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The SAS Group Annual Report 2001 & Summary of Environmental Report www.scandinavian.net The worst air disaster in the history of SAS October 8, 2001, was a tragic day for SAS. The worst disaster in the company's history occurred when flight SK686 from Milan to Copenhagen crashed on take-off and 118 people lost their lives. We mourn the loss of our colleagues, passengers and others who perished in the accident. Our thoughts still go to the relatives and friends of whose who died. The powerlessness and dismay we feel about this disaster will affect SAS for a long time and can only fulfill a constructive purpose if efforts to improve flight safety are further increased in the industry as a whole. Jørgen Lindegaard Presenting the SAS Group Since July 6, 2001, the SAS Group has had a single share through SAS AB, listed on the stock exchanges in Copenhagen, Oslo and Stockholm. The principal owners of SAS AB are the Danish, Norwegian and Swedish states. Private interests Danish State Norwegian State Swedish State SAS AB Four business areas The SAS Group has a consolidated operating revenue of SEK 51.4 billion and a total of 31,035 employees. The Group is divided into four business areas: • SAS Airline comprises SAS's passenger transport services with its own aircraft and under its own brand. The business area includes the production company SAS Commuter as well as the independent business units Scandinavian Ground Services and Scandinavian Technical Services. • Subsidiary & Affiliated Airlines comprises other airlines within the Group. The airline Braathens was acquired in 2001. Widerøe and Air Botnia were already SAS owned. In autumn 2001, an agreement was concluded to increase the holding in Spanair from 49% to 74%. The agreement is currently being examined by the EU Com- mission. Affiliated companies include Skyways, Cimber Air, British Midland, airBaltic and Grønlandsfly. • Airline Related Businesses includes SAS Cargo, Jetpak, SMART, SAS Trading, SAS Hosting and SAS Media – all of which make most of their sales to external customers. The business area also includes SAS Flight Academy and SAS Flight Support, which sell services to internal and external airlines, as well as Scandinavian IT Group which has most of its customers within the SAS Group. • Rezidor SAS Hospitality is the SAS Group's hotel business and works with two hotel chains, Radisson SAS Hotels & Resorts and Malmaison. SAS Airline 74% (operating revenue MSEK 41,166)* Subsidiary & Affiliated Airlines 6% (operating revenue MSEK 3,123)* The SAS Group (operating revenue Airline Related MSEK 51,433) Businesses 14% (operating revenue MSEK 8,148)* Rezidor SAS Hospitality 6% (operating revenue * Percentages refer to share of the SAS Group's MSEK 3,510)* operating revenue before Group eliminations. Annual Report 2001 Contents Summary of 2001 2 Important events 3 President's comments 4 The SAS Group's new structure 6 The SAS Group's markets 7 The SAS Group's business concept, mission, objectives and values 8 The SAS Group's strategies 9 The SAS Group's brands 10 Capital market 11 Introduction of a single share 12 Share data 13 Key data per share 1997-2001 17 Ten-year financial overview 18 The SAS Group's investments and capital employed 20 Financing and creditworthiness 23 Financial risk management 24 The SAS Group's strategies for increased competitiveness 26 SAS Airline 29 Earnings trend 30 Flight safety work 31 Targets 34 Strategies 35 Business environment for the airline industry 36 Macroeconomic and sensitivity analysis 38 Market and traffic trends 40 Operational key figures 43 Aircraft fleet 44 Human resources 47 Distribution channels 49 Global network – Alliances and partnerships 51 Subsidiary & Affiliated Airlines 55 Airline Related Businesses 61 Rezidor SAS Hospitality 67 Financial report 71 Report by the Board of Directors with summary statement of income – quarterly figures 72 The SAS Group statement of income with comments 76 The SAS Group balance sheet with comments 78 The SAS Group cash flow statement with comments 80 Comments and notes to the Report by the Board of Directors – Accounting and valuation principles 82 Notes 86 Parent Company, SAS AB – statement of income and balance sheet with notes 96 Proposed disposition of earnings 97 Auditors' report 97 Board of Directors and auditors 98 Group Management 