that

PLF will remain relatively low on domestic routes in the future as well, which is an argument

in favor of sales campaigns in order to reduce the amount of free available capacity. However,

SAS also need to possess needed flexibility in order to utilize their hub-to-hub strategy, i.e.

citizens living far away from SAS‟ hubs should have the opportunity to fly without hassle to

their final destinations. Substitutes, e.g. cars and trains (described in section 4.4.2.), will also

reduce PLF since it provides competitive alternatives to flying. There are also various means

of increasing PLF, perhaps reducing routes, but we highlight that consequences involved

could be severe, i.e. LCCs would gain market share and Scandinavian passengers could not

benefit as wanted from the hub-to-hub system. Nevertheless, methods to increase PLF include

reduction in frequencies on flights, a larger focus on high-demand routes or sales campaigns.

The yield benchmark proved that SAS is improving and that Norwegian is doing worse due to

their low cost strategy.

-25-20-15-10

-505

10

%

Source: Own creation based on monthly traffic reports from SAS and Norwegian.

Figure 30: Yield growth (%) compared to previous year

SAS

Norwegian

Page 85: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 85

5.2. SAS‟ performance compared to notable competitors on European services

Figure 31 shows that Norwegian and the Lufthansa Group have the highest growth in capacity

(ASK). Norwegian‟s company size allows higher growth rates than more mature firms.

Regarding Lufthansa, they have undergone (and are undergoing) a number of acquisitions

(e.g. Austrian, Swiss, etc.), which influences ASK positively. Thus, increased capacity

through M&As may partly explain Lufthansa‟s impressive growth in capacity, rather than

solely increased demand.

We observe that most of SAS‟ notable competitors follow the same trend in ASK-

development (Norwegian and SAS excluded). British Airways recent decline may be related

to employee strikes in the summer 2010, which keeps the aircrafts on ground. Moreover,

during the period a weak development from Air France and SAS can be spotted, whereas

Finnair show signs of positive growth. The essence of this graph is that SAS, Air France-

KLM and British Airways are low-performers, Finnair perform better, and Norwegian (and

maybe Lufthansa) can be considered top-performers.

Figure 32 shows the growth in RPK for respective airlines compared to their performance the

previous year. Once again, we observe that Lufthansa and Norwegians growth rates on RPK

are the highest among SAS and their notable competitors. SAS‟ weak performance until

December 2009 may be attributed to divestments of group airlines. Hence, their former

subsidiaries‟ revenue streams are no longer integrated in SAS. Moreover, SAS also reduce

their revenue and kilometer potential when terminating routes.

It is observed that airlines share similar trends (SAS from early 2010) and that British

Airways has the lowest growth in RPK during 2010, which has been challenging for them.

-30

-20

-10

0

10

20

30

40

%

Own creation. Source: Monthly traffic reports from respective airlines

Figure 31: Monthly percentile change in Available seat per KM (ASK) compared to previous year

SAS

Finnair

Norwegian

Lufthansa GroupAir France-KLMBritish Airways

Page 86: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 86

Next KPI is growth in passenger traffic (PAX), which is presented in Figure 33. We observe

that Norwegian, Ryanair, easyJet and Lufthansa are top-performers. An interesting finding is

that Ryanair is the only airline with positive growth during the Icelandic ash-clouds.

Figure 33 illustrates that passenger growth for SAS is improving and actually recently is

positive. As of June 2010, SAS have roughly similar passenger growth-levels as Air France-

KLM and Finnair. Thus, considering the trend in passenger growth, LCCs are increasingly

capturing travelers, whereas traditional network-carriers‟ growth is slower. It can (again) be

derived that British Airways are the worst performer in our benchmark.

Figure 34 compares the average European ASK -and RPK industry growth performance from

IATA. The effects of the recession and the volcano-eruptions are to be observed. It also

follows the same trend as the airlines in our benchmark.

-60

-40

-20

0

20

40

%

Source: Own creation based on monthly traffic reports from respective airlines

Figure 32: Monthly percentile change in revenue passenger per KM (RPK) compared to previous year

SAS Group

Finnair

Norwegian

Lufthansa Group

Air France-KLM

British Airways

-30

-20

-10

0

10

20

30

40

%

Source: Own creation based on monthly traffic reports from respective airlines

Figure 33: Monthly percentile growth in passenger levels (PAX) compared to previous year

SAS

Finnair

Norwegian

Lufthansa Group

Air France-KLM

British Airways

easyJet

Ryanair

Page 87: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 87

We derive that growth in ASK and RPK correlates, even though RPK-development is more

volatile than ASK. Therefore, adjustments of available capacity aim to meet demand for air

travel. If RPK drops more than ASK, this will have negative consequences. In section 4.2., we

presented IATA‟s industry forecast for 2011, which implied that the ASK will increase more

than RPK. As a result of this, capacities will growth faster than the demand and revenue.

Figure 35 benchmark passenger load factors (PLF) for notable airlines. We observe that the

benchmarked airlines operate with roughly the same seasonal volatility and trends on load

factor. Ryanair and Norwegian, however, outperform their competitors and have had months

with approx. 90% cabin utilization. It is to be observed that Finnair is the airline with the least

satisfactory recent development in cabin utilization.

SAS operated with the same load factor as Norwegian between May and June 2010. This

indicates that sales campaigns in SAS have succeeded in order to deal with the free capacity.

Besides comparing with the above mentioned competitors, Appendix T illustrate that SAS‟

load factor is roughly in line with the Association of European Airlines‟ average during the

2010.

-15,00 %

-10,00 %

-5,00 %

0,00 %

5,00 %

10,00 %

%

Source: Own creation based on data from IATA

Figure 34: European airlines industry RPK and ASK growth development

RPK growth

ASK growth

505560657075808590

jan

/09

feb

/09

mar

/09

apr/

09

maj

/09

jun

/09

jul/

09

aug/

09

sep

/09

okt

/09

no

v/0

9

dec

/09

jan

/10

feb

/10

mar

/10

apr/

10

maj

/10

jun

/10

%

Source: Own creation based on monthly traffic reports from respective airlines

Figure 35: Passenger load factor for notable SAS-competitors

SAS

Lufthansa

Norwegian

BA

Finnair

Ryanair

Air France-KLM

Page 88: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 88

Our final operational KPI is block hours, which measures the average time an aircraft

operates, hence the time the plane leaves the gate until it stops at the destination (Doganis,

2010). We observe in Table 15 that SAS and Air France are low-performers. Additionally, we

inform that in 2007 and 2008, SAS operated with block

hours of 8 and 8,2, respectively. This indicates an

unsatisfactory development for SAS. The table also

illustrates that Lufthansa and British Airways are

performing quite well. An explanation might have

foundation in their large focus on long-distance flights,

which, all things equal will increase this KPI since the

aircraft are in motion for a longer period of time. It is

also to be noticed that LCCs obtain high scores without intercontinental routes. Reasons for

this may be their widespread use of secondary airports, which allows faster turn-around due to

less traffic. Reasons for SAS‟ low performance could be related to their hub-to-hub system,

which requires more coordination, as well as the shorter flights within the Nordics negatively,

affect productivity.

SAS‟ high scores on punctuality, as well as little development on block hours indicate that the

airline is satisfied with their scores on block hours. It might be the case that SAS keeps their

aircrafts on the ground for longer between departures since it may give them flexibility and

make it easier to be punctual. On the other hand, it might be the case that SAS cannot perform

much better on block hours due to e.g. their large fleet and relatively complex route-map.

Additionally, as mentioned in section 3.1.6., SAS have received criticism for not performing

the required pre-flight safety checks. In other words, block hours could be affected negatively

for SAS if they performed the required official procedures prior to each flight. Thus, perhaps

the true SAS-block hour value may be lower.

5.3. Findings from Chapter 5

In this chapter we derived that passenger levels, ASK and RPK for SAS have been declining

and these KPIs share roughly similar development. However, improvements are observed

from December 2009 until today. The main reason for this could be increased air travel-

demand, largely due to economic improvement. The passenger load factor has a strong

seasonal volatility and we observe that especially the intercontinental routes operate with high

load factors. When benchmarking SAS‟ yield toward the one of Norwegian, we observe that

both companies face challenges making money. The main reasons for the negative yields are

Table 15: Block hours

Airlines Daily block

hours

easyJet 11

British Airways 10,7

Norwegian 10,6

Lufthansa (2008) 10,3

Ryanair 9,6

Air France (2008) 8,2

SAS 8

Source: Own creation based on data from

Doganis and airline reports

Page 89: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 89

tougher competition, lower prices and margins, macroeconomic turbulence as well as

generally unfavorable market conditions. We also derived that winter months have lower

yields, which is due to less demand for travel and lower airfares. Less winter travelling leads

to a great amount of available capacity, and means such as the Low fare Calendar have been

introduced. Thus, according to economic rationality, it is better to lose a little than a lot.

The ASK, RPK and passenger level developments for SAS are following the industry. This is

due to airlines‟ strong correlation with economic development. Moreover, we have shown that

a strong correlation between ASK and RPK exist. On load factors, SAS is once again

performing in line with its main competitors and we observe that LCCs and especially

Ryanair score high on cabin utilization. Our final KPI was block hours, where we derived that

SAS‟ usage of their fleet is the lowest among the selected competitors. Our main findings

from Chapter 5 are:

PAX, RPK and ASK is improving due to a strengthened economic situation in 2010

We illustrated the strong correlation of airline performance and economic trend

ASK and RPK is strongly correlated

SAS‟ performs roughly in line with the industry regarding PAX, RPK, ASK and PLF

SAS‟ block hours were the lowest in our benchmark

Chapter 5 illustrated SAS‟ operational performance and next section will summarize our main

analytical findings and discuss these.

Page 90: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 90

Chapter 6 – Analytical findings and discussion

This chapter will briefly sum up the main analytical findings in prose and form a summary as

a SWOT. We aim to provide the reader with a shorter, more thorough and holistic view of

SAS. Important findings will then be discussed in section 6.2.

6.1. Main analytical findings

The main problem for SAS is their high costs, which have been obtained through years of

negotiations with strong unions. SAS-employees receive high remuneration for their work

compared to workers in competing airlines, as well as they tend to have more satisfactory

working hours. Thus, strategic and financial limitations exist for SAS, which make them

particularly vulnerable in the intense industry-rivalry. LCCs are major competitors for SAS,

as they are able to offer lower airfares than the mature SAS, as well as customers have

become more price-oriented on short-haul services. SAS aim to be a differentiator in order to

provide hassle-free flying with a strong focus on business travelers.

With Core SAS, the airline aims to turn an unprofitable SAS around through initiatives such

as divestments of non-core businesses, general cost reductions and a stronger focus on their

home market. This corporate strategy may not be interpreted as a long-term strategy, but

rather a cost-savings program. In our view, SAS operate a dual strategy, which aims to

compete on price with LCCs, as well as they aim to be a differentiator (comfort, simplicity,

flexibility, Eurobonus, Star Alliance, etc.). Thus, SAS do not possess a clear and concise

focus in their strategy; hence, they may be interpreted as being “stuck-in-the-middle”.

Therefore, competitive advantages are difficult to create. In addition to this, competitive

advantages are often created through the internal resources, capabilities and competences.

We found that SAS has a lack of dynamic VRIN-resources. Findings include their fleet,

which is old and inefficient, the staff is expensive (and tends to work less in other airlines)

and the brand value may have been weakened due to SAS‟ engagement in cartels, unfair

competition, accidents, not following the required pre-departure safety procedures, layoffs,

etc. Moreover, SAS possess significant political resources, factors disrupting competition and

create vital industry barriers. We do, however, argue that these advantages are declining,

especially if SAS should invite more private ownership. In short, the political resources create

competitive advantages, but they will most likely not last forever. We found that the main

VRIN-resources available were Star Alliance, Eurobonus, their route map and political assets.

