SAS Restructures Short Haul W/In Region

SAS has taken the first step in a fundamental restructure of Europe's short-haul market by moving all intra-Scandinavian flights to a one-class service and simplified pricing strategy. The revamp, which takes effect June 1, has been prompted by two crucial developments in the past 12 months: a move by business class passengers behind the curtain that is starting to look permanent rather than cyclical and the phenomenal growth of low-cost carriers in Europe.

Business class sales are down 17 percent this year on Scandinavian routes and 20 percent to 25 percent to other destinations. While SAS has market share of around 70 percent in Scandinavia, a small low-cost competitor, Sterling Air, just launched on the key Copenhagen-Oslo commuter route, and Irish airline Ryanair has launched a Stockholm-London service. Ryanair also is threatening to develop an intra-Scandinavian network. Other major European airlines are not far behind. British Airways is set to relaunch its short-haul service in June with a new pricing structure, while its German subsidiary, Deutsche BA, already offers a one-class service, with passengers paying extra for catering, travel agency bookings and paper tickets. KLM has reduced business class seating on its European services. However, not all European carriers will pursue the same strategy. André Dosé, CEO of Switzerland's new full-service national airline, Swiss, has quipped that its flight designator code LX stands for "luxury."

The new SAS product, called Scandinavian Direct, will feature a downgraded service. Meals, apart from breakfast, will consist of sandwiches or wraps served from boxes. Wine and beer will remain, but spirits will be removed. However, travel managers and industry professionals registered mixed views about whether the corresponding fare cuts would make any difference to buyers. Under the new system, there will be four midweek fare types. A fully flexible fare will remain the same price as the current full business class fare, but there will be discounts of 10 percent, 20 percent and 30 percent for two-, four- and seven-day advance purchases, respectively. The four- and seven-day purchases cannot be changed after booking.

Else Marie Madsen, travel manager for Lego in Denmark, was unimpressed by the proposals. "Not many of our travelers can book seven days, or even four days, in advance," she said. "They are traveling on shorter notice because their jobs are getting busier and faster. I would have liked to see SAS lower the price of a normal business class ticket."

However, CMM Consulting senior consultant Cathrine Wickerts endorsed the new service. Until recently chairman of the Swedish Business Travel Association and travel manager for Skanska, Wickerts has been given clear indications that SAS would put more on the table for corporate clients, including negotiated discounts on top of the new fare structure. The airline is meeting the BTA later this month to discuss new ways of working with corporations.

SAS in the fall also is planning to change its agency remuneration structure; it currently is paying 7 percent commission. "I think this is the ideal opportunity to move to zero commission," Wickerts said. "This will be easy in Scandinavia because there are few companies not on a transaction fee system."

Also on its way from SAS is a Travel Pass Nordic, giving holders unlimited travel between the four Nordic region capitals—Stockholm, Copenhagen, Oslo and Helsinki. SAS senior vice president of marketing and product management Jens Willumsen promised "considerable savings."

In spite of the promise, Business Travel International CEO David Radcliffe said the initial pricing proposition for Scandinavian Direct does not go far enough. "In terms of the product, this is an indication of the way carriers are likely to go in Europe," he said. "In terms of pricing, I am not convinced this is going to be cheaper for the business traveler." Radcliffe forecast that European carriers will move both their short-haul product and their pricing to a middle point between what they and low-cost airlines offer today: "The mainstream carriers won't be able to move their fares down to the levels of the low-cost carriers."

SAS' Willumsen said the airline would reduce fares further if forced to respond to the challenge of low-cost carriers. "This is a starting point that we can develop if the situation develops," he said. "The more competitive they are on price, the more we will have to lower our price." Willumsen agreed that a stripped-down, cheaper service will become standard on European short-haul flights. "Many companies have reorganized themselves so that travel is a normal part of their operations," he said. "What travelers need is efficient service and cheaper fares because they are flying more often."

The Scandinavian Direct service does promise to speed up the checkin process for travelers. It relies entirely on electronic ticketing and passengers can check in via the SAS Web site up to 22 hours in advance. Passengers swipe their travel passes, frequent flyer cards or payment cards to progress through the airport, including at security points. Travelers print out luggage labels from a self-service machine if they have bags for checking. There are no traditional boarding cards, so passengers pick up a printed seat slip at the departure gate. SAS likely will introduce the expedited checkin process to the rest of its European services, but is uncertain about moving to a one-class cabin beyond Scandinavia.