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Pedersen (2017) as well as Hove (2017) also talk of the future of SAS, apart from using collaborations. They both agree upon the fact that SAS is trying to change, but that more is needed.
Hove speaks about SAS being acquired by another airline, preferably by one that is not a direct competitor to SAS, e.g. Cathay Pacific. For that to happen Pedersen talks about administrative lay-offs in order to leverage the potential that SAS already holds. Tibell (2017) and Pedersen mention a merger, but believes that SAS continuing on its own is currently the most likely scenario.
SAS, in form of their loyalty program, EuroBonus, holds a massive amount of data. Pedersen (2017) is sure that there are companies, e.g. hotels, car rentals or others, that would pay a significant amount of money in order to gain access to this data. Tibell (2017) states that SAS is already collaborating with several partners, and that this aspect of the business has a large potential with very promising growth rates. EuroBonus does not contain information regarding what kind of work its members do, but Pedersen argues that this kind of information would increase the value of EuroBonus even further.
Were SAS to exploit the potential of this kind of big data, then SAS could also make an increased use of tailored marketing, e.g. by using algorithms leveraging upon all of the data that SAS possess, which according to Hove (2017) is what an airline should master, as this increases the revenue and hence affects the bottom-line. Pedersen is sure that SAS already makes use of tailored marketing, but he still argues that there is room for improvement.
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(Consortium). This lowered the fixed assets in terms of buildings, liabilities in terms of debt, and the payroll expense, while increasing the labour productivity of SAS. One direct consequence of being over-politicised and over-unionised is that distressed state airlines are also over-staffed (Doganis, 2010). The negotiations with the labour unions were imperative for SAS to succeed in order to finalize the deal with the banks and its investors, so that the credit could be prolonged until March 31st 2015 (SAS Group (a), 2017). Table 6.1 presents the number of employees and the labour productivity (operating revenue divided by number of employees) of SAS.
Table 6.1 Number of employees and labour productivity 2016
2001 2002 2005 2007 2008 2011 2012 2016 Number of
employees
31,035 35,506 32,263 21,898 24,635 15,185 14,897 10,710 Labour
productivity
1,83 1,67 1,71 2.31 2.16 2.73 2.42 3.68
Source: SAS Group (a) (2017)
Unions’ role as monopoly cartels explains their opposition to changes and competition. A cartel can charge higher prices as long as it remains a monopoly. If consumers can buy elsewhere, an organization must cut its prices or go out of business (Sherk, 2009). In order for the organization to compete with its competitors, SAS was forced to reduce payroll and associated costs and employee benefits to the same level as dictated by the market – which increases labour productivity. Layoffs at most union firms occur on the basis of seniority: newer hires lose their jobs before workers with more tenure lose theirs. Usually, unions negotiate contracts that allow firms to layoff newer hires and keep expensive senior members (Sherk, 2009). Layoffs not happing on the basis of seniority could arguably have helped changing SAS’ organizational culture, which is something that will be further discussed later.
Due to poor financial results in the airline industry and high level of competition in the market, airlines are under considerable pressure to reduce costs and improve productivity. With little room for immediate improvement in load factor and little scope to pass unit cost increases, costs must be reduced on the short-term in order to improve profit margins (Eaton, 2001). SAS has found that they must offer substantially the same quality of service in a more efficient manner. Airlines are in the service industry, where staff related costs are a major expense item. The strong trade unions coupled with the rise in the cost of living are threats to SAS’ survival. SAS has undertaken staff reduction
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programs on a large scale, and are now more than ever taking steps to increase productivity by means of automation, introduction of more effective work methods and investment in management’s attention. Eaton (2001, P. 119) states that: “In the case of state-owned airlines, such efficiency programmes may be impeded by a moral obligation to may policymakers’”.
It has arguably always been a part of SAS, that the employees, especially the cabin crews and pilots, had strong labour unions that could negotiate agreements on what they wanted (Horn & Willumsen, 2006). No CEO of SAS have ever had the courage to stand up against these unions, by: lowering the employee benefits and the general level of salary at the same time. It has for many years been a prestige to work at SAS (Björneild, 2011). The benefits and the general level of salary just rose and rose as more and more people flew around the world (Horn & Willumsen, 2006).
