PEST Analysis

In this section the following four factors will be discussed; political, economic, social and technologic.

They are external factors that impact the environment where SAS and the rest of the airline industry find themselves.

Political factors

Over the years the airline industry has gone from being a heavily regulated market to a rather open market. In 1978 the US government took the first step towards a deregulated market with the Airline Deregulation Act. The act stated that all decisions regarding routes and pricing should be handled by the airlines and not by the government (U.S. Governments PO, 1978). The experiences from the deregulated American market were used when the European market was deregulated.

The European market was however not fully deregulated until 1997, where airlines were allowed to operate in any European country (The Economist, 1997).

After and during the deregulation many European airlines were privatized, while SAS remains under part ownership of the Norwegian, Swedish and Danish government who holds the majority of the shares. This can have both pros and cons and over the years SAS has been through financial turmoil numerous times, one example was when Core SAS was introduced. When Core SAS was introduced it was necessary to raise additional capital and the three governments contributed with 3 billion SEK (SAS Group, 2010). With over 12.000 employees, some might argue that the governments are more interested in keeping SAS alive to protect jobs than to increase profitability, giving SAS access to resources that other non-state backed companies might not have.

SAS and other traditional airlines are under immense pressure from LCC’s, who can shop around between the European countries and base their personnel and planes where the legislation is most favorable. SAS is lobbying for a change in the legislation, as it views the practices of LCC’s as unfair competition (Kromann-Mikkelsen, 2015). If SAS and other traditional carriers are successful this will hurt the LCC’s and most likely make the traditional carriers more competitive.

Economic factors

When evaluating the economic situation it is important to consider the home market, Scandinavia, and the global economy. All Scandinavian countries are in the top 30 in the world when looking at GDP per capita, which indicates a great economic performance and standard of living (CIA, 2015).

The growth rate of the GDP is considered to be moderate in the three economies, with a growth

European union is around 1.8%, thus a rapid economic expansion in the market is not expected (Trading Economies, 2015). SAS expects an annual growth in the airline traffic around 3,3% over the next 20 years, it is thus almost twice as high as the growth in the economy in general (SAS Group, 2015).

Besides looking at the general growth in the economy it is also important to look at the price development of crude oil and jet fuel, as this accounts for over one third of the operating expenses for an airline (SAS Group, 2015). The price development of jet fuel is generally dependent on the development in crude oil prices. The jet fuel price is at the moment on the lowest level since the financial crisis of 2008. However the jet fuel price has increased a bit since the beginning of 2015 (IATA, 2015). At the moment the price is around 70 USD per barrel, while it peaked just before the financial crisis in 2008 at 180 USD per barrel. Another factor that influences the cost of jet fuel for SAS is the exchange rate between USD and SEK, the rise of the dollar over the last year has increased the cost for European airlines (IATA, 2015).

Social factors

There are many social factors that can influence the airline industry. One of the most influential in recent years has been consumers’ access to the product. With the rise of the internet and online flight search engines, the access has been made significantly easier. Customers can simply find their tickets online and purchase them without being in contact with anybody from the airline. This can be an advantage to the airlines as they can save a lot of money on sales staff and easily display their products. At the same time the rise of search engines have been a challenge to airlines like SAS as it favors the cheapest product and display that on top of the search result. SAS includes baggage, credit card and other fees in their base price, while these are extras when booking a flight with a LLC, this results in SAS being shown after the LCC's on the search engines (Kromann-Mikkelsen, 2015).

Furthermore search engines have put a focus on price, which might have increased price consciousness among the travelers. An increase in the price consciousness among travelers, who

favors the companies that offer the cheapest products. Hence, the increase in price consciousness is a challenge for airlines like SAS, which has to be dealt with.

The shift that is happening in society in the Nordics with a growing elderly population can influence the airline industry as well (Danmarks statistik, 2010). It can be hard to predict how this will influence the industry, but one might argue that with more people retired we will see a rise in the leisure segment. Furthermore it is not uncommon for Scandinavian pensioners to have a holiday home in warmer climate.

Technological factors

The technological development plays a huge role to airlines as they are always pushed to adopt new technology and seek advancements to strengthen their business. One of the advancements that have been described earlier are the online search engines. As mentioned SAS and other airlines have to deal with this new reality and perhaps even make adjustments to their products and price structure to be on the top of the search engines (Kromann-Mikkelsen, 2015).

Making the flight experience as convenient as possible for the passengers is important to SAS and assumingly to other airlines as well. They have for example developed a smartphone app, where you can do everything from buying tickets, keep track of EuroBonus points and download your boarding pass (Kromann-Mikkelsen, 2015). This is an example of how a technological factor can be used as an advantage, it is however one that is easy to copy for competitors. Other examples of airlines using technological factors to their advantage are Norwegian, who installed WiFi in their planes (Norwegian, 2015). These are great examples, that it is an industry where you can use technology to offer something different, but also needs to keep track of what your competitors are doing to stay on top.

The aircrafts are also under continuous technological development, both in terms of fuel efficiency, cabin space optimization and various other areas. The development takes place at the supplier side, but airlines have to stay on top of it and continuously analyze their fleet. New and more cost

efficient airplanes are being developed. If the airline does not take this into their fleet management, they risk that others gain an advantage over them.