The Interview: SAS's John Dueholm

John Dueholm is deputy chief executive of SAS and from September 2010 until February 2011 was acting CEO of the airline. Here he talks of what has been achieved at SAS in the last year and the carrier’s plans for the future.

You have now come to an end of your period as interim chief executive. When you stepped into the role last year what were your aims, and how far have they been achieved?

In 2009 we defined a Core Strategy concerning our focus which was concentrating on the Nordic countries, on our commercial platform, on our cost platform and on our organisational structure. The aim was to have achieved all of that by 2011. My task was easy in the sense in that I had to continue to implement that strategy according to plan, and we have done that. There is work to do but we have made good progress.

Why focus on the Nordic countries where competition from low cost carriers is most fierce? Why not focus on long haul where the margins are potentially better?

Well in the first place we don’t have the domestic population for that. In Scandinavia we have three hubs: Copenhagen, Stockholm and Oslo. If you look at the capture area for long haul, you could add in Finland, some parts of northern Germany and some parts of Eastern Europe, but even if you aggregate all these opportunities our estimates show that there will be a maximum of 15 long haul aircraft flying out of Scandinavia. And we are now offering eleven. So we can never reach the same long haul as say British Airways out of London or Lufthansa out of Munich or Frankfurt or Air France/ KLMKoninklijke Luchtvaart Maatschappij (Royal Aviation Company) the flag carrier of the Netherlands and a good example of how acronyms can aid simple discourse. out of Charles de Gaulle or Schiphol

But there are bigger margins in long haul

Well airlines that have the mix of short haul and long haul that you talk about are less affected by low cost competition, that’s true. There is a clear difference in the financial results between carriers who have a system of revenue where 6 or 7 percent is long haul traffic.

So you should be part of a consolidated entity.

No, because if you look at 2010 and focus on our underlying business, we have improved that. The deficit of 3.1 billion it is due to non-recurring items which will not be repeated in 2011.

Lots of business would make money without non-recurring costs. The thing is, the next year brings another set of non-recurring costs.

Sure, but if you compare 2011 with 2010, we already know that our non-recurring items won’t amount to 2.6 billion SEK, we have also had some write-downs on our fleet. What’s more, going back to the population, the population among the Nordic countries – inhabitants –is 18 million, but what is interesting is that the travel frequencies per person are higher than when compared with other European countries, and the average yield is higher. So if you have the right commercial product and the right commercial platforms you can make some money.

Your cost base will always be high if you have three hubs.

From a political or service point of view we can have as many or as few hubs as we want. But it is more dictated by the customer and our competitors. Our customers want to avoid travelling via hubs if they can avoid it, they want to go point to point, and we can make money if we control cost and focus.

What sort of focus?

One example is in the mix of our business. Some 30 per cent is leisure and 70 per cent is business to business. But that last figures splits down into three parts. The first is travel companies and tour operators, which is 10 per cent. Then big corporate contracts with Maersk and Nokia amount to 30 per cent, then the SME market makes up 30 per cent. Now for many years most carriers didn’t have a tailor made concept for that final market, but we have developed one and it has been a huge success for us as a growth driver not only in terms of revenue but in terms of bottom line effect. The loyalty is higher but most importantly when you compare the average yield of contracted and non-contracted travel you have a higher yield for contracted than non-contracted. It is interesting because you would expect it would be lower because of discounts, but that’s not the case because many of them are flying on flexible tickets. Also, even if they are not allowed to fly business, because of our effective on-the-ground product and flexibility they can travel Economy Extra. It’s one of the main reasons we continue to have three classes because the demand is good for both business and economy extra and so for both marketing and from a business aspect it is important to maintain these three classes.

You are competing on punctuality, customer satisfaction and a loyalty programme, yet people buy on price and fly with your competitors.

If you look at the Scandinavian short haul market we have arrested the decline in our market share and our research shows that we can charge a revenue premium of 15 per cent when compared with our competitors. So our challenge is to ensure that these extras don’t cost more than that so we can maintain our margin. We have the best network compared with our competitors and customers are prepared to pay for that network and the connections through Star Alliance reaching more than 1000 destinations.

Another driver is our on-the-ground concept to reduce time spent by customers in the airport. We have implemented fast track, off-airport concepts, meaning more than 40 per cent of our customers when they arrive at the airport are ready to go to the gate because they have used our mobile services or done online check in. More than 70 per cent of our customers are using our self service concepts. Of course they rate us as a better service and from our sales prospect we have a better customer satisfaction and be able to charge a premium. Then of course we look at our costs to ensure we maintain our margin.

What positives came out of all the disruption of 2010?

The ash cloud and the terrible weather caused a lot of disruption of course, but we did a good job of communicating with our passengers. Our Facebook page was visited by more than 9000 passengers each day, and they used it for information of course, but also replies to their questions, and 99 per cent of customers who visited the page received a reply within five minutes. Furthermore we used our SMS services and we informed more than 900,000 customers during these extreme weather conditions to update them on the situation, on delays and cancelations. So when you have a dissatisfied customer at times like these, and of course they are, communication can be a way of converting them into a kind of satisfied customer, and I think it had a positive effect for us. They see the difference between SAS and our competitors with customer interaction through the call centres, at check-in, in the lounge, at the gate and on board. Add in the frequent flyer programme which is very strong in the Scandinavia market and coming into this year the new long haul flights, with Oslo to New York and Copenhagen to Shanghai and I think we have much to be proud of.