SAS‟ core competences include IT-knowledge, Eurobonus, Star Alliance, punctuality, service

and frequency. We mentioned that competences related to Eurobonus and Star Alliance could

Page 91: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 91

be challenged in the future. This is because most network-carriers have mileage programs and

LCCs increasingly sees this need. Today‟s LCCs also offer beneficial discounts on car rental,

hotels, etc. Moreover, the Star Alliance-formation is challenged since it is not that unique as it

was a decade ago, i.e. Oneworld and Skyteam are expanding. Furthermore, the need for

network flying inside Europe may be of less importance than before since LCCs and network

carriers increasingly offer competitive services and have well-developed direct route maps.

The Scandinavian airline industry has high entry barriers and strong biased competition.

There are strong competitive substitutes for SAS‟ services in the Nordics. These include

trains, cars, other network carriers and low-cost flying with LCCs. Thus, the industry is

largely influenced by internal rivalry and external competition. In order to differentiate, SAS

aim to offer innovative complementarities.

SAS‟ bargaining position toward buyers and suppliers is generally weak. Tough competition

from other airlines, together with online travel brokers, makes it easy to compare airfares on

price. This has lead to a buyer‟s market. Furthermore, their financial limitations have resulted

in a poor negotiation condition with suppliers. SAS‟ brand value, and public media reputation

(and attention), may also negatively affect their bargaining position. Besides this, we also

derived that SAS have a poor bargaining position toward their employees, as unions are very

strong in Scandinavia. Finally, the market is influenced with an increasing rivalry, but there is

still opportunities for lower HI-values, hence more competition.

When analyzing the results from the benchmark of SAS toward notable competitors, we

observed that SAS roughly perform in-line with industry on KPIs such as ASK, RPK and load

factors. We derived that a strong correlation exists between the economic situation and SAS‟

KPI-performance, as well as SAS‟ block hours are the performing the lowest in our

benchmark. Even though, we highlight that SAS possess significant know-how on the

operational level and this is supported by their high scores on punctuality. Thus, we

emphasize that SAS may be better at the operating core compared to the managerial and

administrational levels. Their operations perform decent, but at too high cost levels. Their

high cost-structures are managerial issues, which top-management should be able to improve

to a certain extent. Moreover, SAS possess significant obligations, which are issues where

management has little control. We derive that SAS possess significant know-how in daily

operations, but have challenges with managing companies and costs.

Our main SAS-findings are illustrated in a SWOT-framework in Figure 36.

Page 92: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 92

Figure 36: SWOT of SAS

Source: Own creation

Threats

The highly competitive market, price-oriented

customers & LCCs

Eco friendly external substitutes

Currency & oil price fluctuations

Mature Nordic macroeconomic development

External cultural and religious clashes

Epidemics, wars, political disputes

Increased regulation and taxation

Star Alliance (neglecting internal learning)

CPH Swift

Videoconference technology

Opportunities

Business passengers

Core SAS

Eco-friendly airline

Brand

Product development

Eurobonus

Economy Extra

Markets where LCCs are not present yet

(Intercontinental)

EU-expansions = new markets

Strengths

Strong market shares

Brand value and national symbol

Culture and history

Governmental owners

Star Alliance, Eurobonus & Route Map

Product development and innovation

Strong presence in Scandinavian airports

Operational & market know-how, experience

& performance

Customer base

Hassle free flying

Weaknesses

Cost structures, (pension)-obligations

Strong labor unions & old fleet

Different aircrafts requires specific pilot skills

Financial distress

Governmental owners

Strong centralization

The hub system (more time consuming than

direct LCCs flights)

Vague and broad short term corporate strategy

Page 93: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 93

6.2. Discussion

Core SAS seems quite static and focused on cost reductions (output) and we argue that it

could be replaced with a „real‟ long-term corporate strategy that aims at generating growth.

The strong focuses on cost reductions are necessary, but do not generate growth. Only a

proactive, clear, narrow and sharp corporate strategy does. It seems that SAS-management

have integrated notions from the design and planning schools in multiple ways. The new

corporate structure has consolidated decision-making and power to the CEO (the strategist),

i.e. centralization of ownership and control (Hendrikse, 2007). Therefore, we argue that Core

SAS may have little room for strategic change, adaptation and incremental organizational

learning. The grand design is the plan and this will be followed. Planners (SAS-management)

try to control the future and to calculate it. The strong focus on financial and operational

goals/output, formulated by a perhaps technocratic top-management, is just as taken from the

planning and design schools as well as the system control perspective (Watson, 2006). Here,

very little authority resides at lower or middle management levels (Miller, 1986).

Managerially speaking, it may be argued that SAS have returned to the basic of business

management studies.

Recent industry changes have lead to an increased demand for intercontinental services, a

market which Core SAS exclude. However, SAS is responding with more intercontinental

flights, which is a direct contradiction to their strategy. The fact that SAS possess the

flexibility to increase supply may show positive properties regarding dynamic capabilities. On

the other hand, since SAS apparently have the required resources, without harming other

operations, indicate the airline possess free capacity. If SAS decide to sell off planes, they

should enhance their financial flexibility. The downside is decreased operational flexibility in

order to respond to market demands. Additionally, we derived that their fleet can be

considered costly, outdated and inefficient, which again would provide limited liquidity with

a potential selloff.

As shown in section 2.4.3, the Nordic business travel-market may not exist to the same degree

as earlier. Thus, Core SAS may be aiming for a declining segment, and a focus on business

passengers in a mature Nordic region may be characterized as a risky strategy. SAS have

increased their focus on their premium segment by launching Economy Extra. As business

class tickets historically may have be classified as a “Cash Cows” according to the BCG

Matrix (Henderson, 1973; 1979), see Appendix U, their focus could perhaps be „updated‟ in

order to respond to customer preferences. As a result of this, increased flexibility (Economy

Page 94: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 94

Extra) and mileage-points (Eurobonus) are factors business passengers tend to value and

could be the future “Stars” of SAS.

Due to important notions from division of labor, we highlight that it may be challenging for

managers in Stockholm to perform successful managerial decisions abroad. Thus, we

emphasize the potential challenges with neglecting delegation of ownership, control and

decision-making throughout the organization (Hendrikse, 2007). SAS could delegate

decision-making to (local/national) managers that have hands-on „day-to-day‟ experiences as

there may be difficulties for the headquarter (CEO) to implement their strategies abroad. They

should utilize local knowledge and comparative competences. Managers, which make

decisions, should operate in the environment and „get their hands dirty‟. In other words,

Stockholm-management may possess bounded rationality (Watson, 2006). Therefore, we

emphasize that significant resources could „support‟ Stockholm from abroad.

SAS already has experience with delegation due to their launch of separate business units in

2004. A McKinsey report argued that the Swedish unit could tailor-made their services to

meet their market demands, which should lead to more efficient competition with LCCs52

.

Examples included 12 new direct routes from Stockholm to European destinations, one-way

tickets, shorter decision making times, a more entrepreneurial management as well and a

general increase in ASK of 8 %-points. Thus, improved autonomy and decentralization can be

highly beneficial and we argue that SAS could adopt a hybrid structure. As a result of this, an

increased focus should be on the links between these units in order to coordinate efficient fare

prices, connecting flights and other network benefits. Thus, the connections between the units

are critical and we emphasize the importance of having communication, reporting standards

and cross-functional learning. A hybrid structure may also improve transparency, make it easy

to benchmark unit performance and perhaps make it easier to negotiate wages with

employees. Thus, SAS could delegate some decision making.

Scientific Management (Taylor, 1911) principles emphasize that hierarchical conditions may

strengthen organizational bureaucracy, predictability, standardization, stability and the

workers know what is required from them. However, it could be argued that SAS‟ strong

centralization may make the workers‟ feel exploited and alienated which may lead to moral

hazard issues, e.g. strikes. Moreover, employee-reductions may have increased dissatisfaction

with SAS-management. This can be interpreted by analyzing the sick leave development,

which has increased from 6,1 % in 2006 to 6,9 % in 2009, i.e. an increase of more than 13 %

52 McKinsey – The McKinsey Quarterly – May 2006 – A new organizational mode for airlines

Page 95: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 95

in three years53

. Another example of alienation, due to the centralization, is in their marketing

division. SAS‟ Danish marketing director, Christan Linnelyst, has recently resigned from his

position due to the centralization, which he claims are leading to a reduction of the marketing

employees in Denmark by 75%54

. Additionally, Linnelyst‟s decision-making and authority

have been reduced since a major part of the marketing division is now located in Stockholm.

Thus, centralization may lead to workers‟, also on upper management levels, feeling exploited

and alienated. As a result of the centralization, we highlight the importance of reporting

standards and inclusion of middle management.

SAS‟ corporate structure and processes shares similarities with a “Machine Bureaucracy”

(Mintzberg, 1979) since it appears to integrate formal procedures, routine operating tasks,

large-sized units at the operating level, standardization and technocratic activities.

Standardization of processes can lead to improved operational performance, but may also

limit individual development and reduce possible innovations. Moreover, Kärreman &

Alvesson (2004) argue that hierarchical steps within an organization may be an expression of

power, status, seniority, competence and experience. Thus, centralizing decision making into

a machine bureaucratic headquarter may be seen as an expression of meritocracy and the fact

top management believe that they are most qualified to formulate and implement strategies.

Figure 37: Machine bureaucratic features and SAS

Source: Own creation and based on data from Kärreman et al. 2002.

A brief comparison of SAS towards traditional machine bureaucratic features is shown in

figure 37. Machine-organizations typically operate in mature industrial industries, simple and

static contexts and technocratic managers may be seen as efficiency-seekers and process-

53 SAS Annual report 2009 54 http://borsen.dk/nyheder/karriere/artikel/1/191718/sas-direktoer_siger_op_i_vrede.html

Page 96: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 96

optimizers. Thus, SAS‟ structure could face challenges, since bureaucratic types may focus on

standardization, enforcement of rules, stability, homogeneity, financial and managerial means

(Kärreman, Sveningsson & Alvesson, 2002). These conditions have to operate in a dynamic

context, which will become problematic since it may be difficult to generate organizational

learning.

Employees, human capital resources (Barney & Hansen, 1994), may be the Achilles heals of

SAS. The fact that crew working for LCCs are willing to offer their services for lower

remuneration than employees in SAS support this claim. Moreover, employees may encounter

future challenges, since business travelers tend to have changed preferences on short-haul

flights. Thus, SAS employees‟ valuable skills, historical competitive advantages, may face a

future where increased industry homogeneity, competition and changed customer preferences

may result in challenges.

SAS‟ employees and their unions tend to ”tolerate” industry changes, which is illustrated by

their acceptance of salary reductions and changed working conditions. However, it might be

the case that SAS-employees have difficulties finding an as lucrative salary package and

working conditions elsewhere. Moreover, employees could become more dynamic and

flexible as static workers are one of the main problems of SAS. Moreover, they could also

engage in learning since this may bring advantages, which can generate additional value for

customers. Examples could be cabin-specific knowledge regarding wine, food, services, etc.

for the business segment, which passengers may be willing to pay extra for. We believe that

SAS has problems with facilitating and sharing knowledge, perhaps due to strong

centralization. Years of employee cuts may also lead to difficulties with trust, learning and

motivation. Thus, knowledge creation may have difficulties to appear on the operational level.

More precisely, the centralization may reduce dynamic capabilities as gaps between

management and the operating core exists.

