SAS to Move Some Operations to Lower-Cost Countries; Wizz Air Cuts Profit Outlook
February 01 2017 - 5:36AM
Dow Jones News
By Robert Wall
LONDON--European airlines' intense price war is driving SAS AB
(SAS.SK) to move some operations to lower-cost countries and forced
Wizz Air Holdings PLC (WIZZ.LN) to cut its profit outlook
Wednesday.
SAS, a Scandinavian carrier that principally serves Sweden,
Norway and Denmark said Wednesday it would seek an Irish operating
license and set up bases in London and Spain to lower costs. The
airline would hire crew locally, with more flexible and less costly
labor contracts, to reduce its 20% to 25% cost-disadvantage over
some rivals, an airline spokesman said. No layoffs in Scandinavia
are planned.
The airline would base a small number of its Airbus SE A320neo
single-aisle planes in the new locations to fly European routes.
They would operate existing flights to Scandinavia and eventually
grow.
"The establishment of new bases means we can complement our
Scandinavian production and, in time, build an even broader network
with a superior schedule to the benefit of our customers," SAS
Chief Executive Officer Rickard Gustafson said.
The slump in oil prices that began mid-2014 led airlines to
boost capacity and cut ticket prices to lure passengers. Per-seat
revenue at some of Europe's main airlines has tumbled, even as
passenger numbers have risen. Pressure on ticket prices intensified
when terrorist attacks in Europe spooked travelers, forcing
airlines to offer discounts to fill planes.
SAS shares rose 4.6% Wednesday.
SAS's London base should be operational in 2017, with the
Spanish bases to follow in 2018. The airline said setting up the
additional license and overseas operations would incur unspecified
start-up costs.
SAS has been struggling amid fierce competition from lower-cost
rivals including Ryanair Holdings PLC, Europe's No. 1 carrier by
passenger numbers, and local rival Norwegian Air Shuttle ASA.
However, the fare war is also weighing on budget airlines. Wizz
Air, one of Europe's most rapidly expanding airlines, lowered its
full-year profit forecast Wednesday by 20 million euros ($21.5
million) to a range of EUR225 million to EUR235 million.
Half of the cut was linked to yield pressure, CEO Jozsef Varadi
said, with rebounding fuel costs and weather-induced cancellations
impacting earnings for the full-year ending March 31 by another
EUR10 million.
Mr. Varadi said the pressure on prices was expected to persist
through the summer before moderating next winter.
Shares in Wizz Air were down 8.3% in mid-morning London
trading.
EasyJet PLC, Europe's No. 2 discount carrier by passengers,
warned in January of earnings headwinds linked to competitive
pressure, fuel and sterling weakness after the June Brexit vote.
CEO Carolyn McCall said at the time she expected fare weakness to
persist throughout 2017 and that the airline would review its
capacity growth plans.
-Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
February 01, 2017 05:21 ET (10:21 GMT)
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