100 Summary of environmental report 101 The goals remain firm 103 Operations in 2001 105 Environment and economy 112 Environmental Report on the Internet 114 Definitions and concepts, Financial calendar 116-117 Annual Report 2001 1 Summary of 2001 • Positive market development in the first quarter was followed by gradually weak- ening demand. After September 11, demand fell sharply. Some recovery in traffic occurred towards year-end. • The SAS Group's operating revenue increased by MSEK 3,893, or 8.2%, from MSEK 47,540 to MSEK 51,433, of which MSEK 937 was higher passenger revenue. • Earnings before depreciation, EBITDA, amounted to MSEK 743 (3,710). The gross profit margin fell from 7.8% to 1.4%. Depreciation increased by MSEK 251 mainly due to investment in aircraft. The Group's capital gains from the sale of aircraft and buildings amounted to MSEK 673 (490). Income before tax amounted to MSEK –1,140 (2,829). • The SAS Group's investments including prepayments amounted to MSEK 11,374 (9,911) for the year. • The SAS Group's liquid assets at December 31, 2001, amounted to MSEK 11,662 (8,979). A number of bond loans were issued during the year for a total of MEUR 600. • Efforts to adapt operations to the lower demand affected the SAS Group during the autumn. It was decided to implement measures to reduce capacity in SAS Airline, resulting in a total redundancy of approximately 3,500 positions. Reduction of aircraft capacity and suspension of certain routes has an annual effect of MSEK 500 and other measures are expected to have an earnings improvement effect on an annual basis of MSEK 2,400. Action has also been taken to raise revenues by MSEK 2,200 on an annual basis. • Rezidor SAS Hospitality opened and/or rebranded ten hotels during the year. Like the airline industry, the hotel industry was hard hit by the economic downturn and the events in September 2001. Revenues for the full year amounted to MSEK 3,510 (3,122). • Earnings per share for the full year 2001 for the SAS Group amounted to SEK –6.58 (12.98) and equity per share amounted to SEK 96.06 (106.50). • A groupwide sustainability policy was drafted in 2001. This was approved by Group Management in February 2002 and will be introduced throughout the Group in the coming year. Financial key data Business areas** Subsidiary & Airline Related Rezidor SAS The SAS Group SAS Airline Affiliated Airlines* Businesses Hospitality 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 Operating revenue, MSEK 51,433 47,540 41,166 39,233 3,123 2,568 8,148 5,788 3,510 3,122 EBITDAR, MSEK 3,168 5,608 1 802 4 308 510 376 – – – – EBITDAR margin, % 6.2 11.8 4.4 11.0 16.3 14.6 – – – – EBITDA, MSEK 743 3,710 –430 2,529 317 257 602 519 310 441 EBITDA margin, % 1.4 7.8 –1.0 6.4 10.2 10.0 7.4 9.0 8.8 14.1 CFROI, % 8 17 5 12 – – – – – – Income before tax, MSEK –1,140 2,829 –1,499 1,951 7 106 160 180 208 583 Investments, MSEK 11,374 9,911 10,227 9,093 429 129 542 381 176 308 Number of aircraft 275 – 200 203 75 – – – – – Number of daily departures (average) 1,221 1,258 915 938 306 320 – – – – Number of destinations 128 – 94 92 51 52 – – – – Average number of employees 31,035 30,943 22,364 23,777 1,530 1,495 4,038 2,540 3,103 3,131 CO2 000 tonnes – – 4,110 4,095 – – – – 0.006 – * Spanair is consolidated according to the equity method with 49%. Braathens' results are not consolidated in the SAS Group in 2001. Braathens is included in the SAS Group's consolidated balance sheet at December 31, 2001. ** Before Group eliminations. 2 Annual Report 2001 – Summary of 2001 Important events First quarter 2001 • The Swedish Market Court decided that EuroBonus points earned on Swedish domestic routes exposed to competi- tion may not be redeemed for bonus benefits. Second quarter 2001 • The shareholders of the three SAS parent companies were invited to exchange their shares for the same number of newly issued shares in SAS AB, the newly formed holding company for the SAS Group. • Jørgen Lindegaard took over as President and CEO on May 8, 2001. • SAS announced, in agreement with the principal owners of the Norwegian company Braathens, its intention to acquire Braathens' airline operations, excluding Malmö Aviation. Third quarter 2001 • The first day for listing and trading with shares in SAS AB was July 6, 2001. • The European Commission fined the SAS Group and Maersk Air MEUR 39.375 and MEUR 13.125 