SAS a Scandinavian icon
Eivind Roald (ER): Why did you accept the position as CEO of SAS?
Lives: In Stockholm, Sweden
SAS career: Became Vice President and COO of the airline in 1980. Appointed President and CEO of the company in 1981, a position he held until 1993
Occupation: Mentor, venture capitalist, and board member assignments
Jan Carlzon (JC): What could have made me say no to such an offer? At the time, I was CEO of Linjeflyg. I had turned the company upside down, and my mission was accomplished. I was asked to become CEO of the Salén shipping company and accepted, but I changed my mind when Curt Nicolin from SAS called me.
Jørgen Lindegaard (JL): I had a fantastic job and didn’t have a desire to go anywhere else. But a headhunter called me and said I was number one on their list for the job at SAS. So I agreed to meet with Bo Berggren at SAS. He talked about SAS with such enthusiasm that I changed my mind and said yes. I have always been interested in the concept of Scandinavia.
Rickard Gustafson (RG): I was caught off guard when I got the offer. But like Jørgen, I grew up in a Scandinavian environment and believe in the concept of Scandinavia. SAS is a very important part of our heritage and infrastructure, and the company is a true Scandinavian icon. I’m convinced that if it weren’t for SAS, it would be significantly more difficult to live and work in Scandinavia.
JC: I lived in London for a few years, and one morning I had breakfast with Richard Branson of Virgin. I asked him how his airline business was doing financially. He replied, “Oh, it’s always a lousy business, but there’s no better way in the world to create a strong brand than by running a fancy airline.” His idea with the airline was to create a brand that could be used for other products. The comparison with SAS is obvious – there are not many national brands that are as strong internationally as SAS.
ER: Did that inspire you to develop SAS to become more than just an airline business?
JC: No, SAS already had many different businesses: catering, restaurants, duty-free shopping, credit cards, hotels. Today all airlines have expanded their services through their websites. What I did was to focus on the airline. SAS successfully reached all its targets, and then I wanted a new mission – to build a travel company, but SAS didn’t. The demand for it wasn’t really there at the time; the timing wasn’t right.
ER: Jørgen, what was the biggest positive experience for you? Or did you just have challenges?
Lives: Copenhagen, Denmark
SAS career: President and CEO from 2001 to 2006
Occupation: Board member assignments
JL: It didn’t take many months until I realized the company was in bad shape. In fact, even before I started, I met with managers and important stakeholders within the company, and received feedback I didn’t understand. People said to me that ‘the state of this company is much worse than what you think or even want to know’. At the same time, my mission from the Board was to expand SAS into a large European airline group. My goal was not to build a travel group, but an airline group. It was clear to me that this was our chance, but not to the organization. It didn’t take long until it all crashed. When we incorporated our businesses, we discovered that the airline had been losing money since 1994, and that we were losing money on all our routes. Of course, we had many opportunities, as well. We built up the Park Inn hotel brand and purchased our first Airbus A340, but primarily it was a challenging phase.
ER: Rickard, you have been close to shutting down operations. It hasn’t just been opportunities for you, either?
RG: Well, that’s how it is when an industry is going through a major transformation quickly. We have a proud and important history, and it’s difficult to change a culture and legacy structures overnight. In 2012, we had come to the end of the line. We had no ability to fund operations. While we were negotiating with the unions, trustees were literally sitting in the next room ready to take over the keys. Had we not managed to get agreements and changes in place, the story of SAS would have ended right there and then.
ER: Is the organization more able to understand changes in the market now than when Jørgen led the company?
Lives: Täby, Sweden, outside Stockholm
SAS career: President and CEO since 2011
RG: You can’t ignore reality. Today, full of planes operated by new companies with a different cost structure and flexibility compared with traditional airlines. I think most people in our organization are fully aware of how the industry has changed.
JC: I experienced that our organization had a fantastic ability to change, even during plans to merge SAS with KLM, Austrian Airlines and Swissair, in 1993.
JL: Janne, that’s because the proposed changes meant that the employees didn’t have to lose anything. The changes I had to make were perceived as threats.
JC: When I came into the company at the beginning of the 1980s, we were very good at flying airplanes. But we had to learn how to fly people, which turned us into a service company, not an operations company. Everybody embraced that idea, although perhaps with some exceptions among the technicians and pilots, who were focused on the aircraft.
JL: To compete with the low-cost carriers, we started Snowflake in 2002, with six 737 aircraft. At the same time, Norwegian started with the same number of planes. A year later we gave up due to inherited legacy and cost structures. Imagine a Snowflake with Norwegian’s collective agreements – maybe Snowflake would have been bigger than Norwegian today.
ER: When you started, Jørgen, had focus on service and customers been lost?
JL: No, not at all, and that was Janne’s legacy. But things had gone out of proportion so that efficiency and productivity were lost. We were also paying our technicians and pilots much more than our competitors were. The primary target for the pilots and technicians was not to rock the boat when negotiating new agreements. All change was seen as a threat.
ER: What is the key to good collaboration between management and unions?
