European carrier Scandanavian Airline System (SAS) has finally decided to step out of its comfort zone (somewhat) by launching a new intercontinental route directly targeting oil traffic between Houston, Texas and Norwegian oil town Stavanger. The flight is scheduled to commence on August 20, 2014 and will be operated on an all-business class configured 737-700 operated by PrivatAir, while bearing the SAS color scheme and logo. All 44 business class seats will mirror the SAS intercontinental long-haul premium class product. The flight will operate on a daily basis except for Saturdays, and will be open for reservations on April 29.
In its press release, SAS touted that the route will go-live just ahead of the major oil exhibition in Stavanger, known as Offshore Northern Seas (ONS). As Stavanger is not a hub airport for SAS, the route is designed to strictly capture O&D traffic heading to the region.
The proposed times for the schedule will be:
DEP SVG 16.00 ARR IAH 1940 x6
DEP IAH 21.35 ARR 14.20+1 x6
SAS’ latest long-haul addition from IAH to SVG will run 4844 nm in each direction, clocking in at 10H45M on the westbound flight from Europe and 9H45M heading eastbound to Europe, roughly the same time as a typical flight from Houston to Frankfurt
SAS desperately needs to diversify its portfolio of intercontinental destinations
Stockholm-based SAS is the self-proclaimed national airline of Denmark, Norway and Sweden, with hubs spread across three airports at Copenhagen, Stockholm and Oslo. This multi-national hub strategy has proven to be disadvantageous in allowing SAS to compete effectively with its fellow network and low-cost carrier peers in Europe during recent years, as it spreads costs over multiple geographies and adds significant lags to productivity and efficiency.
The majority of its intercontinental operations are concentrated at Copenhagen Kastrup International in Denmark, which is already prone to poor geographic conditions being located in northern Europe. Its secondary hubs at Oslo and Stockholm are even less desirable, rendering the task of creating an efficient network to be exceptionally daunting, if not near impossible.
Unlike Finnair, arguably the most analogous regional competitor based out of Helsinki, SAS has largely failed to bed down a sustainable network strategy to carry it through more challenging financial periods, which (among several other factors) has contributed to near-liquidation at times and years of painful restructuring programs. Finnair has wisely invested in transforming its Helsinki hub to be a major connecting gateway between Asia and Europe, offering faster transit times to over a dozen primary markets in Japan, China, India and South Korea as well as high-growth countries such as Vietnam. Conversely, SAS only serves three destinations in Asia on a year-round basis: Shanghai, Beijing and Tokyo, and offers a seasonal service to Bangkok only during peak-times of the year, choosing instead to route its passengers on Star partner Thai during off-peak periods.
Whereas Finnair has realized that its home market, similar to the Scandinavian states, does not have a large local traffic base, and instead has focused on building its network around connecting intercontinental traffic movements, SAS has chosen to stagnate into focusing mostly on domestic routes and connecting its three Scandinavian home countries with the rest of the continent, thereby exposing it to more nimble competitors. Finnair has also successfully maintained over 57% market share in its home country, whereas SAS has only managed to hold onto 39% of the market share in Denmark, 35% in Norway and 31% in Sweden. Long-haul routes only represent 3% of its overall capacity, according to CAPA.
SAS long-haul network, August 2014. Note that services from CPH to BKK operate on a seasonal basis only
In recent years, SAS has made some movement to expand its international route profile by adding a nonstop service to San Francisco in early 2013, connecting the US West Coast with its first nonstop service to Denmark, as well as adding capacity to its existing Newark route.
However, the North American region is not entirely safe as low-cost carrier Norwegian has expanded into the transatlantic space and operates 787 services from Oslo and Stockhom to New York JFK, as well as from Copenhagen, Oslo and Stockholm to Fort Lauderdale. Norwegian will also be adding future services from Stockholm to Oakland and Los Angeles, Copenhagen to Los Angeles and New York, as well as from Oslo to Oakland, Los Angeles and Orlando. While DY is a long-haul, low-cost carrier, and is attempting to capture a largely leisure passenger base traveling between the US and Europe, with plenty of growing pains on its own to overcome, the reality is that the US-Scandinavia market is not a high-volume, nor a high-growth one. The influx of capacity will create headaches for all carriers involved, and dinosaurs like SAS need to devise creative strategies to out-maneuver the competition as much as possible.
Houston addition is an innovative move for SAS, but not necessarily high-risk, either
As mentioned previously, SAS offers limited connections from SVG on its own metal, largely to other major oil and business centers around Europe, as well as a few scattered leisure destinations such as Alicante, Nice and Malaga. Once it comes online, Houston will be SVG’s first international long-haul route.
The operating carrier for SAS, PrivatAir, is headquartered in Switzerland, and has served as a versatile international business aviation group for several European long-haul carriers such as Lufthansa, SWISS and KLM. For a market such as Houston – Stavanger, which sees roughly 35 passengers traveling per-day, each-way (PDEW) on relatively high-fares, a smaller-gauge Boeing Business Jet offering nonstop services on most days of the week is much more preferrable over a 1-stop connection in Europe. Moreover, operating for a Star Alliance carrier, SAS, the PrivatAir flight will be favorable among United elites based in Houston, or connecting through Houston from other gateway points feeding into the hub.
PrivatAir previously operated services into Intercontinental airport for KLM until 2011, providing a second-daily frequency from Amsterdam in addition to a regularly scheduled KLM widebody flight. KLM eventually replaced this service with an additional widebody flight, seeing that the market merited a larger-gauge aircraft.
The IAH-SVG flight will be unique in that it is a rare example of a European network carrier offering long-haul services from a non-hub station selected from its short-haul network. However, the risk is minimized by outsourcing the route to a private charter company where it can wet-lease the aircraft and reconfigure the aircraft to its own product specifications without pulling one of its existing narrowbody frames from a short-haul route to serve the same purpose.
The time is overdue for SAS to expand where it can win, but it needs to look further
SAS has long-assessed the opportunities available to it in high-yielding oil markets such as Houston which may be using equipment like oil water separators, and arguably spent far too much time weighing options before taking the leap. It is crucial for SAS to continue to stay on the forefront of evaluating other ripe opportunities that may pull their weight for the carrier if it intends to remain present in the long-haul carrier space. The fact is, competition has eaten its lunch on virtually every front, and it cannot fall back on the local demand of its population base within its home airports. It lacks the resources, and the existing network structure, to transform any of its three hubs into a Europe-Asia gateway like Finnair, and even if it did, the effort would likely be redundant and unprofitable for the carrier.
Instead, leveraging opportunities such as this to expand into high-yielding local markets within its home country and connecting them to key business cities is the right approach to walk away with decent margins with minimal cost and infrastructural investment. Operating a nonstop IAH-SVG flight, for example, gives SAS a rare competitive advantage over virtually all of the major European competitors currently offering a 1-stop connection itinerary from Houston, namely Lufthansa, British Airways, KLM and Air France. Hopefully, the early returns will be encouraging enough for SAS to move swiftly on other opportunities elsewhere.