respectively for infringement of the EU's competition rules. • Following criticism of its handling of the SAS/Maersk affair, the Board of Directors of SAS AB decided to convene an extraordinary general meeting to elect a new Board. • The airline industry was hard hit by the events of September 11. SAS Airline reduced capacity by 12% corresponding to 16 aircraft. • The first of eleven new, larger aircraft for intercontinental traffic, an Airbus A340-300 with a high environmental performance, was delivered. Fourth quarter 2001 • The Norwegian Competition Authority approved the SAS Group's acquisition of Braathens. • The SAS Group announced that an agreement had been concluded to increase its holding in Spanair from 49% to 74% of the shares. • A new Board of Directors was appointed at an extraordinary general meeting held on November 6. • Airport buildings were sold to Nordisk Renting and GE Capital for SEK 3 billion. • The acquisition of Braathens ASA was completed. After January 1, 2002 • SAS Airline's cooperation agreement with Skyways was approved by the Swedish Competition Authority. • The intercontinental route to Delhi was suspended on February 1, due to weak passenger development. • The SAS Group implemented earnings improvement activities totaling MSEK 6,400. SAS shares (local currency)* SAS AB SAS AB SAS AB SAS AB (average SEK) (listed in Copenhagen) (listed in Oslo) (listed in Stockholm) 2001 2000 2001 2000 2001 2000 2001 2000 Currency SEK SEK DKK DKK NOK NOK SEK SEK Earnings per share –6.58 12.98 –5.30 11.5 –5.72 12.5 –6.58 13.0 Market price at year-end 68.9 94.8 53.0 81.5 57.5 93.5 68.0 90.0 Dividend (2001 proposed) 0.0 4.5 0.0 3.8 0.0 4.2 0.0 4.5 Dividend yield, average price, % 0.0 5.7 0.0 5.1 0.0 5.3 0.0 6.1 * SAS AB was listed in Copenhagen, Oslo and Stockholm on July 6. The share price trend prior to July 6 pertains to the previously listed parent companies, SAS Danmark A/S, SAS Norge ASA and SAS Sverige AB. Targets Targets Result 2001 2001 2000 1999 1998 1997 1996 SAS Airline, Customer Satisfaction Index, CSI 75 70 72 74 70 70 65 SAS Airline, Personnel Index, PULS 2.25 2.22 2.19 2.13 2.06 – – SAS Airline, Environmental Index 85 80 82 88 96 97 100 Rezidor SAS Hospitality, Repeat-purchase rate, % 94 88 94 94 98 93 93 Annual Report 2001 – Important events 3 SAS koncernen President's comments affected by a clear economic slowdown in summer 2001. On September 11 came the atrocious terrorist attacks in the U.S. Economic instability was now welded to political and social unease as well as reduced confidence in air transport as a safe means of travel. The result was a dra- matic fall in demand. The SAS Group, like the rest of the industry, was forced to quickly adapt capacity to these lower levels. In two stages, we decided to close a number of destinations, reduce frequencies and take a total of 21 aircraft out of production. The very negative traffic trend, changed travel pat- terns including fewer travelers in the traditional business class, and a new competitive scenario, further accentuat- ed the need to address both cost structure and earnings capacity in the airline operations. Strong earnings improvement activities The earnings improvement activities, which were pre- sented in November 2001, therefore include measures 2001 was a disastrous year for the airline business. Never designed both to boost revenues and reduce costs. The before have industry conditions changed so fast and so changes we will achieve thus encompass everything fundamentally for the worse. The total losses in the airline from products and production to marketing, distribution industry were enormous and tens of thousands of and Group administration. Although these changes are employees have lost their jobs as airlines struggle to sur- expected to lead to some 3,500 full-time equivalent vive the crisis. For the SAS Group the year ended with a redundancies in the Group, we reckon that the SAS loss before capital gains of almost SEK 1.8 billion, the Group's employees today are highly aware that we must worst result in the company's history. Within the Group renew both our offering to customers and our working rationalization programs are now under way designed to methods. Taken overall, we expect that a full earnings restore profitability. Unfortunately, these activities also improvement effect of over SEK 6 billion can be achieved mean that