SAS to Move Some Operations to Lower-Cost Countries; Wizz Air Cuts Profit Outlook

By Robert Wall

LONDON--European airlines' intense price war is driving SAS AB (SAS.SK) to move some operations to lower-cost countries and forced Wizz Air Holdings PLC (WIZZ.LN) to cut its profit outlook Wednesday.

SAS, a Scandinavian carrier that principally serves Sweden, Norway and Denmark said Wednesday it would seek an Irish operating license and set up bases in London and Spain to lower costs. The airline would hire crew locally, with more flexible and less costly labor contracts, to reduce its 20% to 25% cost-disadvantage over some rivals, an airline spokesman said. No layoffs in Scandinavia are planned.

The airline would base a small number of its Airbus SE A320neo single-aisle planes in the new locations to fly European routes. They would operate existing flights to Scandinavia and eventually grow.

"The establishment of new bases means we can complement our Scandinavian production and, in time, build an even broader network with a superior schedule to the benefit of our customers," SAS Chief Executive Officer Rickard Gustafson said.

The slump in oil prices that began mid-2014 led airlines to boost capacity and cut ticket prices to lure passengers. Per-seat revenue at some of Europe's main airlines has tumbled, even as passenger numbers have risen. Pressure on ticket prices intensified when terrorist attacks in Europe spooked travelers, forcing airlines to offer discounts to fill planes.

SAS shares rose 4.6% Wednesday.

SAS's London base should be operational in 2017, with the Spanish bases to follow in 2018. The airline said setting up the additional license and overseas operations would incur unspecified start-up costs.

SAS has been struggling amid fierce competition from lower-cost rivals including Ryanair Holdings PLC, Europe's No. 1 carrier by passenger numbers, and local rival Norwegian Air Shuttle ASA.

However, the fare war is also weighing on budget airlines. Wizz Air, one of Europe's most rapidly expanding airlines, lowered its full-year profit forecast Wednesday by 20 million euros ($21.5 million) to a range of EUR225 million to EUR235 million.

Half of the cut was linked to yield pressure, CEO Jozsef Varadi said, with rebounding fuel costs and weather-induced cancellations impacting earnings for the full-year ending March 31 by another EUR10 million.

Mr. Varadi said the pressure on prices was expected to persist through the summer before moderating next winter.

Shares in Wizz Air were down 8.3% in mid-morning London trading.

EasyJet PLC, Europe's No. 2 discount carrier by passengers, warned in January of earnings headwinds linked to competitive pressure, fuel and sterling weakness after the June Brexit vote. CEO Carolyn McCall said at the time she expected fare weakness to persist throughout 2017 and that the airline would review its capacity growth plans.

-Write to Robert Wall at [e-mail]

(END) Dow Jones Newswires

February 01, 2017 05:21 ET (10:21 GMT)

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