At the start of the pandemic we saw several airlines file for bankruptcy protection, given the unprecedented challenges the industry faced. With global travel quickly recovering, you’d think things would be better for airlines again, but that’s not the case across the board.
Scandinavian Airlines (SAS) has just filed for Chapter 11 bankruptcy protection in the United States.
In this post:
Basics of SAS’ Chapter 11 filing
Scandinavian Airlines has voluntarily filed for Chapter 11 bankruptcy in the United States, a legal process that will allow the airline to financially restructure under the supervision of a federal court. The airline expects this process will take 9-12 months to complete.
For context, SAS primarily has operations out of Denmark, Norway, and Sweden, and the airline operates a fleet of over 120 planes, with everything from A320neos to A350-900s.
This filing comes on the same day that SAS is facing a pilot strike, leading to a large percentage of the carrier’s flights being canceled. As of June 30, 2022, the carrier has over $740 million in liquidity. The company fears that the current strike could impact that, especially if it gets prolonged.
SAS plans to continue to operate its schedule as planned (minus the pilot strike), and will also continue to offer earn and burn capability with its frequent flyer program. The airline also believes it can continue to meet its business obligations in the near term, assuming the pilot strike doesn’t go on for too long. The airline will also continue to issue ticket refunds and honor travel coupons and payments or credits.
SAS is now looking to obtain up to $700 million of additional debtor-in-possession financing, to support its operation throughout the process.
Here’s how Anko van der Werff, President and CEO of SAS, describes this development:
“Over the last several months, we’ve been working hard to improve our cost structure and improve our financial position. We are making progress, but a lot of work remains and the on-going strike has made an already challenging situation even tougher. The chapter 11 process gives us legal tools to accelerate our transformation, while being able to continue to operate the business as usual. We will continue to build back the network connectivity, products and service our customers expect, and we will continue to do so throughout this process and beyond. I am convinced that this process will enable us to become an even better airline for our customers and a stronger business partner in the years to come. Becoming a more competitive airline will require the full team’s effort and burden-sharing from all stakeholders. We urge SAS Scandinavia pilots’ unions to end their strike and engage constructively as part of this process.”
Interestingly enough, he was only appointed as CEO of SAS in 2021, and he was previously the CEO of Avianca, where he lead the process of the airline filing for Chapter 11 in May 2020.
SAS looks to cut costs by $700+ million per year
As part of its bankruptcy filing, it’s stated that SAS is looking to cut costs by over $700 million per year, in order to “secure long-term competitiveness through a full transformation of its business.” The airline is also looking to “achieve a sustainable cost structure.”
Pre-pandemic, SAS’ annual revenue was somewhere around $4 billion per year, so cutting $700 million per year in costs is significant.
Admittedly this will probably come in many forms, including renegotiating many contracts, including with suppliers, employees, etc. But I also have to imagine that this will mean that SAS will further cut costs when it comes to the passenger experience.
One has to wonder just how much more cost cutting SAS can do. The airline doesn’t even have a real business class within Europe, but rather has premium economy, which doesn’t come with a blocked middle seat. Will SAS start closing lounges? Cram more seats into planes (if that’s even possible)?
Bottom line
Scandinavian Airlines has filed for Chapter 11 bankruptcy in the United States, as we’ve seen several airlines do since the start of the pandemic. The company expects the process will take up to a year, and is hoping to cut over $700 million in costs annually.
For now it should be business as usual in terms of ticket sales, operations, the frequent flyer program, etc. Well, minus the fact that SAS is having major labor issues, and pilots are on strike, greatly impacting the current schedule.
What do you make of SAS filing for Chapter 11?
Cutting costs is easy enough, especially when you consider the salaries of the exact persons on strike now.
It is the elephant in the room for the majority of European carriers, but the flight & cabin crew costs are just way too high.
Everyone just should work for poverty wages. Want to make more money get a side gig that is where the world is going.
Given the company is based in Scandinavia, does a process run by a US court have any impact on its operations back at the headwaters?
