SAS thinks prices should increase – E24

The rapid rise in oil prices has led to a significant increase in fuel costs for aviation.

Analyst Jacob Pedersen at Sydbank estimates that increased fuel costs this year will give SAS an additional cost of NOK 2.8-3.3 billion.

It is based on the fact that in the 2021/22 fiscal year, the airline’s activity level will be 70-80 percent of the normal range.

With this level of activity, current fuel costs are driving up the year-on-year SAS fuel bill from around SEK five billion to around SEK 8-8.5 billion, the analyst wrote in an update Tuesday.

He adds that more fuel-efficient aircraft in a large portion of the fleet will mitigate the negative impact in the coming years.

– You’ll have to

Pedersen notes that increased expenses have put additional pressure on SAS profits.

– If SAS wants to avoid a significant loss of billions, the company will have to raise ticket prices sooner rather than later, the analyst writes.

He estimates it would require an average ticket price increase of around SEK 150, roughly SEK 143, if SAS was able to cover the fuel surcharge since the annual accounts were submitted on November 30 last year. This corresponds to a price increase of more than ten percent.

Any increases in ticket prices will of course vary depending on the destination. But for now, there doesn’t appear to be a specific fuel surcharge in the pipeline. That could happen quickly, Pedersen says, if competitors start introducing similar measures.

SAS did not indicate such an addition. E24 recently reported that Norwegian Air does not have this on the tray;

– Ticket prices are always controlled according to supply and demand, but high fuel prices are a challenge for all airlines. We haven’t decided on fuel supplements yet, communications director Espen Toman says in Norwegian.

greater deficit

Airlines typically secure 40-60 percent of their current fuel needs within twelve months (see fact box).

During the pandemic, and even today, neither SAS nor Norwegian or Flyr have secured their time, so airlines pay the current daily rate, or “pumping price,” if you will.

This is in contrast to companies like Ryanair and EasyJet, which have secured for twelve months the need for levels well below current prices for jet fuel. Widerøe has also insured itself at much lower levels than it is today.

Pedersen believes that the fact that competitors have lower fuel costs limits SAS’s ability to raise prices. On the other hand, SAS customers are not as price sensitive as low-cost airline passengers.

Overall, we don’t expect SAS to be able to pass the full incremental cost to customers, so it already appears that SAS’s deficit this year will be somewhat larger than the SEK 2.8 billion we identified on February 22 as an extension of the company’s first quarter report, the analyst writes.

new discounts

SAS lost 2.6 billion SEK before tax in the first quarter of 2021/22, which runs for SAS from November to January.

This helped increase the company’s interest-bearing debt to SEK 35.4 billion. At the same time, SAS began drawing on previously unused credit facilities totaling SEK 3 billion.

Regarding the company’s quarterly presentation, SAS announced strong measures to strengthen the balance sheet.

Through “SAS Forward”, the airline will, among other things, cut SEK 7.5 billion in annual costs. In parallel, SAS will raise an unknown amount of money and convert the debt into shares on a trial basis.

SAS will hold its annual general meeting on Thursday 17 March, without any special tension associated with it agenda. The company had announced that it will update the market on “SAS Forward” next April.

The price of burned North Sea oil for immediate (spot) delivery fell below $100 a barrel on Tuesday.

The (spot) oil price has mostly been trading at levels above $130 per barrel in the past week.