many loyal and competent employees are before the end of 2003. It is important to point out that being forced to leave SAS. The full extent of the 2001 col- the development we are planning represents an aggres- lapse in the airline industry is difficult to visualize. There is sive and expansive strategy. It is not a matter of getting every indication, however, that the weakened financial sit- SAS out of the crisis by saving, but of using our resources, uation which resulted from developments and events in quality and competence in a way that makes us one of the 2001 will lead to consolidation within the airline industry. winners in the European airline industry of the future. Behind the crisis in 2001 lies a sharp economic down- turn as well as extraordinary and totally unpredictable Milan disaster events entirely outside the control of society or the busi- On October 8, 2001, what must not happen happened; ness community. the incomprehensible tragedy when flight SK686 from The year started well for the SAS Group with a strong Milan to Copenhagen crashed and 118 people died. Our first-quarter result. The renewal of the aircraft fleet had thoughts still go out to the relatives, friends and work- started and the Airbus A340s and Airbus A321s were mates of those who perished. The despair and power- intended, among other things, to increase capacity and lessness felt by all of us in the SAS Group is indescrib- give SAS Airline one of the most modern and eco-compli- able, but sadness over what occurred will remain with the ant fleets in the world. This involved the largest invest- Group for a long time. ment program ever. The times were characterized by powerful optimism. This positive trend was soon to be EU Commission's treatment of the replaced by the opposite extreme. Maersk cooperation One event which attracted considerable negative atten- Economic slowdown and impact of the crisis tion to the SAS Group was the discovery of an unlawful divi- The airline industry is sensitive to changes in socioeco- sion of the market between the SAS Group and Maersk Air. nomic development. The industry was therefore soon This illegal agreement, which lay outside the cooperation 4 Annual Report 2001 – President's comments between the two companies notified to the EU in 1998, included the creation of a new logical structure in the resulted in the Commission imposing heavy fines, in the Group which contributes to better governance of the person responsible for the arrangement leaving the Group while supporting a high degree of independence Group, and in SAS's Board deciding to resign. An appeal and professionalism. This also facilitates analyses and val- has been lodged against the size of the fine. In order to uations of the SAS Group. Operating activities are there- guard ourselves as far as possible against any recurrence fore now divided into four business areas. Apart from SAS and place a strong focus on competition rules, we have Airline we find, in the first place, the Group's other wholly organized ourselves in a more suitable way and imple- and partly owned airlines. This part of the SAS Group is mented a Competition Law Compliance Programme. showing profitable development. As consolidation of the European airline industry continues, this business area A single SAS share may grow. A third area is airline-related businesses. These However, 2001 did not only contain events of a negative have, or can have, a growing customer list aside from the nature. The introduction of a single SAS share, in place of Group's own airline operations and thus become more the previous three, was a highly positive occurrence. This exposed to competition. represents an important step towards better compara- bility with other airlines, greater liquidity in the shares Expansion in the hotel business and consequently greater interest from analysts and The fourth area is the hotel business, Rezidor SAS Hospi- investors. A single share also makes it easier to invite our tality. These operations were also adversely affected by employees to become part-owners in the company as the negative business climate in 2001, which is reflected earnings improve. I am convinced that this would increase in lower earnings. All in all, however, the SAS Group's the feeling of participation and inspire people to even hotel business is a highly successful operation which is