SAS’ labour productivity was in 1991 as low as 0,83 (SAS Group (a), 2017) – it has to be taken into consideration, that this was before the industry deregulations in the 1990ies, though. SAS’ labour productivity has, as presented in Table 5.1, risen to 3,68 in 2016. The labour productivity level rose to above one in 1993, to above two in 2006, and to above three in 2014. This, compared to the labour productivity of Norwegian presented in Table 6.2, shows that SAS has for many years continued on its legacy and pride. Still, it has to be taken into account, that Norwegian as a LCC was founded almost ten years after the industry deregulations, and has therefore always been focused on keeping the labour productivity high in order to keep the unit cost low.
Table 6.2 Norwegian’s labour productivity 2016
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Labour
productivity
3.83 3.06 3.82 3.25 3.38 3.73 3.82 3.55 3.93 4.70 4.41
Source: Norwegian Air Shuttle ASA (a) (2017)
The fact that SAS was founded state owned has given SAS this Scandinavian identity, and it has arguable for many years been the opinion of the three governments, that having SAS is something that we must hold on to – regardless of the costs (Horn & Willumsen, 2006). Governments’
interference to meet short-term political objectives is well illustrated by the case of SAS. SAS finds itself under political pressure to add more flights on certain routes because demand is not being met, even though each additional flight increases the overall losses. They are deemed to be necessary by the governments concerned, to achieve certain domestic, social, or economic objectives or, in case of
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foreign routes, show the flag.
It is difficult for airlines to achieve and maintain leadership in markets with rapidly changing consumer fancies and innovative competition. Airlines weave themselves ever more deeply into reacting to preserve market share (Banfe, 1991). This type of managerial style always has given unforeseeable and possibly dangerous results. In early stages, it may pass unnoticed, but it can become uncertain, inefficient, and if wrong very costly.
It can be argued, using Appendix 1 and Table 4.2, SAS has tried to cut the costs and reduce the number of employees multiple times. 2012 was the first time in the history of SAS that the employees and their unions did not get what they demanded. The situation of SAS is argued to have affected the employees and their unions, but regardless of that, this was one of the first times that they came back from a negotiation not getting what they desired.
The crises that was about to escalate in 2012 and the negotiations that followed in order to turn SAS around showed that Rickard Gustafson is a tough negotiator (Gustafson, 2015). This is argued being the reason why the unions did not encourage its members to go on strike when Gustafson in February 2017 announced that SAS is going to open crew bases in England and Spain – flying under Irish flags, in order to lower the unit cost even further (Lars Sandahl: de Vries, 2017). SAS is adapting to the present industry, because Gustafson knows that SAS needs to change its mind-set in order to stay competitive.
The golden and glamorous days of the airline industry have changed, SAS has been faced with high competition and increased focus on profitable without state funds. SAS could in 2012, and to some extent today, be argued to have symptoms of “Distressed State Airline Syndrome” (Doganis, 2010, P. 235). SAS arguably has 12 out of the 17 symptoms that Doganis presents, e.g. frequent management changes, delay innovation and change, too many aircraft types, fear of making decisions, culture not customer-oriented, etc. (2010, P. 235).
“The biggest barrier to deregulation or, more accurately, open competition, in the European Union is the idea that every member state has to have its own airline. The preconception that flying is glamorous or prestigious can again be questioned if air travel is so popular that airlines are just glorified bus companies” (Eaton, 2001, P.23). The governments’ attitude towards providing SAS with the necessary financial aids in order to stay in business has changed “SAS skal kunne operere
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kommercielt, hvis virksomheden skal have en fremtid” (Kristian Jensen: Korsgaard, 2017-03-01).
This means that SAS needs to change or adapt its business model, there included its mind-set, in order to stay competitive. Many governments have through the course of history perceived their flag carriers as “… representatives of their power and structure on world scale; others freely negotiate away airline competitive advantages in the country’s larger interests” (Banfe, 1991, P. 43).