SAS — Earnings Release 2019

Aug 27, 2019

IMPROVED OPERATIONAL PERFORMANCE IN PEAK SUMMER SEASON

IMPROVED OPERATIONAL PERFORMANCE IN PEAK SUMMER SEASON

MAY 2019-JULY 2019

· Revenue: MSEK 13,552 (13,146)

· Income before tax (EBT): MSEK 1,490 (2,034)

· Income before tax and items affecting comparability: MSEK 1,495 (2,008)

· Net income for the period: MSEK 1,162 (1,570)

· Earnings per common share SEK 3.04 (4.04)

· Income before tax negatively affected by strike MSEK -185

SIGNIFICANT EVENTS DURING THE QUARTER

· SAS reports record number of passengers in June and July

· SAS and Airbus enter into joint research project on hybrid and electric

aircraft in commercial traffic

· Pilot strike for two days at the beginning of the quarter resulting in 1,200

cancelled flights and 100,000 affected passengers

SIGNIFICANT EVENTS AFTER THE QUARTER ENDED

· SAS announces new organizational structure effective from 1 October

NOVEMBER 2018-JULY 2019

· Revenue: MSEK 33,273 (32,040)

· Income before tax (EBT): MSEK -302 (1,261)

· Income before tax and items affecting comparability:MSEK -440 (1,314)

· Net income for the period: MSEK -240 (972)

· Earnings per common share: SEK -0.65 (2.16)

· Income before tax negatively affected by strike MSEK -615

COMMENTS BY THE CEO

The third quarter was characterized by strong operational performance together

with successful seasonal adaptation, resulting in record passenger numbers and

increased revenue in the peak season. Although the revenue increase is

encouraging, the prevailing macroeconomic headwinds require improved efficiency

to secure competitiveness and long-term profitability.

Total revenue ended at MSEK 13,552, representing an increase of over 3% compared

with the same quarter last year. The decline in capacity caused by the pilot

strike was compensated by increased passenger revenue. Moreover, SAS posted a

continued positive trend in the sale of EuroBonus points and ancillary revenue.

Earnings before tax and items affecting comparability, came in at MSEK 1,495, a

disappointing decrease of MSEK 513 year-on-year. The decline was mainly

attributable to increased fuel costs, the Swedish krona's continued weakness

against the US dollar, as well as the pilot strike at the beginning of the

quarter. However, it is encouraging to note that our successful adaptation to

seasonal demand and improved operational quality led to a strong customer uptake

and an increased yield, thereby mitigating parts of the additional costs

incurred during the quarter.

Notably, the headwind stemming from a weak SEK and signs of a slowdown in the

European economy, accentuate the need for SAS to adapt operations to current

market conditions and accelerate the transformation agenda to secure long-term

profitability beyond 2020.

IMPROVED OPERATIONAL EFFICIENCY AND SEASONAL ADAPTATION

SAS has its peak season during the third quarter, with strong demand from both

leisure and business passengers. In recent years, we have adapted our offering

to meet customer demand by shifting summer capacity toward leisure-oriented

routes. This year we launched 25 new routes in our summer program, whereof five

brand new destinations: Florence, Marseille, Szczecin, Cornwall and Oulu. The

capacity shift has proven to be successful and we were able to report new

records for passenger numbers in both June and July.

Demand for domestic flights in Norway and Denmark remains strong and we continue

to post healthy growth compared to last year. Even in the declining market for

domestic flights in Sweden, the number of passengers that chose to travel with

SAS remained at the same levels as last year. We view this as proof of an

attractive customer offering.

Looking ahead, forecasts for the remainder of the year indicate a market

capacity growth of approximately 1% for the full year 2019 and early indications

point to moderate growth in 2020 as well. This is a trend shift from recent

years, where annual capacity growth has been 3-4% per annum. In the near term,

this moderate growth outlook is encouraging and should help improve the

supply/demand balance, which should be beneficial for the Scandinavian market.

However, in the longer term, the significant order book of new aircraft to be

delivered until 2024 carries a risk of structural overcapacity in the European

airspace.

In terms of operational quality, we recorded a strong improvement compared to

the same period last year when we faced a number of operational challenges.

Since then, we have taken several actions to improve stability and avoid traffic

disruption. We have recruited and trained more seasonal staff in ground handling

and technical maintenance. Moreover, we have added two spare aircraft,

implemented a new disruption module, and selectively adjusted the network to

optimize the reallocation of buffers and stand-by capacity. As a result, we have

throughout the summer delivered operational regularity well above 99%. What

makes me particularly proud is that we were able to deliver the same operational

robustness across all production platforms, thereby resulting in generally

improved customer satisfaction.