Headquarters even
I honestly wonder, assuming we end up in a recession by the end of the year, if we’ll see a major carrier offer a true intercontinental Basic J fare. You get the flat bed, IFE, carry-on, and non-alcoholic drinks. Everything else has a fee. I hope it doesn’t happen, but I think that is how carriers will go after savings made on leisure and lower spend business people in J. True higher spend J travelers...
I honestly wonder, assuming we end up in a recession by the end of the year, if we’ll see a major carrier offer a true intercontinental Basic J fare. You get the flat bed, IFE, carry-on, and non-alcoholic drinks. Everything else has a fee. I hope it doesn’t happen, but I think that is how carriers will go after savings made on leisure and lower spend business people in J. True higher spend J travelers will pay for the traditional fare with checked bags, lounge, meals, alcohol, amenity kits etc.
These days I would gladly opt for that. Lounges are crowded, food is awful and all I care about is a seat where I can catch some sleep. Exactly why I opt for late night departures that I just get on board, swig some water, and collapse asleep the second I can lay flat. It's time airlines reward those who are willing to accept low maintenance in exchange for cheaper business fares. Just like they...
These days I would gladly opt for that. Lounges are crowded, food is awful and all I care about is a seat where I can catch some sleep. Exactly why I opt for late night departures that I just get on board, swig some water, and collapse asleep the second I can lay flat. It's time airlines reward those who are willing to accept low maintenance in exchange for cheaper business fares. Just like they learned with domestic, if they would price them just a tad higher than last minute economy they might actually sell them instead of giving them away with upgrades.
But only that they won't, see where EK and QR have taken such fares to, the basic no frills will now replace the old base line and everything else priced further up. Its naive to believe airlines will return the savings to customers.
"Interestingly enough, he was only appointed as CEO of SAS in 2021, and he was previously the CEO of Avianca, where he lead the process of the airline filing for Chapter 11 in May 2020."
where he "led" the process...
Gee thanks Richard - don’t know what we would do without you
May be keep writing in the wrong way...
The passenger experience in coach can't get much worse. What are they going to do don't hand out water and charge for meals? The Planes are nice but most of the FA's can be so rude that I would almost rather fly American across the pond.
SAS, like a lot of European Airlines, has completely abandoned Boeing. Airbus was and is nothing more than a European prestige project. Yet, SAS wants to use the US court system. How ungrateful.
Lol blame your country not SAS. So sad that boeing lost competitive edge?
Prestige project?
Cry me a river. Boeing commercial can’t probably exist without being part of military industrial complex. Boeing customer is the largest murderer in the world that claimed it is doing so in the name of “human rights”.
Also, i guess you’re a pro-capitalist anti anything that smelled socialism, right? Remember, capitalist will sell you the rope that others will use to hang you.
Deep off-topic here. Everybody's poo stinks, SingaporeNo1. Where do you think RSAF gets their jets? You know.. the ones that buzz the island on a near daily basis.
With that said, I agree with you that Kenneth S is being a tool. Airbus took risks with the A380 and the A350 is excellent. Their planes are straight nice. Prestige project indeed.
Boeing doesn't take risks, and sucks at building the "safe options." ;P
This is the most ignorant statement. How does having an Airbus fleet, which probably better fits there operation requirements, has anything to do with them using US court for bankruptcy???
Come on. Grow up. I doubt the main reason US-based Airlines buy Airbus is because of the more prestigious / better brand image of Airbus. They just run the maths, select the best plane for their needs and negotiate in the interest of the company, not some patriotic non-sense.
This is a called an open business world. If a company wants to register in Ireland or the Bermuda or use the US specific legal systems, they are free to do so.
Why does the U.S. make it easy for foreign companies to file bankruptcy here? How exactly does the United States benefit?
The US is much more focused on providing an opportunity for companies to RESTRUCTURE and continue operations by working with creditors in many countries bankruptcy means insolvent and the company will be dissolved.
The US gains by making the US stronger in the global financial and corporate system as well as by helping protect US interests.
