SAS Commuter gone in name, but not in effect

 - October 23, 2006, 11:30 AM

As the industry gathers in Gothenburg for this year’s general assembly, the ERA will certainly lament the absence of one of its stalwart airline members from Scandinavia–even if its passengers have taken little notice. A year ago, SAS absorbed its regional subsidiary SAS Commuter back into the mainline business, a merger that “worked quite well, but was always going to be a challenge,” according to the airline’s commercial director,  Jens Willunsem.

Willunsem contends that, contrary to tendencies in North America and in much of Europe, SAS customers do not draw a distinction between or among aircraft. “For example, Gothenburg is a feeder route [on which] we use both jets and turboprops,” he said. That doesn’t mean the consolidation hasn’t wrought consequences, however, not least in declining employee numbers.

The desire for integration hasn’t driven the changes to SAS regional services as much as the need to keep such operations under constant review, said Willunsem. Recent developments include new or more service to Lithuania, Germany and the UK. For example, from this month SAS will introduce Bombardier Q400s to London City Airport, while Denmark’s Cimber Air serves certain German routes to Lithuania, Luxembourg and Sweden under SAS flight numbers using 50-seat Bombardier CRJ200s.

SAS sees such deals as the way to meet expansion requirements without acquiring more capacity. SAS holds no outstanding orders for, and holds no options on, new regional aircraft. It leases all equipment from the parent group’s asset-management business, a strategy that reduces the effect of economic trends on day-to-day operations.

Perhaps inevitably, the distinction between regional and mainline service has blurred. Depending on the season, SAS passengers may find themselves aboard regional aircraft or larger machines such as McDonnell Douglas MD-80s on the same route. Related market adjustments have seen the turboprop fleet shrink from 22 Q400s to just 12. SAS has stopped wet leasing five Fokker 50s from Norwegian regional subsidiary Wideroe’s, which has absorbed some of the surplus Bombardier turboprops.

Asked about trends in its regional services, Willunsem cites “no big differentiation” from operations otherwise considered mainline. “Overall, the [European summer] season has been very competitive, with [fare] prices under pressure,” he said. SAS has managed to stabilize yields that had fallen since the onset of economic recession in mid-2001, while traffic trends remained positive despite increasing passenger cost consciousness. Now, SAS has seen “healthy yield development,” even while it maintains a presence in the low-fare market, added Willunsem, suggesting the airline has managed to ease some fares upwards as the economy has improved.

Last month SAS became the first airline to offer a full one-way price structure without, for example, late-booking and overnight- stay restrictions. SAS regional and other services now offer three classes: “true economy” no-frills service; so-called “economy flex,” with frills such as later (or Internet) check-in and light meals; and business class, featuring airport lounges, two-plus-two seating and “better value” service.

Willunsem expects that passenger load factor will become more significant on regional services under the new structure. “[We will get] more market share and grow as passengers combine fares, which will generate more traffic,” he said, predicting that by January load factors on regional routes will have gained six percentage points over a one-year period. But he acknowledged that some routes remain price sensitive, making it hard to increase loads to some destinations while maintaining yield. In efforts to manage fuel costs, SAS has adopted a policy of hedging half of its projected need 12 months ahead of delivery.

Managing costs has had to become a preoccupation for Stockholm-based Skyways Express, particularly while under ever-fiercer competition from discount-fare airlines and a reinvigorated SAS. Last year it flew Embraer ERJ 145s and leased BAe 146s on the high-frequency, 400-mile route to Skelleftea, an abandoned SAS destination. But now SAS’s return has forced Skyways to cut the operation to three BAe 146s a day. Also in the past year, SAS has returned to Manchester in northern England and the Irish capital Dublin, routes previously covered by Skyways under SAS code-share.

A major shake-up has seen wholesale changes across the Skyways fleet: the airline has leased all four of its ERJ 145s to UK and U.S. operators, and cast off 11 of 12 owned Saab 340s through sale or lease deals. Skyways also moved maintenance work from Linkoping to Halmstad, and furloughed some 60 flight crew plus cabin staff.

The moves will, in effect, make Skyways an all-Fokker 50 operation. It now operates 17 of the Dutch turboprops, most on short-term lease, and has talked of adding another two. This stands in stark contrast to the situation a year ago, when the airline considered leasing up to five Fokker 100 regional jets for strong routes.

Instead, Skyways has closed many of its Saab 340 routes, while upgrading a few with the larger Fokker 50, including Copenhagen-Karlstad, which it introduced a year ago. Where the F50 doesn’t work, Skyways, like SAS, buys the appropriate capacity with wet leases on, for example, 19-seat BAe Jetstream 31s and 50-passenger Saab 2000s.

Up to 45 percent of local traffic has deserted traditional regional airlines in favor of low-cost carriers in Sweden, perhaps the biggest influence behind Skyways’ recent moves. Irish operator Ryanair flies its “Stockholm” services to and from Skavsta, 55 miles from the capital city and deep in the Skyways catchment area for Linkoping and Norkoping traffic. Ryanair also offers direct access to German and UK points that the regional serves only via connecting flights.

Skyways acknowledges the effect of increased fuel costs, but says the situation hasn’t influenced its route decisions. Meanwhile, job cuts have continued, claiming about 250 casualties this year. Further efficiencies have come through increased use of Internet sales, which now account for about 40 percent of the airline’s business.

While Skyways scrambles to adjust to the fast-changing competitive environment, fellow Scandinavian regional Danish Air Transport (DAT) has benefited from other airlines’ need to adapt–especially as changes in demand have created capacity shortages and, consequently, higher charter rates. According to DAT managing director Jesper Rungholm, demand for ATR 42s, Dash 8s and Fokker 50s has actually grown in the past year. DAT operates seven ATR 42s, two ATR 72s and a Raytheon Beech 1900D, providing low-cost scheduled services within Norway from Oslo and Stavanger, mail and small-package cargo flights and– most notably–a growing level of charter and wet-lease capacity.

In addition to 20,000 scheduled travelers flown each year on ATR 42s and the Beech 1900, DAT carries up to 25,000 charter passengers on both ATR types, fitted with quick-change interiors that also support mixed passenger/cargo operations. Demand for charter capacity has grown so strong that DAT has resorted to placing aircraft on plural contracts. For example, a DAT ATR 72 served charter customers at the same time Air Wales used the airplane for maintenance cover.

DAT has contracted two ATR 42s and an ATR 72 to DHL, Federal Express and Danish Royal Mail. Extra capacity comes from a wet-leased Antonov An-26. DAT also acts as marketing, sales and operating agent for Lithuanian subsidiary Danu Oro Transportas (DOT), which offers ATR 42 capacity leased from DAT, but crewed by DOT.