Eurobonus & Star Alliance

These competences and products have solely positive VRIN-features. Competition on

secondary services may increase in the future, as competitors understand that this is one way

of attracting frequent flyers and a mean of differentiation. Alliance-networks‟ bonus-schemes

are generally well developed, largely due to decades of resource pooling and collaboration,

which makes it difficult to imitate for LCCs. However, no-frills airlines (in general)

increasingly negotiate competitive agreements on car-rentals, hotels, city passes, etc. and

Page 97: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 97

these offers are introduced for the customer when ordering the low-fare ticket. Thus,

continuous development of EuroBonus may be of importance for SAS. The downside of

mileage-programs is that they are expensive to operate, which creates cost LCCs do not

obtain. The CEO has recently opened up for a potential divestment of Eurobonus, which we

find unambitious since it offers value for customers. However, considering the Nordic

geography, it is a fact that travelers will not obtain a significant amount of mileage-points

when traveling on these short distances. This is a shortcoming of Eurobonus and could be

improved in order to increase the attractiveness of SAS. One reason for divesting Eurobonus

could be liquidity and more competent and dedicated owners.

Regarding Star Alliance, we argue that there is less need for this alliance for Nordic

passengers on the European market. LCCs (and network-carriers) cover a large direct route

network from Scandinavian airports to numerous European destinations, which reduce flight-

time and prices. For the price-sensitive traveler, there may be few extra benefits when flying

with Star Alliance within Europe. Star Alliance-members exchange customers, but we find it

difficult to evaluate if this favors SAS. For instance, why should the price-sensitive consumer

travel with SAS if they can fly with an alliance partner at lower price and receive roughly the

same amount of Eurobonus-points? Furthermore, we can easily construct a scenario where

customers receive a certain amount of Eurobonus points (by travelling with SAS-partners) for

which they can purchase a Bonus-point financed ticket at SAS. Thus, Star Alliance‟s

customer-exchange might be costly for SAS. On the other hand, partners also transport

passengers to Scandinavia.

Another potential downside of Star Alliance is that SAS may neglect to pursue internal

innovations. Having Barney‟s (1999) notions in mind, alliances can result in shortcuts to

competitiveness, but it may also reduce internal development. If SAS continues to rely on

their alliance-resources, they will not create any VRIN-resources themselves, which will

reduce future individual competitiveness. Moreover, SAS and Star Alliance are highly

interdependent, which may reduce flexibility and sovereignty. Thus, the membership can

prove to become damaging since SAS is locked into the alliance (captured).

We highlight the importance of unintended spillover effects (Porter, 1998). Competitors can

“steal” knowledge and value from SAS (and vice versa), due to intense collaboration in

airport-clusters. An example of spillover-effects includes low-cost properties. Another

downside of being in a cluster, and Star Alliance, is that competitors can gain access to

information about the Scandinavian market. In other words, it becomes important for SAS to

Page 98: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 98

create tacit knowledge and intangible assets, which cannot easily be imitated by competitors

or partners. Therefore, we emphasize that alliance participation can result in lack of control,

assisting a potential competitor, have a more short and medium term perspective and perhaps

have difficulties with learning (Collis & Montgomery, 1997). However, Star Alliance may

grant access to more speed and complementary assets.

PEST and Porter’s 5 Forces

Based on our macroeconomic analysis, Core SAS may be aiming at a market with low

growth, small margins and high cost levels. Their divestments of airlines, such as AirBaltic

and Estonian Air can be questioned, as these airlines operate in emerging markets with

lucrative growth rates. Additionally, airBaltic was awarded “Airline of the year 09/10” and a

“Phoenix Award 2010”55

, which demonstrates that the airline must have had potential and,

perhaps, that SAS is not good at managing companies. The EU commission is currently

considering membership applications several Eastern European countries56

, which may play

an increasingly important role in the future of European trade and economic development.

Therefore, we argue that SAS‟ Eastern European divestments may neglect growth

opportunities. SAS could also have benefitted from Eastern Europe‟s lower factor costs,

perhaps on the operational level. On the other hand, these markets are also more volatile.

The development of EU may increase the opportunity for business and growth in Europe.

This may involve opportunities for SAS to transport passengers on the business, economy,

charter and leisure-segment to newly developed destinations within the EU. Therefore, the

political and economic environment and SAS is highly interconnected.

The Scandinavian airline-industry is influenced by unilateral competition, which creates

significant entry-barriers. SAS‟ bargaining position toward their main Nordic airports is

generally strong since SAS is their largest customer. In fact, SAS may have an improved

bargaining position since both the airline and the airport generally speaking share

governmental investors and have long-lasting ties57

. A recent example involves CPH Swift,

where several LCCs are criticizing Copenhagen Airport for favoring SAS regarding airport-

fees and taxation58

. The dilemma is that the difference for airlines to operate in the SWIFT

compared to Terminal 1-3, is claimed to be marginal. As a result of this, LCCs must operate

with higher costs than anticipated, which may affect ticket prices. This would be a threat

55 http://www.airbaltic.com/public/awards_en.html 56 http://ec.europa.eu/enlargement/the-policy/countries-on-the-road-to-membership/index_en.htm 57 An example is Copenhagen International Airport 58 http://borsen.dk/nyheder/transport/artikel/1/187296/koebenhavnsk_lavpristerminal_vakler.html

Page 99: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 99

towards LCCs‟ successful business model and the SWIFT-example is an expression of SAS‟

negotiation position towards their main airport(s). Thus, SAS could exploit their bargaining

position toward industry suppliers and force them to create costs for LCCs in order to reduce

their competitiveness.

Regarding substitutes, eco-friendly transportation is a major threat for airlines. As politicians

become more focused on improving the environment, they may enhance their focus on trains.

Video – and telecommunication may also play an important role in the future due to lower

prices and increased quality. However, we believe that IT will never substitute flying

completely, especially since it cannot create cultural connections, but it offers effective ways

of promoting a greener image, reducing inefficient travel and is more flexible. We observe

that there are competitive substitutes for SAS‟ offerings on short-haul services, which are

threats that seem to further increase. Moreover, LCCs may also enter the business segment or

intercontinental map in the future, and this would have significant impacts on SAS.

Bargaining powers of buyers are improving due to enhanced competition and technology.

Search engines (e.g. Expedia) offer easy airfare comparison, which increases transparency for

customers, and these trends that may further increase. With even tougher competition from

other airlines and substitutes, SAS‟ bargaining power may decline as well as their market

shares and the HI-value will be reduced. Therefore, in order to turn this around, SAS could

differentiate themselves, since they cannot compete on price. They may create industry

barriers and switching costs, which could improve their bargaining power toward buyers.

Tough competition leads to innovations (as observed with LCCs), but these processes seem to

be more or less neglected by SAS. It seems the airline apply a traditional strategy where they

lower prices instead of benefitting from innovations.

Page 100: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 100

Chapter 7 – Potential future scenarios for SAS

SAS is resource starved and this chapter will present four scenarios, which can be ways out of

their present situation. These are: 1) SAS succeeds with Core SAS and remain independent, 2)

M&A with Lufthansa, 3) Intercontinental expansion and 4) Liquidation and re-formation of a

new airline. Since SAS have higher cost structures than their competitors, we argue that they

should always differentiate instead of pursuing cost leadership. Thus, differentiation and

innovative product development, as a way of competing, should be kept in mind throughout

this chapter as a common denominator. Additionally, these scenarios might be interconnected.

7.1. SAS succeeds and remain independent

In this scenario, we assume that SAS‟ market shares will increase and SAS will continue as

an independent airline. Expanding their Nordic market shares is challenging due to several

factors, i.e. mature macroeconomic factors, higher cost-levels than Norwegian and other

LCCs, “unprofitable” political destinations, etc. Furthermore, short distances lead to

„inefficient‟ fuel usage as observed in Appendix D.

SAS can increase their market shares by several means, e.g. exploiting cultural and political

assets. For instance, SAS could influence politicians to increase taxation, and other fees,

which would harm LCCs in the Nordic region. Thus, LCCs would have higher costs (and

higher prices) and their competitiveness could decline. Hence, LCCs may choose other

emerging European regions as a focus, which would make life easier for SAS. The main

challenge is to reduce competition from LCCs, or at least harm their competitive advantages

by increasing their cost structures. Manipulating suppliers (e.g. airports) can be a powerful

tool and SAS could exploit their market status. A successful attempt is the CPH SWIFT-

example, which already has been discussed. We highlight that these means of manipulation

are unethical and unfair, but it is competitive advantages, which SAS may benefit from.

SAS could develop VRIN-resources, or reducing inefficient ones, perhaps by outsourcing

parts of the value chain. Examples could be outsourcing the cabin crew and their work to

external partners as already done with meals. Additionally training of cabin crew could be

outsourced to a recruitment agency. SAS internalize training through SAS Flight Academy,

which is time and capital consuming. By outsourcing this, SAS could reduce their ownership

of employees, coordination, training, resources, costs, and thereby enhance financial strength

as well as a larger focus on core competences (Weidenbaum, 2005). The downside of

outsourcing is the obvious lack of control, principal-agent problems, spillover effects, internal

Page 101: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 101

knowledge creation, etc. However, since procedures of the cabin crew are highly standardized

and homogenous - spillover effects and lack of control may not be a serious issue for SAS.

We highlight the fact that safety requirements in the industry could be considered outsourced

as well, or perhaps performed in collaboration with an external (governmental) supplier.

Moreover, outsourcing of cabin crew may also lead to changes in the supply chain. Middle

managers, which before acted as human resources managers, could then, change job

description into managing supplier (human) relations instead of employees. Furthermore, the

need for efficient reporting from the operating level toward the managerial level would

increase. In essence, outsourcing of employees may reduce some of SAS‟ union challenges

and costs as well as management could focus more on the core business and increase SAS‟

competitiveness. However, politicians, labor unions and NGOs would most likely not be

thrilled by this initiative59

.

SAS could also use their brand value in order to differentiate and capture market shares. Their

corporate strategy placed them in the middle of Porter‟s matrix and we highlighted the

importance of a niche in order to be a differentiator. SAS face challenges when competing on

broad segments such as charter, leisure and business, as their costs are too high and the airline

do not possess “LCC-capabilities”. Thus, we argue that they might narrow down their

customer segments and increase the focus on being a differentiator, which Kumar‟s60

(2006)

model suggests. In essence, he emphasizes the importance of differentiation, as low-cost

rivals possess more satisfying cost-structures than incumbents in an industry. Furthermore, he

argues that setting up a subsidiary for competing with LCCs could be beneficial, even though

strategy has already been unsuccessfully implemented with Snowflake. Lufthansa and Air

France-KLM also pursue this low cost segment through LCCs, such as German Wings and

Transavia. This might be a smart tactic since their LCC-subsidiary attacks SAS on prices,

whereas their parent company attacks on service and comfort. SAS is attacked from multiple

sides and is forced to strategize toward both objectives (service and price), i.e. a dual strategy,

and as literature often suggests, broad, complex and mixed strategies rarely succeed.

A war on price could have fatal consequences as observed during the 90s with multiple LCC-

bankruptcies. Aligning Kumar‟s framework (2006) with Ansoff‟s matrix (1957) in Figure 11,

we believe that a focus on the home market could be beneficial if followed by a clear product

strategy. This would combine market development and diversification (the bottom of Ansoff‟s

matrix) since SAS needs to create new products and revenue streams for their current, and

59 http://www.ys.no/kunder/ys/cms.nsf/$all/2384E37873676A56C12577AE0063966E?OpenDocument 60 See Appendix C

Page 102: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 102

perhaps new, markets. Since flying may be seen as a homogeneous service, we argue that

SAS could enhance product development on their complementarities and services in order to

further enhance their differentiation. Examples of product development could be integrating

taxi services from airports to business centers. Business passengers spend time and money in

taxis, which could result in bonus points. Perhaps discounts and other benefits with larger taxi

companies in Oslo, Stockholm, Copenhagen, London, Brussels, Frankfurt, etc. could be

created. Another inconvenience for frequent flyers is communication back home to the office.

SAS could negotiate agreements with larger international telecommunication operators so

business passengers can use their phone, e-mail and internet abroad at an affordable price.