ROADMAP TOWARDS FURTHER EFFICIENCY IMPROVEMENTS

Our current efficiency improvement program targets SEK 3 billion in efficiency

improvements by 2020 to strengthen competitiveness and mitigate some of the

annual cost inflation. In the third quarter, our efficiency program delivered

over MSEK 230 and in the year to date we have realized MSEK 626 in savings.

Since 2017 the program has realized SEK 2.1 billion out of the targeted SEK 3

billion.

Although we stay firm on our target of delivering MSEK 900 in savings for the

fiscal year 2019, our unit cost, after adjustment for strike effects, is not

decreasing to the extent we wish. This means that we need to look at additional

initiatives beyond 2020.

The renewal of our fleet is one important component, since it moves SAS to a

single-type fleet which decreases complexity in the organization and thereby

costs. Another component is to further optimize our operating model based on

three production platforms to further boost flexibility and efficiency.

Another area of importance is our continued digitalization efforts to further

support revenue growth, decrease costs and at the same time add value for our

customers. These include utilizing digital tools to improve planning, both for

assets and for crew. This will ensure continued stable production as well as

optimize organizational efficiency. Other efforts include the introduction of

predictive maintenance for our aircraft and other automation to increase

efficiency. Personalized customer offerings, on-board high-speed WiFi and

improved self-service possibilities, are other areas which are aimed directly at

our customers to safeguard our strong value proposition and attractiveness.

To accelerate our efficiency efforts and drive accountability, a new Group

Management organizational structure will be implemented as of 1 October 2019.

Our current Operations unit will be divided into Airline Operations, with

responsibility for airline operations across all production platforms, and

Airline Services, with responsibility for Ground Handling, Technical Maintenance

and Cargo. Furthermore, all sales, marketing and commercial units will be

consolidated under one Commercial entity. With the new Group Management team in

place, we are committed to deliver on our accelerated transformation agenda as

well as the additional initiatives needed to increase efficiency across the

organization.

CONTINUED PROGRESS IN DECREASING CLIMATE IMPACT

At SAS, we are currently working on several activities to reduce our negative

climate footprint. The delivery of new and more fuel-efficient aircraft is a

cornerstone in our endeavor to reduce carbon emissions. With new aircraft from

Airbus, our emissions will be reduced with up to 18% on short-haul and up to 30%

on long-haul flights. We have also replaced the interiors in our existing

aircraft and decided to remove tax-free sales onboard to reduce weight and fuel

consumption. Moreover, we continuously strive to reduce plastic consumables and

food waste onboard.

SAS is also engaged in a joint research project together with Airbus related to

the electrification of aircraft for large-scale commercial usage in the future.

In order to bridge the gap to zero emission aircraft, we believe that an

important step is to increase the usage of renewable fuels to reduce emissions

more rapidly. SAS is pushing for large-scale production of advanced renewable

fuel in Scandinavia. The volumes being produced today are simply not enough and

the price is 3-4 times higher than for conventional jet fuel. During the

quarter, we added the possibility for our customers to purchase biofuel (at

cost), in addition to the amount of biofuel SAS is already using. We believe

that this provides an opportunity for customers to contribute and creates

transparency around the additional costs for biofuel.

In the meantime, we are also addressing the CO2 emissions that we cannot

eliminate with today's technology. During the quarter we had compensated for

over 3.5 million journeys with SAS, representing 38% of the total passenger

-related CO2 emissions in the third quarter.

OUTLOOK

Even though the capacity outlook and recent decline in jet fuel price are

positives, several challenges remain unchanged since our Q2 report. This

includes the continued weakness of the Swedish krona against the US dollar and

the Euro, as well as an emerging slowdown in the European and global economies.

Although we are in the process of adapting to current market conditions, the

journey towards an even more efficient and effective SAS will require additional

time and effort. Therefore, we reiterate our full year outlook that it will be

challenging to reach a positive result before tax and items affecting

comparability for FY2019.

I thank you for your interest in SAS and look forward to welcoming you aboard

one of our 800 daily flights!

Stockholm 27 August 2019

Rickard Gustafson,

President and CEO

For further information, please contact

Michel Fischier, VP Investor Relations, +46 70 997 0673

This information is information that SAS AB is obliged to disclose pursuant to

the EU Market Abuse Regulation and the Securities Markets Act. The information

was submitted by Michel Fischier for publication on 27 August 2019 at 8:00 a.m.

CEST.

SAS carries more than 30 million passengers annually and is Scandinavia's

leading airline with more than 800 daily flights on 272 routes to 123

destinations in Scandinavia, Europe, USA and Asia. SAS is a member of Star

AllianceT and can together with our partner airlines offer more than 18,800

daily flights to over 1,300 destinations in 193 countries. For more information,

visit www.flysas.com.