JC: It is my firm belief that as a leader I have to explain the whole concept so that people understand their role and responsibility. That is the key to success. By focusing on business travelers we could increase our average revenue. The only thing we didn’t do was to implement Business class, which every other airline did. Since every business in Scandinavia had travel guidelines forbidding employees to fly business class, you couldn’t implement it. That was in 1997, and
I think it was a major blow for SAS – it killed the revenue stream. What we did, however, was to significantly improve our level of service in Economy, both on land and in the air. We called it EuroClass but didn’t raise the prices. Lower prices were in economy class “behind the curtains.” What we did was actually similar to what SAS has done today with the Plus and Go classes.
JL: I don’t agree. I think the most important reason for the decrease in business class passengers was too high a price. You implemented a fantastic project, but there was no follow-up, and it wasn’t adapted to a new era with different conditions. Business class disappeared overnight in the dot-com crash. The product was fantastic, but the price was too high. Ryanair was what everybody talked about and wanted. Then, 9/11 happened, our prices fell even more, and we started our first cost-reduction program. The low-cost segment grew exponentially, tickets were bought via the Internet, and we were locked into an alliance. However, we took the right decision to break the alliance.
RG: We also stated that we had to modernize and make our company more cost-effective, since only 2% of our passengers flew business class. So, we tried to think out of the box and created SAS Go and SAS Plus.
ER: If you could start all over again with the experience you have now, what would you do differently?
RG: I wish we could have moved at an even faster pace in implementing the necessary changes we had to make, and in developing our customer concept, and how we work with digital solutions.
JC: At that time, we did the right thing. But when Ryanair appeared, the company got confused. If I were to do it again today, I’d find the right market segment which gives you the best total revenue, and then stick to it.
JL: My plan was to expand, create a group of airlines, and use the idea that the best man wins. I wanted to use Air Baltic planes to fly from Riga to Copenhagen to London, and Spanair planes from Copenhagen to Barcelona or Madrid. But the concept was opposed internally, since the routes were traditional SAS routes.
ER: To become a successful airline in the future, is Ryanair’s model with hired staff the best strategy, or should you have your own staff?
JC: Ryanair is an extremely good example of a business strategy that has been very profitable. They have decided what part of the market they operate in: low cost and low price, where you pay extra for using the toilet. SAS has to decide whether to compete with them or whether we should concentrate on other passengers who need more than Ryanair can offer. With our culture and cost structure, I think it’s better to find another niche, maybe one that’s smaller but profitable. And I think it’s important to meet the customer with your own staff.
JL: I agree with the principle, although today check-in takes place at a machine. Let Ryanair be Ryanair. There is a market for the traditional SAS, too, but it might be smaller.
RG: We have decided that our niche is people who often travel to, from, and within Scandinavia. We should not be a copy of a low-cost carrier. But the customer’s perception of price is something we can’t ignore. We must give the customer a product they are willing to pay for. The world is a different place today. We are in a low-margin industry, and that’s why we need to constantly work on our efficiency and our customer offering. For 75% of our destinations we face wing-to-wing competition from one or more low-cost carriers. We need to focus on making life easier for people who are frequent travelers.
JC: I think that with “We Are Travelers” SAS has found a concept of success.
RG: SAS is an incredibly attractive brand. We invite our most frequent flyers to an event where they get something to eat and drink, I present SAS, and then we mingle. We had more than 400 people attending the latest event.
ER: Janne, you had an idea in 1995 of SAS being one of five big European airlines. Will we be there soon?
JC: I saw that the airline business in the USA was consolidating into five big companies, complemented with commuter airlines and low-cost carriers. And I thought the same development would happen in Europe. I recognised Lufthansa, Air France, British Airways, and possibly Iberia, as four of the big ones, and I hoped for SAS to become the fifth. All in all, I think we are almost there with Lufthansa, Air France and British Airways.
ER: But it seems the only way to create the five big ones is through companies going out of business, not through the ideas you had, Janne and Jørgen.
JL: We had a similar vision, One of Four in 2004, with Lufthansa, British Airways, KLM, and SAS. But there were so many obstacles in terms of collective agreements that made it impossible to create synergy effects from potential mergers.
RG: Consolidation takes time, and the industry is in need of consolidation, but SAS is not in a position today to drive that kind of structural change. We can only focus on the one thing that we control, ourselves, and building a sustainable Scandinavian business model. Once we have done that, we can participate in a European consolidation from a position of strength, if and when it happens.
ER: What do you think of the future of SAS?
JL: I think the company has come a long way. There is a new mind-set and pride in the company. So I believe in a profitable and big SAS.
JC: The company’s 70 years of history are an enormous asset. The hearts of Scandinavians beat for SAS. I see that our employees are proud again. It might sound naïve, but the difference between good and bad service is a smile on the face of the employee greeting the customer.
RG: We believe in what we do. There is a future for SAS if we continue to work hard with the customer in focus, with clear focus on the target group we have chosen for ourselves, combined with innovation and digital solutions. At the same time we need to continue to work on our efficiency, as we operate in a low-margin business where our competitors are never idle.
Text: Lars Österlind
Published: August 30, 2016