Thus, customers would save money on communication and receive bonus points by signing a

“SAS travel (roaming) subscription”. We also emphasize that business passengers should get

more value from their expensive tickets. Business class tickets often cost several 1000s KRs

more and they get little value on short haul besides flexibility and maybe leg space. Put

controversially, in essence, customers may pay thousands of KRs for getting a free meal.

They could focus on their core competences toward the business segment. SAS, the

businessman‟s airline, have traditionally had a strong cash cow (BCG Matrix, Appendix U) in

their business products. This is because SAS traditionally have had high market shares and

growth in this segment, as well as lack of competition from LCCs, whereas SAS mainly have

competed with other network carriers. We argue (as assessed earlier) that SAS should search

for the “Stars” of tomorrow in order to increase competitiveness, growth rates and

differentiation from LCCs and other flag carriers.

We find scenario 1 difficult to achieve, as it is very challenging to compete and improve

profitability in a market with slow growth, low margins, high costs, uncertainty, homogeneity,

volatility and travelers‟ increased price-sensitivity. All things equal, it is difficult as an

incumbent to further increase home market shares when competition is becoming increasingly

tougher and dynamic. Differentiation may be the only realistic option for SAS and we

highlight that they could narrow down their customer segments. However, SAS‟ means of

differentiation could prove to have limited value for customers, as ticket-prices on short-haul

services tend to be a very important factor.

Their political assets should be exploited and SAS could create dynamic VRIN-resources and

core competences in order to create competitive advantages. These are necessities in SAS‟

battle against LCCs as SAS are unable to compete efficient on price. If SAS wish to continue

as an independent airline and improve their performance, we emphasize that they could:

Page 103: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 103

Exploit political, brand and cultural assets

Create industry barriers by exploiting SAS‟ size

Enhance bargaining position towards industry suppliers and manipulate these

Improve bargaining position against buyers through innovation and differentiation

Further implement cost-minimization, but not apply a low-cost strategy

Create a clear corporate and product strategy, i.e. find their niche

Narrow down customer segments – differentiation focus and not a cost-leader

Search for the future “Stars” – perhaps Economy Extra is one.

7.2. M&A with Lufthansa

In this scenario, we claim that it might be difficult for SAS to survive without a partnership

through an M&A. Benefits from M&As61

may include easier access to capital, economies of

scale, reduction of inefficiencies, access to complementary resources, as well as industry

consolidation. These are important notions, which SAS should be aware of.

The most realistic partner (or acquirer) of SAS is the Lufthansa Group62

, partly due to their

membership in Star Alliance. Leaving Star Alliance is costly, time-consuming and could

reduce SAS competitiveness. Thus, we do not see Air France–KLM, British Airways or

Finnair as possible acquirers. Moreover, Lufthansa apply a decentralized group strategy,

where their acquired airlines tend to operate with own brand, hubs, customer groups, etc. If

Lufthansa choose to enhance their Nordic focus, an increased collaboration with SAS might

be beneficial, since they have Nordic know-how. Their brand value and political resources

may also be interesting for Lufthansa to develop further. Additionally, Eurobonus has a large

customer-base, which Lufthansa might like to access.

Another opportunity is to integrate SAS in Lufthansa‟s hub-to-hub strategy. More precisely,

SAS could maintain their Nordic focus and Lufthansa could develop their intercontinental

routes. An acquisition of SAS may lead to a hub-to-hub strategy, where Copenhagen Airport

will become more dominant. An example is the merger with Swiss and Austrian, which lead

to an increased focus on “hubbing” from Zürich and Vienna. This may be beneficial for the

Danish and Southern Swedish infrastructure, but the rest of Sweden and Norway may be

affected negatively. Therefore, the Danish stakeholders may have incentives for a merger. As

a result, potential SAS-customers living outside the main cities could be harmed since they

will have to spend more money on tickets, get reduced flight frequency and increased flight

61 Brealey, Myers, Allen – Principles of Corporate Finance 62 http://www.business.dk/transport/eksperter-lufthansa-mest-attraktiv-sas

Page 104: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 104

duration if choosing SAS.

Prettifying for an M&A with Lufthansa may be challenging due to the relatively smaller

Nordic market size, a mature region and moderate rivalry. Moreover, Lufthansa have recently

stated that they do not possess the financial resources to acquire SAS63

. Additionally, they are

also currently busy with an integration of Swiss, Austrian, BMI and Brussels Airlines64

. We

also argue that if Lufthansa have a group strategy, with a strong focus on intercontinental

services, they might choose to focus on emerging markets. Examples of Lufthansa‟s global

presence can be illustrated by their holdings in the JetBlue Airways and Shenzhen Airlines,

which is a substantial investor in Air China65

. Research from Carlson-Wagonlit also showed

that long-distance business flights to Asia and North America have higher growth. This is

supported by GDP-development, where China score high (9,9 % in 2010)66

. In short,

Lufthansa may choose to focus on emerging markets, such as the BRIC-countries, Asian or

Eastern European countries67

. These markets generally offer lucrative cost-levels, business

conditions, as well as growth rates and markets opportunities.

SAS-management have opened up for Lufthansa to buy a smaller share of SAS (and to

increase collaboration) with a following right to acquire the remaining shares of the airline.

However, since SAS‟ cost structures are still too high and Lufthansa is fairly occupied with

M&As, an M&A with Lufthansa may be years away, which is why SAS could learn how to

operate successfully on their own.

In scenario 2 we find important notions such as:

Lufthansa is a realistic acquirer, but is occupied with implementing current M&As.

The Nordic market is mature compared to more emerging zones.

SAS have too high costs and obligations, which might reduce investor attractiveness

Lufthansa operate a decentralized group strategy, which may be interesting for SAS

and their stakeholders

Nordic regions with minor airports may be harmed, which governments dislike

Lufthansa can further utilize their long-distance focus by acquiring SAS

SAS have good operational and market know-how, route map, customer base,

complementarities, etc., which Lufthansa can exploit

63 http://www.business.dk/transport/lufthansa-skal-lokkes-til-sas-koeb 64 http://www.business.dk/transport/lufthansa-afviser-sas-frieri 65 http://www.airchina.com.cn/AboutAirChina/InvestorRelations/CorporateOverview/gskj.shtml 66http://www.chinaeconomicreview.com/dailybriefing/2010_04_22/IMF_raises_China_2011_GDP_forecast_to_99.html 67 http://www2.goldmansachs.com/ideas/brics/index.html

Page 105: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 105

7.3 Intercontinental expansion

We argue that this is an especially risky strategy since SAS do not possess the financial

strength modernize their fleet and generate economies of scale. SAS have experience in

services to North America, where they initially started flights in the mid-50s. Moreover,

destinations such as New York, L.A. and Beijing are locations where airlines potentially can

achieve higher margins than on i.e. the ultra-competitive European market. MNCs may also

want to fly SAS as they get positive associations with the name (brand) “Scandinavia”.

Toward Scandinavian travelers, SAS could also have a special feeling. As soon as

Scandinavians board a SAS-plane, they already feel like home. Their brand, cultural and

national value is a major competitive advantage since we do not have the same feelings

toward competitors. Moreover, regarding fuel costs, intercontinental flights are more lucrative

than short-haul services as illustrated in Appendix D.

When analyzing macroeconomic growth rates, the general impression is that the Asian region

is more emerging than the Nordic. The Asian economies together with BRIC-countries, could

definitely provide opportunities for SAS, and is something for the SAS-management to

consider. As Asia becomes even more globalized and competitive, MNCs, and Scandinavian

corporations and citizens will have an increased need for travelling there. Finnair has already

realized this and is expanding on their Asian destinations, also by collaborating with

Norwegian. Owner and CEO of aviation consulting firm Aeropol AB, Anders Lidman,

support our arguments for an expansion of SAS‟ intercontinental services68

. He argues that

SAS should take up the fight with Finnair on long-distance flights to Asia due to the higher

potential. Additionally, having the Norwegian-Finnair model in mind, SAS could increase

collaboration with other airlines, e.g. Cimber, Malmö Aviation, etc., which could transport

passengers to Stockholm, Oslo and Copenhagen, where SAS could fly them abroad.

The intercontinental markets are primarily dominated by the major network airlines and their

respective alliances. Therefore, it is a market where the costs are “allowed” to be a bit higher

due to the non-presence of LCCs. SAS might benefit from gaining intercontinental market-

shares and knowledge before LCCs enters. Norwegian are planning to fly directly from

Scandinavia to New York and Bangkok from 2011, which further pressures SAS69

. An

increased intercontinental focus supports our findings in order to differentiate SAS from

competitors and LCCs particularly. Apart from an increased Asian focus, SAS could also

focus more on North American destinations. As the American economy improves, SAS could

68 http://www.dn.no/forsiden/naringsliv/article1976823.ece 69 http://www.business.dk/transport/norwegian-vil-flyve-dagligt-til-bangkok

Page 106: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 106

start up more direct routes to airports with less competition. Airlines such as Continental,

Delta, KLM and United offer direct flights to America from Scandinavia, which leads to a

tough competitive marketplace. In order to avoid the most competitive routes, perhaps there is

a market for a direct service from Scandinavia to business-destinations such as Houston (oil-

industry), Detroit (car industry) or Portland (energy-industry)? Another intercontinental cost

factor improvement could be achieved by flying direct from Scandinavia to secondary

American airports, as these may offer lower fees and less competition70

.

We also argue that SAS could utilize cheaper foreign staff by employing Americans or

Asians. Even though this may result in clashes with Nordic labor unions, this is something

especially Asian passengers would value due to language and cultural conditions. Moreover,

if governmental investors were to be replaced with institutional ones, we argue that SAS

should take advantage of these opportunities. Country specific comparative factors, such as

low cost (and high quality) labor, higher demand on intercontinental flights, etc. could

provide significant benefits for SAS. Put differently, exploiting competitive advantages of

nations can improve competitiveness for of MNCs (Porter, 1998). It seems like the Nordic

labor unions may be afraid of low-cost, foreign labor, due to their highly competitive

capabilities, acceptance of lower salaries as well as more working hours compared to

Scandinavians. In short, foreign labor may outperform the members of the unions. Moreover,

rules regarding the free movement of workers within

the EU could be utilized by SAS. Table 16 shows

that North American airlines such as United, Delta,

Continental, American, and Air Canada generally

tend to have between 40 – 50 % lower pilot salary

costs and around 60 % lower costs on cabin

attendants. On the Asian markets, Thai has 55 %

lower pilot costs and Singapore airline has 21 %.

Regarding cabin attendants, Thai‟s cabin crew is 75

% cheaper than the one of SAS. This brief cost

benchmarking shows that SAS cannot compete on

costs with North American, European or Asian airlines. If we look humoristic on this

situation, we observe that SAS are world champions in high salaries. Thus, an international

expansion could be done by integrating foreign labor. Another way of lowering costs and

70 Copenhagen Economics – Der er noget i luften, p. 24

Table 16: Annual expenditure on

Pilots/Co-pilots and cabin attendants

(US$000s)

Pilots/Co-

pilots

Cabin

attendants

SAS 233,8 97,2

Air France 316,7 83,3

Lufthansa 225 58,7

BA 178,8 50,8

American 138,3 47,2

Delta 127,3 37,0

Continental 123,6 41,9

Air Canada 119,1 38,4

United 114,9 36,2

ALL Nippon 184,1 44,0

Thai Airways 105,4 52,5

Singapore

Airlines

Source:Doganis

168 25,1

Page 107: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 107

improving efficiency on could be increased collaboration with other airlines. An example is

the route Copenhagen-New York, which (among others) is operated together by KLM and

Delta. A SAS-example could include Copenhagen-Moscow, where Aeroflot and SAS

collaborate by sharing crew, aircrafts, passengers, etc. These experiences could be applied on

intercontinental flights as well, perhaps by collaborating with other Star Alliance members.

