the strike: – A lot of mess to little use

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The starting point for this the number is the standard used by the airline industry to compare costs across companies: So-called cost per seat kilometer – or CASK, which is the official abbreviation (cost per available seat kilometer). This figure includes all the company’s costs.

Here we find some disturbing figures. They are serious for the SAS management, and put the strike in perspective:

Before the strike, SAS must have had a cost per travel kilometer of 96 øre.

In comparison, the competitor Norwegian will have a cost per travel kilometer of 58 øre.

The SAS pilots’ salaries are a drop in the ocean.

If all pilots had worked completely free and without a pension, SAS would have come down to a cost per travel kilometer of 91 øre.

And here we come to the number 0.5 øre. The savings the management in SAS demanded from the pilots would amount to a 1.5 øre reduction in cost per travel kilometer. The agreement eventually landed at about 1 øre in savings.

The strike and its violent ripple effects have thus only moved the company a few millimeters in the direction of becoming competitive in relation to competitors.

SAS CEO Anko van der Werff has emerged as an executioner in this process. He has made himself unpopular with the unions, and garnered much criticism from the public.

If van der Werff is an executioner, he is not a very efficient one – possibly one with a lot of work left.

There has been a lot of mess so far, to little avail.

The CASK figures (cost per seat kilometer) show that it is the high total costs in SAS that are the company’s real problem, not the pilots who are now cutting further in their terms.

It also explains the pilots’ strong reaction to the management’s confrontational line in the conflict. Van der Werff went out several times and accused the pilots of endangering the company’s future.

The pilots could not have saved the company if they had worked for free.

Aircraft analysts have pointed out that the cost cuts required by management of the pilots are not in proportion to the cost cuts elsewhere in the company.

SAS has 8,000 employees, 900 of whom are pilots. In the savings plan SAS Forward, the company will cut NOK 1.2 billion in wage costs, and demanded that the pilots be responsible for 800 million of these.

The agreement now ended at about 600 million in cuts. The 900 pilots, who make up 11 per cent of the employees, thus ended up accepting half of the management’s desire for a pay cut in SAS.

This raises questions about the SAS management’s ability to reduce costs elsewhere in the company.

The story of SAS is about a company that has brought with it a large and complex organization from the time before the deregulation in the aviation market, into a new era where competitors are sharp – and thus in a completely different degree able to reduce total costs.

New companies often specialize in one type of travel, and thus have a much less costly operation. SAS must be everything at once; a full-service company that will maintain the customer relationship with both service-conscious business travelers (a falling market) and price-conscious holiday travelers (a rising market).

In such a perspective, the image of the pilots as scapegoats in the company becomes very misleading.

SAS has huge challenges if they are to be able to match Norwegian and others on price and profitability in the market for leisure travel. These challenges have been obvious for about 20 years, and yet the company’s management has been far from finding satisfactory answers.

And in five years, when the pilots can once again negotiate and threaten to strike – will they provide another penny or a half in cuts?

It will not solve the company’s problems, but perhaps it will – as now – be enough to get creditors on a new round with a company that does not really have a sustainable business model.

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