SAS Group Year‐end Report January‐December 2011

Positive income before impairment charges of SEK 1.7 billion attributable to Spanair

-    Greater challenges in 2012

-    4Exellence strategy accelerated, measures totaling SEK 5 billion in 2012-2013

Key ratios October-December 2011

• Revenue: MSEK 10,164 (10,653)
• Number of passengers: increased by 0.2 million (3.5%)
• Income before tax and nonrecurring items: MSEK -61 (259)
• EBT margin before nonrecurring items: ‑0.6% (2.4%)
• Income before tax: MSEK ‑2,077 (‑463)
• Net income for the period: MSEK ‑2,079 (47)
• Earnings per share: SEK ‑6.32 (0.14) SEK

Key ratios January-December 2011

• Revenue: MSEK 41,412 (41,070)
• Number of passengers: increased by 2.0 million (7.8%)
• Income before tax and nonrecurring items: MSEK 94 (‑444)
• EBT margin before nonrecurring items: 0.2% (‑1.1%)
• Income before tax: MSEK ‑1,629 (‑3,069)
• Net income for the period: MSEK -1,687 (‑2,218)
• Earnings per share: SEK ‑5,13 (‑7,79)
• SAS Group’s financial preparedness at December 31, 2011, amounted to SEK 8.9 billion (10.2)
• The Board proposes that the Annual General Shareholders’ Meeting resolve that no dividend be paid for the 2011 fiscal year

Important events during the fourth quarter 2011

• In 2011, SAS was named Europe’s most punctual major airline for the third consecutive year according to research company FlightStats
• SAS launched on-board Internet and GSM access through an Internet service that is provided free of charge to all passengers
• SAS entered an agreement for a loan facility for finance leases in an amount of MSEK 500 for four existing A321 aircraft
• SAS announced the opening of 21 new routes in March 2012, when the SAS summer schedule becomes effective
• The Board of Spanair filed for bankruptcy – SAS recognized an impairment totaling SEK 1.7 billion

Greater challenges in 2012 – measures totaling SEK 5 billion

Assessment of the situation we are faced with in 2012 is challenging due to developments in the global economic climate. Jet-fuel prices and additional capacity in the market present additional challenges. Accordingly, as a result of the weaker economic trends, implementation of the measures contained in the 4Excellence strategy is being accelerated. In total, measures corresponding to SEK 5 billion are being implemented in the period 2012-2013. These include a reduction in administration staff by 300 FTEs and the SAS trade unions have committed to contributing savings corresponding to SEK 1 billion for the period 2012-2013. In 2012, the earnings effect of the combined measures is estimated at approximately SEK 2 billion. The challenging nature of the prevailing economic climate in combination with the earnings effect of 4Excellence being realized in the latter part of 2012 mean that the seasonally weak first quarter will also be weak in 2012.

 
 
Comments by the CEO

“Positive income before nonrecurring items for the full-year 2011 but greater challenges in 2012 –
Spanair’s bankruptcy implies an impairment charge of SEK 1.7 billion.”

We were unable to deliver marginally positive earnings for the full-year 2011 as previously communicated due to Spanair filing for bankruptcy and the subsequent requisite impairment corresponding to SEK 1.7 billion. As dissatisfactory as it may be, after adjustments for the effects of Spanair, we delivered marginally positive earnings. All in all, income before tax and nonrecurring items was MSEK 94 for the full-year 2011, an increase of MSEK 538 year-on-year.

The trend in 2011 was escalating competition in parallel with such factors as weakening economic trends and continued high fuel prices. Despite these increased challenges, we have noted healthy growth during the year with record cabin load factors in the summer and the highest customer satisfaction ratings for 11 years. It is pleasing to confirm that SAS’s customer offering continues to be attractive, principally due to our continuous improvement initiatives throughout the organization. Another result of this is our exceptional punctuality, which was confirmed when, for the third year in succession, Scandinavian Airlines was named Europe’s most punctual airline for 2011, by the research company FlightStats.

We continued to invest in our market and over the past year launched 22 new routes including Oslo-New York, which achieved exceptionally high load factors. Furthermore, SAS aims to remain at the forefront as regards electronic solutions that deliver added value to customers and in autumn 2011 was awarded a prize by IATA for our electronic travel solutions. We are now taking the next step and at the end of the 2011 launched on-board WiFi and new technology including NFC (Near Field Communication) to optimize the efficiency of and facilitate passengers’ passage through airports. In January 2012, free coffee and tea will be introduced for all levels of service. This is a step toward an improved product offering that we believe will see our record customer satisfaction ratings climb even higher. Much work is ongoing with the harmonization of the aircraft fleet and we look forward to taking delivery to our fleet of the world’s most efficient aircraft, the Airbus A320 neo. Both of these activities will increase cost-efficiency and decrease carbon emissions. In 2011, we decreased unit cost by 3.7% adjusted for jet-fuel costs and will intensify the focus on our costs in the future.

Our largest business segment, Scandinavian Airlines, reported positive income before tax and nonrecurring items, principally due to substantial savings from Core SAS. At the same time, Widerøe posted a historically strong result. Widerøe’s successes are gratifying and the operations comprise a key complement to the SAS Group’s extensive coverage in Norway. Unfortunately, Blue1 performed below expectations and posted a very negative operating income.

A number of measures are being implemented to turn around the negative trend in earnings for Blue1. At an operations level, Blue1 is reducing its capacity on European routes and its operations are being integrated with Scandinavian Airlines to increase synergies.

Stable liquidity
SAS had a financial preparedness of SEK 9 billion corresponding to 21% of annual revenue at December 31. Of this amount, SEK 3.8 billion comprised cash and cash equivalents.

4Excellence – under implementation
In September, we launched the new 4Excellence strategy with the aim of achieving, Excellence in four core areas – Commercial Excellence, Sales Excellence, Operational Excellence and People Excellence. At the start of 2012, two new Group employees join the Group Management, Joakim Landholm with responsibility for Commercial and Eivind Roald with responsibility for Sales & Marketing. SAS’s new Group Management is thus complete after its reorganization in September.

One of the strategic targets in the 4Excellence strategy is to lower the unit cost by 3-5% per year. Due to the downturn in market conditions with weaker economic growth, we are accelerating the plan in 2012 and 2013. This includes a reduction of 300 FTEs within administration and the SAS trade unions have committed to contributing savings corresponding to SEK 1 billion for the period 2012-2013.

Future outlook
Assessment of the situation we are faced with in 2012 is not straightforward due to a weaker GDP trend and continued intense competition as well as uncertainty regarding fuel prices and exchange rates. We forecast and are planning for continued pressure on yield and RASK in 2012. To meet these challenges, the 4Excellence strategy is being accelerated and cost and revenue measures corresponding to SEK 5 billion are being implemented in 2012-2013. The challenging nature of the prevailing economic climate in combination with the earnings effect of 4Excellence being realized in the latter part of 2012 mean that the seasonally weak first quarter will also remain weak in 2012. Bookings continue to be stable though with an increased degree of uncertainty arising from economic developments as well as jet-fuel prices and additional market capacity.

Rickard Gustafson
President and CEO

Direct questions to Investor Relations SAS Group:
Vice President Sture Stølen +46 8 797 14 51, e-mail: investor.relations@sas.se.

SAS discloses this information pursuant to the Swedish Securities Market Act and/or the Swedish Financial Instruments Trading Act. The information was provided for publication on February 8, 2012 at 8:00 a.m.

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