Carlson Wagonlit Travel, Appendix K, illustrate that the only “business”-market with

progress is the North American, as well as the Eastern markets also may seem appealing. As a

result, if SAS want to increase their focus on the business segment, they could do it on the

intercontinental routes since corporate travel policies tend to be more flexible.

The downsides of intercontinental expansions are increased volatility and capital

requirements. Moreover, SAS may possess knowledge about intercontinental flights, but it is

not their home field, i.e. less VRIN-resources and core competences. Additionally, SAS may

not have a strong brand value towards foreigners, especially Americans, who in general, tend

to be more patriotic and might prefer flying with American carriers. Another challenge might

be that most network-carriers already have well-developed mileage-programs themselves. Our

main concern is whether SAS actually possess the cost-structures, financial muscles, internal

resources, capabilities and competences that are required in the global market. Concerning an

intercontinental expansion we highlight that:

Demand for intercontinental flights is improving

Growth rates on the business segments are higher on intercontinental routes

LCCs have low presence on the intercontinental market (from Scandinavia)

Scandinavian travelers may have national feelings toward SAS

Emerging (Asian) regions may provide opportunities for SAS

SAS‟ (cabin) costs are higher than American and Asian airlines

Improved (labor) costs by hiring foreign labor

Most major network carriers have well-developed mileage-programs themselves

Page 108: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 108

7.4. Liquidation

We interpret liquidation as the worst case scenario for SAS and their stakeholders. Other

airlines would take over SAS‟ assets, e.g. fleet, staff, etc. However, aircrafts may be

unattractive for competitors since they are relatively old and the employees may be too

expensive. Their widespread route-network could also be reduced and thereby focus on the

most profitable destinations. An industry without SAS could lead to a lower quality of

Scandinavian infrastructure, as well as an overall lower degree of competition in the Nordic

region. One may witness a „new‟ SAS where Scandinavian governments may subsidize

certain “unprofitable” routes in order to maintain the infrastructure. For instance, in the Air

France-KLM merger, the Dutch government demanded that the merged group should

maintain certain routes (until a specific date), in order to maintain the quality of

infrastructure71

. These conditions could also be included scenario 2. Scandinavian countries

could also lose a significant amount of tax payments. In an extreme scenario, where all SAS-

employees are without a job, we roughly estimate that taxation income losses could easily

account to more than 10 Billion SEK, as illustrated in Appendix V. The unemployment could

increase which leads to more welfare transactions compared to employed citizens who pay

taxes on their income, i.e. negative influence on the state budgets. The infrastructure may

have a lower quality and the Scandinavian region‟s value creation and degree of globalization

will decline. Additionally, the FDI may also decline as MNCs choose to focus on other

regions with more attractive level of infrastructure. Thus, liquidation could lead to:

Reduced competition and perhaps increased ticket prices in the Nordics

A less developed Scandinavian infrastructure

Negative impact on the state budgets and increased unemployment

Reduced FDI & Scandinavian business conditions

This chapter presented potential scenarios for SAS in the future. Next chapter will summarize

our main analytical findings and we will present our conclusions. In addition to this, we will

put some of our thoughts into perspectives.

71 Copenhagen Economics – Der er noget i luften, p. 35

Page 109: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 109

Chapter 8 – Conclusion & Perspectives

SAS‟ current strategic position is

challenging and we have observed that

they are resource-starved. Our views on

the Scandinavian positioning of SAS and

notable other airlines are illustrated in

Figure 38. We claim that SAS‟ market

position is diffuse and difficult to assess,

as their lack of focus (low fares, business

class, flexibility, high frequency, hassle-

free flying, Eurobonus, Star Alliance,

different ticket classes, etc.) make them

difficult to evaluate, i.e. they are „stuck-

in-the-middle‟.

We illustrate that SAS perform well at service and complementarities (e.g. Eurobonus), which

we also have derived as their core competences. Their pricing strategy places them in the

middle between LCCs -and network carriers. We also observe that the main European

network carriers tend to be positioned in the upper right corner (complementarities, service,

high prices), whereas LCCs‟ no-frills offers are placed in the opposite square (lower prices

and less complementarities). We might see a future where Norwegian can move to the right

due to an increased focus on complementarities, business passengers and costs. Therefore, we

highlight that SAS might have to choose a clear focus of their operations – do they want to

operate with low fares or should they focus on service and complementarities? A lack of clear

focus places them in the middle where they cannot create competitive advantages.

SAS have increased their focus on a mature Nordic market. Moreover, business travellers are

their most profitable segment, a segment where preferences (e.g. price-sensitivity) have

changed short-haul services. Additionally, the airline aims to offer low fares in order to be

competitive on the Nordic markets, which have tough market conditions and large presence of

LCCs. In short, we have elaborated upon that SAS apply a differentiation –and a low-cost

strategy, as well as their core competences is not within low-cost leadership. Moreover,

indications that they do not possess the needed capabilities to compete in the low-cost market

have been addressed. Therefore, it could benefit the airline if they aim for a narrow target

with clear directions for action. A focus on their most profitable segment, hence, a movement

Source: Own creation

Figur 38: SAS Nordic market positioning

Page 110: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 110

toward the right in Figure 39, might be a target for the airline by focusing more on Economy

Extra. In our scenario analysis, we discussed a market where LCCs may have no significant

positioning in the near future, e.g. on intercontinental services. Here SAS could act.

We have presented the essence of their corporate strategy, Core SAS, and derived that this

strategy has mixed strategic objectives (i.e. cost-savings, low fares and focus on

differentiation and their home-market) as well as a clear deadline is set for the program in the

near future, hence, it has a short-term horizon. Therefore, we have argued that Core SAS

might be seen as a short-term cost savings program with unclear focus rather than a corporate

strategy. Additionally, the program includes different stages of cost-reductions, in order to

reach their incremental cost-saving plans. This means that Core SAS can be seen as a highly

modular program, and the importance of clear links between the different stages are

emphasized. For us, this is a quite static and old-fashioned way of strategizing, or planning, as

strict planning (like Core SAS) may not facilitate learning and innovation, which may be

challenging in the long-term.

It can also be argued that the cost-savings and achieving surplus may be an objective to look

attractive for future investors or an acquirer. What if future potential large investors (or

acquirers) such as Lufthansa do not wish to acquire SAS or do not have the needed funds for

this72

? Perhaps a potential acquirer may focus on more emerging markets with higher margins

than the Nordic market. On the basis of this, it might be argued that SAS could benefit from

having an individual long-term strategy, as well as the importance of finding their niche

instead of a static focus on cost-reductions. Cost savings are usually a good objective, but this

will not generate future growth and financial rewards for the shareholders. Initiatives such as

well developed corporate -and product strategies, as well as investments create future growth,

which indicates that money should be spent in order to earn cash. We have also assessed

means such as a stronger focus on innovative products aimed at emerging markets. In other

words, continuous developments of existing (and new products) are crucial when applying

diversification-strategies in order to generate growth.

The company-structure in SAS can be characterized as a centralized hierarchy. This structure

shares similarities with a machine bureaucracy, and we argue that autonomy may increase

competitiveness, speed and flexibility, and therefore could be decentralized.

Furthermore, we have assessed the airline‟s internal capabilities and it is derived that there is

a lack of sufficient resources, e.g. their fleet, which is relatively inefficient due to multiple

72 http://www.dr.dk/Nyheder/Penge/2010/03/11/132917.htm

Page 111: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 111

aircraft types and their average age. Moreover, cabin crew have traditionally created

competitive advantages, but due to the changed customer preferences on short-haul services

(i.e. increased homogeneity and price-sensitivity) this might have changed. By examining and

comparing their remuneration, we found that SAS staff tends to work less for higher

remuneration. In short, their fleet and employees do not seem to obtain VRIN-features or

dynamic capabilities, as well as their asset specificity can be argued to be high, as they have

specialized knowledge and clear job descriptions.

Their political resources and brand value have traditionally provided advantages for SAS, but

a widespread exploitation the recent years may have had negative impact on their reputation

and market status. Examples include bailouts and utilization of their owners in the CPH

SWIFT-example. We have revealed that their core competences lie within IT, Eurobonus,

Star Alliance, punctuality, service and frequency. In other words, they have a strong position

on the operational levels, which are competences that can be used further toward the business

segment.

In essence, SAS‟ internal potential may be declining due to the less emphasis on knowledge

creation and building up dynamic VRIN-resources. Moreover, their core competences,

operational know-how, are aiming at short-haul services, where business travellers‟

preferences tend to have changed. SAS‟ internal factors have few VRIN-features and dynamic

capabilities, which may create limitations when trying to create competitive advantages.

On the macroeconomic level, we have illustrated that external factors (such as economic,

political, legal and technological development) significantly influence SAS, and the fact that

development within aviation positively correlates with GDP. The political environment is

stable in Scandinavia and the economic developments tend to be improving after the crisis.

We demonstrated that the Norwegian market value and passenger levels are the largest within

the Scandinavian countries, but it also possesses lower growth rates than Denmark and

Sweden. Additionally, we derived that the Swedish market may offer more future

opportunities for SAS than within the other Nordic countries due to their market‟s potential.

Social conditions also tend to be improving. In short, external factors like the macroeconomic

development is important and our analysis show that the Swedish market may have bigger

potential, due to potentially higher economic growth rates.

Our industry analysis presented material from which we concluded that the Scandinavian

aviation industry has high barriers of entry due to capital requirements, know-how, unequal

competition, etc. Network carriers largely compete on complementarities, comfort and

Page 112: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 112

service, whereas LCCs are more price-oriented. Substitutes to SAS‟ offers exist and examples

are trains, cars, busses, IT, LCCs, charter firms as well as other network carriers. Moreover,

SAS‟ bargaining position toward buyers and suppliers are generally declining as their

financial strength, market power and brand are performing worse than earlier. As competition

increases so does the bargaining power of the customers. Therefore, we have derived that the

industry is influenced by forces such as competitive substitutes, buyers and suppliers‟

favorable bargaining position, together with a calculated HI-value indicating a moderate (but

increasing) degree of competition intensity.

In our benchmark, we assessed SAS toward notable competitors. Findings include an

operational performance being generally in-line with their rivals. Passenger levels, load

factors, revenue and available seats per km tend to be improving for SAS, which largely can

be attributed to an improved economic situation. Even though, regarding fleet utilization, we

found that SAS perform lower than competitors, as daily block hours are among the lowest in

our benchmark. This chapter also supported our view that operational know-how is fairly

good in SAS.

We have assessed four potential scenarios for SAS, which range quite broad. One outcome is

a successful outcome with Core SAS, which separately should open up interesting options for

the airline. Strength to remain independent could then be gained, together with an increased

probability for an M&A, as successful firms tend to have larger attractiveness for acquirers.

We argue that an M&A of SAS is a realistic option based on views from management in both

SAS and response from a potential acquirer. More risky potential scenarios include a larger

focus on long-distance services. A combination of new focus and partnership is a realistic

outcome here, since an expansion on the intercontinental market involves significant capital

requirements (e.g. fleet-expansion), which SAS do not possess at present time. Arguments

include that these are means for differentiation from LCCs, and we speculated upon routes,

which could result in a SAS with a niche-route network.

Finally, we emphasized that cost-savings are needed for SAS to become more competitive

and perhaps reach a surplus. Years with cost cutting may have reduced employees‟

motivation, company revenue and capacity levels. In short, we claimed that investments are

needed in order to enable future growth. Thus, SAS could benefit from potential expansions

and investments, and perhaps the airline once again could become a pioneer and the

businessman’s airline.

Page 113: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 113

8.1. Perspectives

We have derived that SAS apply notions from the design –and planning schools, which is

why our focus is structured around these. Moreover, we could have used the learning school

and to a larger degree emphasized on dynamic capabilities, which are needed in order to make

SAS more competitive. Additionally, we would also find it interesting to analyze the

connection between their resources and products, in order to assess the future independence of

the airline. These are topics we will briefly discuss next.

