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Passengers Pay For SAS' Sky-high Costs

Wed Feb 20, 2002 5:00 pm

Scandinavian Airlines (SAS) is one of the least cost-effective airlines in Europe, according to a study conducted by one of Norway's leading business schools. The study claims passengers have been forced to cover SAS' costs through high ticket prices.

SAS faces a big challenge in trying to meet new competition, after a study documents its high-cost structure.

Up to now, SAS has managed to cover its high costs because it faced little competition in its primary market. Moreover, prices in general are high in Norway, so SAS clearly has been able to take advantage of consumers lulled into complacency.

The study by Norges Handelshøyskole (NHH) suggests this leaves SAS especially vulnerable to the threat of cut-rate carriers, reports newspaper Aftenposten. Airlines like Ryanair and Sterling, which have entered the market, keep ticket prices low by pressing costs down to a minimum.

SAS information director Simen Revold wouldn't comment directly on the study, claiming he hadn't seen it. "Generally speaking, though, it must be a goal for SAS, along with its competitors, to constantly work towards the highest level of cost-effectiveness," Revold told Aftenposten.

SAS' market dominance has helped it maintain its "good position" so far, the study notes. That's because its dominance has enabled the carrier to maintain high yields, measured in terms of traffic revenue per paid passenger kilometer.

SAS' lack of cost effectiveness when compared to other European carriers isn't entirely the airline's own fault, the study also notes. SAS has been obliged through its ownership structure to divide up jobs among three countries, and live with a degree of duplication and decentralization.

Moreover, Scandinavia in general is characterized by high costs that SAS hasn't been very good at getting around. When lower-cost carriers give passengers a new travel option at much lower fares, SAS likely will be forced to slash its own costs if it hopes to survive.