11 May 2015

Since the change to regulations in the airline market, SAS has been fighting for customers. In a new book, Hans Sjögren shows that both battles among the owners and problems in motivating their employees have contributed to making it difficult to keep the company airborne.
Having three states sharing ownership is a unique situation. But that was the precondition for the formation of SAS in 1946, since neither Sweden, Norway nor Denmark had a base strong enough to have a national airline with large-scale international traffic.

“SAS has a fantastic history in many ways. As regards Scandinavian and cultural historical collaboration, as many Scandinavian designers and artists were part of creating the SAS brand and corporate identity. For a long time the image of Scandinavia around the world was mainly communicated by SAS. But it is also a tragic story – though there was no crash," says Hans Sjögren, professor of Economic History and Institutional Economics.

Lack of harmony

People often say about SAS that “the Danes got the traffic, the Swedes got the head office and the Norwegians got something to be proud of”. The truth is more complicated, but it is true that Denmark got the majority of the traffic since Kastrup airport became the hub for the international routes. The division into three countries with the same number of governments as owners, however, means there is conflict. One thing Professor Sjögren’s study shows is the lack of harmony between the owners in connection with strategic choices.

“It was like an international sports competition, with the national owners fighting started out more from their own nation’s interests than the commercial interests of SAS,” he says.

The difficulty they had pulling together in the same direction stems partly from the fact that business thinking is different in the three Scandinavian countries. Swedish industry had been characterised by large private companies, mainly in the engineering industry, that required long-term thinking in corporate management. Whereas Denmark in particular had industries – shipping and commerce – where a good head for business and short-term thinking were more profitable. The differences in leadership between the three countries thus stemmed from how the three countries became wealthy in different ways. In SAS, the challenge has been to overcome these differences.

Conflicts escalated

As the need for cutbacks rose, so did the competition between the countries. So the joint ownership began to waver in the early 1990s, when profits turned to losses. Group Vice-President Kjell Fredheim, one of the people from the board, management, and unions whom Hans Sjögren interviewed, says in the book that “it was more about politics than running an airline, especially when things were going badly and SAS had to give its employees notice. Should we cut back in Oslo, Stockholm or Copenhagen?”

With the downturn, conflict with employees also escalated. A key problem for SAS was the very favourable agreements that were negotiated for the employees in the good years – agreements that could not be changed in the bad years. The CEO at the time, Jan Stenberg, realised that personnel costs were 50% higher than those of their competitors. In 2003, the agreements were changed somewhat; management then forced through changes in 2012.

“The history of SAS demonstrates the risks of not bringing staff onto your side when making major changes. In 15 years SAS staff held 176 strikes, of which 147 were illegal,” Professor Sjögren says.

Despite problems with management, competition and staff, SAS has nevertheless managed to remain in the market. How?

“SAS survived thanks to injections of capital from the three states and the largest private owner, the Wallenberg Group. The question is how long it is worth doing this? But of course it depends on whom you ask. Kastrup is a major employer in Denmark – they are not interested in selling.”