The learning school

As derived in the analysis, SAS apply a static management technique -and strategizing style.

Thus, it would be interesting to analyze if notions from the “Learning School” (Mintzberg et

al., 2009) could create value. The essence of this school of thought is that strategy formulation

and implementation is collective, as well as they are ongoing incremental and emergent

processes. Thus, management continues to evaluate results and adapts (learns/upgrades) the

strategy. This makes corporate strategies more fluent, dynamic and flexible compared to a

more static Core SAS. Moreover, there are challenges associated with static strategies in

dynamic environments. Since adaptations appear incrementally, learning becomes an

interesting notion. This is because successful dynamic strategizing cannot efficiently appear

without organizational knowledge creation and sharing.

As a critique toward ourselves, we could have compared deliberate and emergent strategizing.

Deliberate strategizing may be applied by SAS management and tend to focus on control and

achievement of the initial formulation through effective implementation. Emergent

strategizing emphasizes strategic learning as a main focus. We argue that incremental

strategizing could be an ongoing process of negotiation between various powerful

stakeholders of a firm. It could also be interesting to analyze whether emergent strategy

formulation, through incremental collective organizational learning, actually appears in the

entire SAS organization or only among their top-executives. We are aware that organizational

success often has roots in managerial learning, but we find collective learning an interesting

aspect of management theory.

SAS tend to be rather „old- fashioned‟ and embrace principles of scientific management,

where learning usually appears on top levels. Moreover, the notion of retrospective sense

making (Weick, 1995) is closely connected to emergent strategizing. By transforming this

theory into our SAS-case, we might say that emergent strategizing for SAS could appear

Page 114: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 114

through a more dynamic and incremental reflection over past behavior, successes and failures.

SAS could try new ideas (act), evaluate/interpret them (make sense) and then integrate, or

keep, this newfound knowledge into their future processes (retention). This could be an

ongoing process, which could help the management to spot strengths and weaknesses as well

as transform their current static deliberate strategy into a more emergent one. This should lead

to a general break from traditional strategic management, which tends to highlight that

formulation is ended before implementation begins.

Although sense making may provide important notions regarding dynamic reflection,

adaptation and learning, we could criticize it for having a too strong emphasis on the past. In

other words, contexts do change, in some industries quite rapid, which is why too much

emphasis on historical results may provide little or wrong knowledge for an organization

about the future. Thus, retrospective sense making may have challenges in hypercompetitive

environments. Moreover, it may be risky and expensive to create new initiatives, pilot

projects, etc., due to their perhaps high failure rates.

Dynamic strategizing can become important for SAS since the industry may become even

more competitive, complex and unpredictable. Static strategizing may work in simple and

predictable industries (perhaps decades ago), but not in dynamic markets. Dynamic

strategizing would promote delegation of ownership and control, as well as decentralization

could make all aspects in the organization able to learn, and not just the central

administration. However, the downside is that a strategy may become weak and diffuse, as

well as negative micro-political actions could be created in order for managers to get their

objectives through.

Due to Core SAS and being an airline in financial distress, there may be little room and

patience for incremental learning. Without a clear and concise strategic foundation, it might

be difficult to implement successful strategies. In other words, it may be difficult to know

which way to drive if you do not know the final destination. Therefore, strategic drifting is a

limitation since dynamic strategizing may provide short-term focus and solutions toward

current challenges and opportunities. Thus, managers may not be strategists, but rather

problem solvers, and we would have enjoyed applying notions from this school since

incremental organizational learning, acting and making sense of these actions and processes

could have provided us with useful knowledge.

Page 115: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 115

Dynamic capabilities

The integration of learning and knowledge creation into internal microeconomic perspectives

possess limits for the SAS-case since they appear to be rather static. For us, this resulted in

findings that SAS‟ most important resources and capabilities (e.g. employees and fleet) are

highly static and uncompetitive. The low degree of organizational learning in SAS has

therefore resulted in limitations for our framework.

Considering SAS decades ago, especially in the 80s and 90s, notions of dynamic capabilities

might have been better applicable then since SAS may have been more innovative back then.

While reflecting, or retrospectively making sense of our actions, we found that notions of

dynamic capabilities today might be more suitable for LCCs as they innovates the industry

with process optimization, creation of new revenue sources, etc. Their innovations are

performed according to their dynamic capabilities and competences. LCCs try to enact the

environment through various innovative initiatives (e.g. new revenue sources), where their

findings are evaluated and adapted into the strategy. These notions may have less value in the

case of SAS.

Resource or Output?

Another reflection has been to distinguish competences, resources and products. We have

presented aspects such as SAS‟ route map, Eurobonus and Star Alliance as being both internal

potentials, as well as products. These initiatives are internal resources and skills, which

consumers buy. Moreover, it would have been interesting to analyze actual benefits,

limitations and synergies, which emerge through e.g. Star Alliance and Eurobonus. These are

important assets for SAS, but it would be interesting to achieve a more thorough

understanding of their potentials. In general, LCCs do not offer similar alliance and customer

loyalty benefits as network-carriers, yet some appear to be more successful. By observing

LCCs, perhaps initiatives such as Eurobonus are not that relevant in European air travel.

Moreover, it could also be interesting to further analyze how a potential divestment of

Eurobonus would influence SAS.

Page 116: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 116

Bibliography Books

Andersen, I. Den Skinbarlige Virkelighed, Samfundslitteratur, 4. Udgave, 2008

Belobaba, P., Odoni, A., Barnhart, C. The Global Airline Industry, John Wiley & Sons, 2009

Brealey, R., Myers, S., Allen, F. Principles of Corporate Finance, McGraw-Hill, 2007

Cento, A. The Airline Industry – Challenges in the 21st century. Physica-Verlag Heidelberg, 2009

Collis, D.J. & Montgomery, C.A. Corporate Strategy: Resources and the scope of the firm McGraw-Hill, 1997

D‟Aveni , R.A. Hypercompetition. Managing the Dynamics of Strategic Maneuvering. Free Press, 1994

Doganis, R. Flying Off Course. Airline Economics and Marketing, Routledge, 4th Edition, 2010

Fine, C. Clockspeed. New York, HarperCollins, 1998

Frank, R. Microeconomics and Behavior, McGraw-Hill, 4th Edition, 2003

Henderson, B. D. Henderson on Corporate Strategy (Cambridge, MA: Abt Books, 1979).

Hendrikse, G. Economics and Management of Organizations, McGraw-Hill, 2003

Hart, O.D. Firms, contracts, and financial structure. Oxford University Press, 1995

Jacobsen, D & Thorsvik, J. Hvordan organisationer fungerer, Hans Reitzels, 2003

Kay, J. The Foundation of Competitive Success. Oxford University Press, 1993

Kvale, S. Interview, Hans Reitzels, 2nd Edition, 2009

Lotz, Peter. Brancheanalyse – Begreber og Dansk Empiri, Forlaget Samfunsliteratur, 3rd Edition, 2006

Mintzberg, H. The Structuring of Organizations: A Synthesis of the Research. Prentice Hall, 1979

Mintzberg, H. The Rise and Fall of strategic planning. New York, Free Press, 1994

Mintzberg, H. Ahlstrand, B; Lampel, J. Strategy Safari – A Guided Tour Through the Wilds of Strategic Management, The

Free Press, NY, 1998

Nygaard, C. Strategizing – kontekstuel virksomhedsteori, Samfundslitteratur, 3. Udgave, 2006

Peng, M.W. Global Strategic Management, South-Western Cengage Learning, 2nd Edition, 2009

Porter, M.E. Competitive Advantage. Creating and Sustaining Superior Performance, The Free Press, NY, 1985

Porter, M.E. Competitive Strategy, Free Press, NY, 1980

Porter, M.E. Competitive advantages of nations. Free Press, 1998

Ross, S; Westerfield, R & Jordan, B. Corporate Finance Fundamentals, McGraw-Hill, 7th Edition, 2007

Salvatore, D. Managerial Economics in a Global Economy, Thomson learning, 5th Edition, 2003

Skjøtt-Larsen, Y., Schary, P., Mikkola, J. & Kotzab, H. Managing the Global Supply Chain, Copenhagen Business School

Press, 3rd Edition, 2007

Smith, A. An Inquiry into the Nature and Causes of the Wealth of Nations, Digireads.com Publishing. 2009

Taylor, F.W. The Principles of Scientific Management. Kindle Edition. 2004

Thomsen, S. An Introduction to Corporate Governance: Mechanisms and Systems. DJØF Publishing. 2008

Tjomsland, A. & Wilsberg, K. Mot alle odds Braathens SAFE – 50 år på norske vinger. Braathens SAFE, 1995

Watson, T. Organising and Managing Work, Financial Times/Prentice Hall, 2nd Edition, 2006

Weick, K. Sensemaking in organizations. Sage Publications. 1995

Williamson, O.E. 1985. The economic institutions of capitalism : Firms, markets, relational contracting. New York, NY:

Free Press.

Articles

Amit, R. & Schoemaker, P.J.H. (1993). Strategic assets and organizational rent. Strategic Management Journal,

14: 33–46.

Ansoff, I. (1957) Strategies for Diversification, Harvard Business Review, Vol. 35 Issue 5, Sep-Oct 1957, pp.113-124

Arrow, K. (1969) The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Non-market

Allocation, Joint Economic Committee of Congress

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17: 99–120

Barney, J.B. & Hansen, M.H. (1994) Trustworthiness as a Source of Competitive Advantage. Volume 15, Issue S1, pages 175-190

Barney, J.B. (1999). How a firm’s capabilities affect boundary decisions. Sloan Management Review. April 15, 1999

Boger, J., et al. (2005) The Impact of the September 11 Attacks on Airline Arrivals and Conventions in Nine Major U.S.

Cities, Journal of Convention & Event Tourism

Brueckner, J.K., Dyer, N.J. and Spiller, P.T. (1992), Fare Determination in Airline Hub-and-Spoke Networks, Rand Journal

of Economics.

Bråthen, S., et al. (2000) Economic appraisal in Norwegian aviation, Journal of Air Transport ManagementVolume 6, Issue

3, July 2000, Pages 153-166

Coase, R.H. (1937) The Nature of the firm. Economica, New Series, Vol. 4, No. 16. (Nov., 1937), pp. 386-405

Economides, N. (1996) The Economics of networks. International Journal of Industrial Organization.14 (1996) 673-699.

Eisenhardt, K.M. & Martin, J.A. (2000). Dynamic Capabilities: what are they? Strategic Management Journal 21(10-11):

1105-1121

Fine, C. et al. (2002). Rapid response capability in Value-Chain Design. Sloan Management Review 43(2): 69-75

Frynas, Mellahi & Pigman, (2006). First mover advantages in international business and firm-specific political resources.

Strategic Management Journal 27: 321-345.

Gereffi, G., Humphrey, J. & Sturgeon, T. (2005) The governance of global value chains. Review of International Political

Economy, Volume 12(1): 78-104.

Gulati, R. (1995). Social structure and alliance formation patterns: A longitudinal analysis. Administrative

Science Quarterly, 40, 619-652.

Page 117: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 117

Goold, M. & Campbell, A. (1998). Desperately seeking synergy. Harvard Business Review. Sept-Oct. 1998

Haakansson, H. & Snehota, I. (1989) No business is an island: the network concept of business strategy. Scandinavian

Journal of Management. 1989

Hamel, G (1997). Killer Strategies that Make Shareholders Rich. Fortune (June 23,1997:70-88).

Henderson, B (1973). The experience curve – Reviewed. Boston Consulting Group reprint, no. 135

Kärreman, D. & Alvesson, M. (2004). Cages in Tangem: Management Control, Social Identity, and Identification in a

Knowledge-Intensive Firm. Organization 11, 2004, 149-175.