This was a long time coming. Who imagined cutting almost half of its international network would work brilliantly. Off course concentrating on just China and North America would be prone to huge market externalities, beyond that going from covering several dozens of countries in Europe to just a few in Western Europe and Italy and Greece in south! It was years of self inflicted wounds and loosing many of their own key frequent flyer members,...
This was a long time coming. Who imagined cutting almost half of its international network would work brilliantly. Off course concentrating on just China and North America would be prone to huge market externalities, beyond that going from covering several dozens of countries in Europe to just a few in Western Europe and Italy and Greece in south! It was years of self inflicted wounds and loosing many of their own key frequent flyer members, like me as we were disillusioned by how rapidly our choices of destinations diminished
SAS is now like Alitalia's long demise saga. At some point the three governments are going to make the decision to pull the funding and cut it loose. Could this be Lufthansa's opportunity?
The combined population of the Nordic-Scandic-Finn-Baltic countries is not large at about 30 million; a consolidation of Icelandair, Finnair, Air Baltic, and SAS could be a solution, leaving Norwegian as the low cost carrier.
The Scandinavian countries are high wealth. They should be able to support a full service carrier for those that want to pay for a premium cabin with global connections
Italy and the Scandinavian nations are all very wealthy, but the dynamics for their national airlines are really quite different. So it's unfair to compare them. Alitalia was nothing short of a basketcase. A real sinkhole for corruption and gross inefficiency (Thai Airways is the same). SAS on the other hand is not; but it does suffer a lot from geographic disadvantage and a smaller customer base (not to mention increasing competition).
Italy’ national debt is 150% of its GDP 5 times more than DK and SE, its a poor country with one of the worse economies in EU.
Biggest issue with SAS is it focus is on the business segment, that’s why Covid hit them really hard, and then the wages in Scandinavia you have to have a high income to pay the taxes we do.
A normal 1. Class fare with BA to US...
Italy’ national debt is 150% of its GDP 5 times more than DK and SE, its a poor country with one of the worse economies in EU.
Biggest issue with SAS is it focus is on the business segment, that’s why Covid hit them really hard, and then the wages in Scandinavia you have to have a high income to pay the taxes we do.
A normal 1. Class fare with BA to US is cheaper then SAS subpar business class, service in Scandinavia is a city in Russia, customer service is really bad compared to other airlines.
A national flight to AAR with SAS is often 2 or 3 times the price of a longer flight to AAL with Norwegian.
A joke to sum up SAS service and Scandinavian hospitality.
3 couples UK, US and DK is having breakfast.
UK man to wife, please pass me the sucker, Sucker
US man to wife, please pass me the honey, Honey.
DK man to wife, give me the bacon, Swine
That's not a good comparison to be honest, Alitalia suffered from a multitude of issues like increased domestic train travel in particular high speed rail replacing a lot of the traditional flights from Rome or Milan airports, a very fickle market that is leisure focused with business travel being a smaller portion of the market, and Alitalia having labor relations issues. SAS has the labor relations issue but not to the same extent and Scandinavia...
That's not a good comparison to be honest, Alitalia suffered from a multitude of issues like increased domestic train travel in particular high speed rail replacing a lot of the traditional flights from Rome or Milan airports, a very fickle market that is leisure focused with business travel being a smaller portion of the market, and Alitalia having labor relations issues. SAS has the labor relations issue but not to the same extent and Scandinavia is a pretty good balanced business and leisure market. The issue comes from it being funded by three different countries who all have different views on the airline. Denmark sees it as their flag carrier and a matter of national pride and prestige due to it holding SAS largest hub. Norway and Sweden are more ambivalent on the airline and more hesitant to give cash infusions to the company. And who would prefer restructuring of debt first before moving forward. There is in my opinion no need to consolidate the Nordic and Baltic airlines into one company as each airline serves a purpose in their region and markets they serve and each country has unique needs that probably wouldn't be best served by one airline servicing the Nordic region.