Kärreman, D., Sveningsson, S., Alvesson, M. (2002): The return of the machine bureaucracy? – Management control and

knowledge work. International Studies of Management and Organizations 32:2, 70-92.

Kumar, Nirmalya. (2006). Strategies to Fight Low-Cost Rivals, Harvard Business Review, 2006

Miller, D. (1986) Configurations of Strategy and Structure: Towards a Synthesis. Strategic Management

Journal (7, 1986:233-249).

Peteraf, M.A. (1993). The cornerstones of competitive advantage: A resource-based view. Strategic Management Journal,

14, 179–192.

Porter, M.E. (1979). How Competitive Forces Shape Strategy, Harvard Business Review

Porter, M.E. (1996): What is Strategy. Harvard Business Review, November-December

Porter, M.E. (1998). Clusters and the new economics of competition. Harvard Business Review November-December: 77-90

Powell, W.W (1990). Neither market nor hierarchy: Network forms of organization. Research in Organizational Behavior,

vol. 12: 295-336

Prahalad, C.K. & Hamel, G. (1990) The core competence of the organization. Harvard Business Review 68(3): 79-91

Prockl, G. (2009). Slides from International Logistics Management – Copenhagen Business School. Fall 2009

Shaffer, B. (1995). Firm-level Responses to Government Regulation: Theoretical and Research Approaches. Journal of

Management, 21(3), 495-514

Stories – Magasinet for alle I SAS-konsernet, (2009) Hva er Core SAS?, December 2009

Teece, D. (1986). Profiting from technological innovation: Implications for integration, collaboration, licensing and public

policy. Research Policy 15(6): 285-305

Teece, D., Pisano, G. & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal

18(7): 509-533

Troelsen (2003). Virksomheden i Kontekst. Copenhagen Business School material

Weidenbaum, M (2005). Outsourcing: Pros and cons. Business Horizons Volume 48, Issue 4, July-August 2005, Pages 311-315

Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal 5(2): 932-180

Williamson, O.E. (1979). Transaction-cost economics: The governance of contractual relations. Journal of Law and

Economics, 22(2): 233-261.

Williamson, O.E. (1981). The economics of organization: The transaction cost approach. The American journal of sociology,

87(2): 233.

Newspaper articles and other publications

Aftenposten. Flyr på lånt tid. Onsdag 10. februar 2010

Aftenposten..Bedriftenes hemmelige resept. June 4, 2010

Aircraft Finance 2010. Special Report. Flightglobal insight.

Bank of America Merrill Lynch. Industry Analysis. Airlines in India. February and March 2010.

Carlson Wagonlit Travel. Pressemeddelelse. Erhversrejsende dropper Premium Economy og Business Class. May, 2010

Copenhagen Economics, Der er noget i luften. Udfordringer og muligheder for hovedstadens internationale tilgængelighed.

May 2009

Dagens Næringsliv, Børskommentar, February 15, 2010

Dagens Næringsliv. SAS-sjefen har kuttet 20 mrd. February 10, 2010

Dagens Næringsliv. Passasjerkampen. January 9, 2010

Dagens Næringsliv. Krise for nasjonale flyselskaper i Asia. January 9, 2010

Dagens Næringsliv. Tar æren for å ha reddet SAS. August 11, 2010

Datamonitor: Airlines in Denmark, Norway and Sweden. December 2009.

Eide, Svein. Front page illustration.Acceptance to publish granted October, 6, 2010

FAFO. Fagbevegelsens frontsoldater eller ledelsens løpegutter. Om konserntillitsvalgtes bidrag i omstillinger i

internasjonale konsern. FAFO-rapport 454. 2004

Goldman Sachs. Oil and Gas Outlook. Janary 3rd, 2010

Kapital. Styrer mot konkurs. Nye regnskapsregler kan få katastrofale følger for SAS. Nr. 4 – February 26, 2010

The McKinsey Quarterly. A new organizational mode for airlines. May 2006

Internet

Air Baltic. airBaltic announced Airline of the Year Gold Award winner. Online:

http://www.airbaltic.com/public/awards_en.html [Accessed 8/10/2010]

Air Baltic. airBaltic belönat för med ATW:s Phoenix Award. Online: http://www.airbaltic.com/public/atw_award.html

[Accessed 8/10/2010]

Airbus. Global Market Forecast. Online: http://www.airbus.com/en/gmf2009/appli.htm [Accessed 8/10/ 2010]

Air China. Corporate Overview. Online:

http://www.airchina.com.cn/AboutAirChina/InvestorRelations/CorporateOverview/gskj.shtml [Accessed 2/7/2010]

Airfleets Online: www.Airfleets.org [Accessed 2/3/2010]

Page 118: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 118

Airline Financial Monitor April 2010. Online:

http://www.iata.org/whatwedo/Documents/economics/AirlinesFinancialMonitorApr10.pdf [accessed 5/5/2010]

Air Transport World Magazine. ATW February 2010. Online: www.ATWonline.com [Accessed 17/3/2010]

Air Transport World Magazine. ATW March 2010. Online: www.ATWonline.com [Accessed 17/3/ 2010]

American Public Media. 9/11's impact on aviation industry. Online:

http://marketplace.publicradio.org/display/web/2006/09/08/911s_impact_on_aviation_industry/ (accessed 2/3/2010)

BCG.com. BCG History: 1968. Online: http://www.bcg.com/about_bcg/history/history_1968.aspx [Accessed 8/5/2010]

Boeing. Current Market Outlook. Online: http://www.boeing.com/commercial/cmo/ [Accessed 15/3/2010]

Borsen.dk. Flere flyver med SAS – ekstra fly indsættes. Online:

http://borsen.dk/nyheder/transport/artikel/1/186878/flere_flyver_med_sas__ekstra_fly_indsaettes.html [Accessed 7/7/2010]

Borsen.dk. Stor passagerfremgang til SAS. Online:

http://borsen.dk/nyheder/transport/artikel/1/192901/stor_passagerfremgang_til_sas.html [Accessed 8/9/2010]

Borsen.dk. Svenskerne vil sælge SAS. Online: http://borsen.dk/investor/nyhed/176190/ [Accessed 2/6/2010]

Borsen.dk. Ekspert: Ny SAS-chef skal være energibombe. Online:

http://borsen.dk/nyheder/karriere/artikel/1/190538/ekspert_ny_sas-chef_skal_vaere_energibombe.html [Accessed 9/7/2010]

Borsen.dk. SAS foretog over 11.000 ureglementerede flyvninger.

Online:http://borsen.dk/nyheder/transport/artikel/1/188835/sas_foretog_over_11000_ureglementerede_flyvninger.html

[Accessed 12/8/2010]

Borsen.dk. Triste udsigter for flyselskaber. Online:

http://borsen.dk/nyheder/transport/artikel/1/191665/triste_udsigter_for_flyselskaber.html [Accessed 21/9/2010]

Borsen.dk. Lufthansa i angreb mod SAS. Online: http://borsen.dk/investor/nyhed/178005/ [Accessed 10/3/2010]

Borsen.dk. SAS-direktør siger op i vrede. Online: http://borsen.dk/nyheder/karriere/artikel/1/191718/sas-

direktoer_siger_op_i_vrede.html [Accessed 22/9/2010]

Borsen.dk. Københavnsk lavpristerminal vakler. Online:

http://borsen.dk/nyheder/transport/artikel/1/187296/koebenhavnsk_lavpristerminal_vakler.html [Accessed 15/7/2010]

Borsen.dk. Norwegian i alliance med Finnair. Online:

http://borsen.dk/nyheder/investor/artikel/1/190825/norwegian_i_alliance_med_finnair.html [Accessed 10/9/2010]

Business.dk. Kriseramt SAS vil købe nye fly. Online: http://www.business.dk/transport/kriseramt-sas-vil-koebe-nye-fly [Accessed

7/4/2010] Business.dk. Konkurstrussel over SAS fordufter. Online: http://www.business.dk/transport/konkurstrussel-over-sas-fordufter

[Accessed 12/5/2010]

Business.dk. SAS-piloter arbejder mindst. Online: http://www.business.dk/transport/sas-piloter-arbejder-mindst [Accessed 12/7/2010]

Business.dk. Flyselskaber trues af højhastighedstog. Online: http://www.business.dk/transport/flyselskaber-trues-af-

hoejhastighedstog [Accessed 29/5/2010]

Business.dk. SAS: Flere langdistanceruter i støbeskeen. Online: http://www.business.dk/transport/sas-flere-

langdistanceruter-i-stoebeskeen [Accessed 25/7/2010]

Business.dk. Eksperter: Lufthansa mest attraktiv for SAS. Online:

http://www.business.dk/transport/eksperter-lufthansa-mest-attraktiv-sas [Accessed 11/2/2010]

Business.dk. Lufthansa skal lokkes til SAS-køb. Online: http://www.business.dk/transport/lufthansa-skal-lokkes-til-sas-koeb

[Accessed 10/6/2010]

Business.dk. Lufthansa afviser SAS-frieri. Online:

http://www.business.dk/transport/lufthansa-afviser-sas-frieri [Accessed 12/2/2010]

Business.dk. Norwegian vil flyve dagligt til Bangkok. Online: http://www.business.dk/transport/norwegian-vil-flyve-dagligt-

til-bangkok [Accessed 25/6/2010]

BusinessWeek.com. Swines and airlines (The swine fly impact). Online:

http://www.businessweek.com/lifestyle/travelers_check/archives/2009/04/swines_and_airl.html [Accessed 16/5/2010]

China Economic Review. IMF raises China 2011 GDP forecast to 9.9%. Online:

http://www.chinaeconomicreview.com/dailybriefing/2010_04_22/IMF_raises_China_2011_GDP_forecast_to_99.html

[Accessed 28/42010]

The Daily Telegraph. Heathrow voted 'worst airport in the world’. Online:

http://www.telegraph.co.uk/travel/travelnews/6397346/Heathrow-voted-worst-airport-in-the-world.html [Accessed 2/9/2010]

DN.no. Må gjøre mer enn å kutte. Online: http://www.dn.no/forsiden/naringsliv/article1976823.ece [Accessed 16/9/2010]

DR.dk. Brian Mikkelsen parat til at sælge SAS. Online: http://www.dr.dk/Nyheder/Indland/2010/04/27/053534.htm

[Accessed 27/4/2010]

DR.dk. SAS overvejer at køre på skinner. Online: http://www.dr.dk/Nyheder/Udland/2010/05/25/142323.htm?rss=true

[Accessed 25/5/2010]

DR.dk. DSB angriber det tyske marked. Online: http://www.dr.dk/Nyheder/Udland/2010/04/09/215446.htm [Accessed 9/4/2010]

DR.dk. SAS-ansatte i intern krig. Online: http://www.dr.dk/Nyheder/Penge/2010/03/11/074906.htm [Accessed 11/3/2010]

DR.dk. Lufthansa: Intet SAS-opkøb lige nu. Online: http://www.dr.dk/Nyheder/Penge/2010/03/11/132917.htm [Accessed 11/3/2010]

E24.no. Kjos starter nytt flyselskap. Online: http://e24.no/boers-og-finans/article3723681.ece [Accessed 7/7/2010]

Economist Intelligence Unit. Online: http://viewswire.eiu.com/site_info.asp?info_name=instability_map&page=noads [Accessed

20/3/2010] Ekonomifakta.se. Sveriges skattetryck förr och nu. Online:

http://www.ekonomifakta.se/sv/Fakta/Skatter/Skattetryck/Skattetrycket-historiskt/ [Accessed 20/3/2010]

Europa.eu. Countries on the road to EU membership. Online: http://ec.europa.eu/enlargement/the-policy/countries-on-the-

road-to-membership/index_en.htm [Accessed 20/3/2010]

Page 119: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 119

Forbes.com. For Airlines, It's Still 9/11. Online: http://www.forbes.com/2004/09/13/cx_da_0913topnews.html [Accessed 1/3/2010]

Goldman Sachs. BRICs. Online: http://www2.goldmansachs.com/ideas/brics/index.html [Accessed 20/7/2010]

Ing.dk. Gamle motorer sætter SAS under økonomisk pres. Online: http://ing.dk/artikel/89362-gamle-motorer-saetter-sas-

under-oekonomisk-pres [Accessed 2/6/2010]

Flyertalk.com. SAS EuroBonus - New proposal : Tax on eurobonus points - "SAS should send info to tax authorities". Online:

http://www.flyertalk.com/forum/archive/t-84162.html [Accessed 2/5/2010]

IATA.org. Industry Outlook. Online:

http://www.iata.org/whatwedo/Documents/economics/Industry_Outlook_Presentation_Dec09.pdf [accessed 23/3/2010]

IATA.org. 2009: Worst Demand Decline in History - Encouraging Year-end Improvements. Online:

http://www.iata.org/pressroom/pr/Pages/2010-01-27-01.aspx [Accessed 18/3/2010]

IMF.org

Library of Parliament Canada. Taxes and surcharges on airline tickets. Online:

http://www2.parl.gc.ca/Content/LOP/ResearchPublications/prb0572-e.htm [accessed 20/6/2010]

Moodys.com. Credit ratings (Login required). Online: http://www.moodys.com [accessed 2/6/2010]

The New York Times. The SARS epidemic – The Economic impact. Online:

http://www.nytimes.com/2003/04/21/business/the-sars-epidemic-the-economic-impact-economies-sickened-by-a-virus-and-

fear.html?pagewanted=1 [Accessed 16/3/2010]

NA24. SAS vurderer salg. Online: http://www.na24.no/article2653163.ece [Accessed 23/6/2010]

OECD.org. Statistics. Online: http://www.oecd.org/statsportal/0,3352,en_2825_293564_1_1_1_1_1,00.html [Accessed 20/3/2010]

Reiseliv.dk. SAS satte rekord i punktlighed. Online: http://www.rejseliv.dk/sas-til-tiden-0 [Accessed 3/4/2010]

SAS.dk. Arbejd i lufthavnen. Online: http://www.sas.dk/da/Alt_om_rejsen/For-rejsen/Lounges/Lounge-

services/Arbejdsfaciliteter/?vst=true [Accessed 2/6/2010]

SJ.se. Komma-fram-garanti SJ – SAS. Online: http://www.sj.se/sj/jsp/polopoly.jsp?d=13753&a=107003&l=sv [Accessed 4/5/2010]

Skat.dk. Skatten 2009. Online: http://www.skat.dk/SKAT.aspx?oId=133141 [Accessed 27/3/2010]

SKM.dk. Selskabsskattesatser i EU-landene. Online: http://www.skm.dk/tal_statistik/skatter_og_afgifter/4607.html

[Accessed 27/3/2010]

Standardandpoors.com. Ratings. Online: http://www.standardandpoors.com [Accessed 2/6/2010]

Staralliance.com.com Member airlines. Online: http://www.staralliance.com/en/about/airlines [Accessed 16/3/2010]

The Sunday Times. Low-cost airlines hit by recession and fuel price escalation. Online:

http://business.timesonline.co.uk/tol/business/columnists/article3662046.ece [Accessed 3/4/2010]

Swedishwire.com. SAS – All ash and no cash. Online: http://www.swedishwire.com/business/4397-sas-all-ash-and-no-cash

[Accessed 8/5/2010]

Swedishwire.com. Scandinavian airline SAS asks for EU money. Online: http://www.swedishwire.com/business/4410-

scandinavian-airline-sas-asks-for-eu-money- [Accessed 8/5/2010]

Tax.dk. Bonuspoint. Online: http://www.tax.dk/pjecer/bonuspoint.htm [Accessed 26/5/2010]

Travelbroker.dk. Videokonferencer afløser rejser. Online:

http://www.travelbroker.dk/uploads/files/borsen_071008_videokonferencer%20afløser%20rejser.pdf [Accessed 25/5/2010]

Ugebrevet A4. Kartellerne blomstrer. Online:

http://www.ugebreveta4.dk/2009/200934/Baggrundoganalyse/Kartellerne_blomstrer.aspx [Accessed 2/5/2010]

United Nations University. Oil price rises as airline fails. Online: http://ourworld.unu.edu/en/oil-price-rises-as-airline-fails/

[Accessed 27/4/2010]

WorldBank.org. Documents and Reports. Online: http://www-wds.worldbank.org/ [Accessed 20/3/2010]

Ys.no. Ikke fly med Ryanair. Online:

http://www.ys.no/kunder/ys/cms.nsf/$all/2384E37873676A56C12577AE0063966E?OpenDocument [Accessed 30/9/2010]

Latest Annual Reports and Investor Relations from

Airbus - http://www.airbus.com/en/corporate/

Air China - http://www.airchina.com.cn/AboutAirChina/InvestorRelations/CorporateOverview/gskj.shtml

Air France-KLM - http://www.airfranceklm-finance.com/

Aeroflot - http://www.aeroflot.ru/cms/en/about/shareholders_and_investors

Austrian Airlines - http://www.austrianairlines.ag/InvestorRelations.aspx?sc_lang=en

Boeing - http://www.boeing.com/companyoffices/financial/

Braganza (Owners of Malmö Aviation) - http://www.braganza.no/Finansiell-Informasjon/

British Airways - http://www.bashares.com/

Copenhagen Airport - http://www.cph.dk/CPH/DK/INVESTOR/

Cimber - http://investor.cimber.dk/

easyJet - http://corporate.easyjet.com/investors.aspx

Finnair - http://www.finnairgroup.com/investors/investors_2.html

Iberia - http://grupo.iberia.com/

IATA (Not a listed organization) - http://www.iata.org/pressroom/Documents/IATAAnnualReport2009.pdf

Lufthansa - http://investor-relations.lufthansa.com/en/

Norwegian - http://www.norwegian.com/about-norwegian/investor-relations/

Oslo Lufthavn Gardermoen - http://www.osl.no/

Ryanair - http://www.ryanair.com/en/investor/

Stockholm Airport Arlanda – http://www.arlanda.se/en

Scandinavian Airlines Systems – http://www.sasgroup.net

Page 120: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 120

Appendices

Appendix A

Source: Ib Andersen – Den Skinbarlige Virkelighed, p. 40.

Page 121: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 121

Appendix B

Source: SAS Annual report 2009, p. 45

Appendix C

Source: Kumar (2006)

Page 122: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 122

Appendix D

Source: Doganis, p.

Page 123: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 123

Appendix E

Source: SAS Annual report 2009, p. 55

Appendix F

Firm value and ownership concentration

Source: CBS-course Corporate Governance & Finance – Professor Steen Thomsen

Page 124: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 124

Appendix G

Source: SAS Annual report 2009, p. 26-27

Appendix H

Source: SAS Annual report 2009, p. 12

Page 125: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 125

Appendix I

Source: SAS Annual report 2009, p. 13.

Appendix J

Source: SAS website

Page 126: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 126

Appendix K

Appendix L

Important Star Alliance Members

Joined Revenue, US$

Billions

% of total

Annual passengers,

millions

% of total

Employees % of total

Fleet % of total

Air Canada 1997 10,3 6,07 33 5,63 24.700 5,39 335 8,96

Lufthansa 1997 33,86 19,95 70,5 12,02 108.123 23,59 534 14,28

SAS 1997 7,68 4,53 22 3,75 15.000 3,27 210 5,61

Thai Airways 1997 5,68 3,35 19,6 3,34 26.897 5,87 88 2,35

United 1997 20,2 11,90 80 13,64 48.000 10,47 362 9,68

All Nippon Airways 1999 14,2 8,37 47 8,01 43.410 9,47 214 5,72

US Airways 2004 11,5 6,78 66,1 11,27 36.500 7,96 356 9,52

Air China 2007 7,3 4,30 34,84 5,94 20.211 4,41 243 6,50

Continental Airlines 2009 15,2 8,96 67 11,42 42.210 9,21 351 9,39

Egypt Air 2008 1,48 0,87 7,8 1,33 7.300 1,59 50 1,34

LOT, Polish Airlines 2003 0,831 0,49 3,9 0,66 3.720 0,81 49 1,31

South African Airlines 2006 3,67 2,16 6,9 1,18 8.000 1,75 55 1,47

Spanair 2003 1,56 0,92 10,2 1,74 3.036 0,66 45 1,20

Total Star Alliance 1997 169,7 586,6 458.332 3.740

Source: Star Alliance - http://www.staralliance.com/en/about/airlines/

Page 127: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 127

Appendix M – SAS Route maps

European route map

Source: http://www.flysas.com/en/generic/services/route-map

Page 128: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 128

World Map

Source: http://www.flysas.com/en/generic/services/route-map

Page 129: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 129

Appendix N

Source: SAS annual report 2009, p. 11.

Page 130: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 130

Appendix O

Source: Economist Intelligence Unit

http://viewswire.eiu.com/site_info.asp?info_name=instability_map&page=noads

Appendix P

http://www.ekonomifakta.se/sv/Fakta/Skatter/Skattetryck/Skattetrycket-historiskt/

38

40

42

44

46

48

50

52

2000 2001 2002 2003 2004 2005 2006 2007 2008

%

Tax Burden in Scandinavia and EU-15 from 2000 to 2008

Sverige

Danmark

Norge

EU-15*

Source: Ekonomifakta, 2010

22

24

26

28

30

32

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

%

Corporate tax in Scandinavia & EU-27 from 2000-2009

Denmark

Sweden

Norway

EU27

Source: The Danish Ministery of Taxation, 2010

Page 131: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 131

http://www.skm.dk/tal_statistik/skatter_og_afgifter/4607.html

Appendix Q

Source: United Nations University - www.unu.edu

Appendix R

2,0

4,0

6,0

8,0

10,0

12,0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

%

Unemployment rates in Scandinavia from 2002-2011

Denmark

Norway

Sweden

Source: OECD Economic Outlook 86 – December 2009

Page 132: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 132

Appendix S – SAS‟ operational performance

Source: SAS Investor relations

Appendix T

Source: SAS Investor Relations. Analyst material 1Q2010

Intercontinental5%

Europe40%

Intrascandinavia14%

Denmark2%

Norway29%

Sweden10%

SAS' Pax on their markets

Intercontinental27%

Europe45%

Intrascandinavia7%

Denmark1%

Norway15%

Sweden5%

ASK for SAS' markets, June 2010

Page 133: Fasten your seat belts - An analysis of SAS’ competitivenesss3.amazonaws.com/zanran_storage/cbs.dk/Content... · Fasten your seat belts - An analysis of SAS’ competitiveness MSc.

Fasten your seatbelts – An analysis of SAS‟ competitiveness Alexander Glud & Eivind Wedding

Page 133

Appendix U

Source: http://www.bcg.com/about_bcg/history/history_1968.aspx

Appendix V

Potential economic consequences of a SAS-bankruptcy

Yearly SAS-salary expenses (SEK) 15.226.000.000

Approx average workers' tax rate (50 %) 0,5

State tax income from SAS' workers' private taxes (SEK, yearly) 7.613.000.000

# of employees being fired (SEK) 18.786

Social welfare transactions to unemployed workers, yearly (SEK) 156.000

Total state expenditure (SEK) 2.930.616.000

Total losses (welfare transactions + loss of tax income, SEK) 10.543.616.000

Source: SAS annual report 2009 Elaboration The yearly salary expenses are taken from the annual report and the average income tax rate is an approx. rate of 50 %, due to enhance simplicity rather than working with 3 different salary levels and tax rates in the countries. Thus, the main idea is that Scandinavia would lose more than 10 billion SEK.