greater professionalism and even better cooperation showing positive development and has proved well towards achievement of our common goals. equipped to meet the powerful expansion which has been carried out and will continue. Strategic acquisitions During the year we also strengthened our positions Major challenges in the industry through strategic acquisitions. This applies in particular The crisis in the airline industry is going to produce win- to the purchase of Braathens which from 2002 is a vital ners and losers. The falling profitability will force through part of our home market strategy. Braathens has quickly efficiency enhancement measures, more modern prod- and creditably adapted its operations to present ucts and a structure in which synergies and economies demand. Our key task now is to exploit the synergies of of scale can be exploited. In Europe, it is highly probable this coordination wisely, to safeguard the company's that the number of airlines will be reduced. valuable qualities, and at the same time create an effec- The SAS Group intends not only to survive but to be tive infrastructure which meets the demands of travelers among the winners, after the difficult times we are now to, from and within Norway. experiencing. One proviso is that we can implement the The acquisition of the majority shareholding in Spanair, necessary changes in SAS Airline in the year ahead. In which is currently being examined by the EU Commission, my many meetings with SAS employees I have felt that fulfills both strategic and financial objectives. The intend- most of them have the motivation to make this happen. ed increase in our stake from 49% to 74% of the company But change will require concessions and sacrifices and will give us control over its development while defending we will be forced to abandon many deep-rooted routines the investment in the company which we made in 1986. in order to find better working methods. We must also be Spanair is a highly cost effective company and the SAS highly sensitive to the demands and expectations of the Group is now actively ensuring that Spanair concentrates market when we develop our new products and services. its resources in order to be even more competitive in its I would very much like to thank our employees for their home market and in the European market, while the inter- excellent contribution during a very difficult and stressful continental routes will be withdrawn in 2002. year. Sometimes the toughest conditions and consider- able strain inspire the greatest achievements. That was New Group structure what occurred in autumn 2001. The present year will also My comments on 2001 have for natural reasons primari- demand extraordinary strength. A strength that I know is ly related to airline operations within SAS Airline. This is to be found in the SAS Group. explained by its dominance, both in terms of its impact Stockholm, February 2002 on operating revenue and earnings in the Group and because in 2001 SAS Airline was exposed to exceptional circumstances. The SAS Group is, however, made up of much more Jørgen Lindegaard than SAS Airline. Prioritized activities during the year President and CEO Annual Report 2001 – President's comments 5 The SAS Group The SAS Group's new structure In 2001, the SAS Group completed the acquisition of Braathens and concluded an agreement to increase its holding in Spanair. One consequence of this is that starting in the fourth quarter of 2001, the SAS Group reports on its operations in four business areas. The new structure is intended to more clearly account for the operations of the entire group, thus making the large number of businesses and values in the SAS Group more transparent. In terms of operating revenue SAS Airline is the largest business area. SAS Airline accounted for 74% of the Group's operating revenue in 2001. In 2002, SAS Airline's share of consolidated operating revenue will be 55-60%, Subsidiary & Affiliated Airlines will amount to approximately 25%, Airline Related Businesses 10-12%, and Rezidor SAS Hospitality 5-10% depending on the rate of expansion. The SAS Group Subsidiary SAS Airline* & Affiliated Airline Related Rezidor SAS Airlines Businesses Hospitality Spanair** SAS Cargo Braathens*** Jetpak Widerøe's Scandinavian Flyvelselskap IT Group Air Botnia SAS Trading Affiliated SAS Flight Airlines Academy SMART Others SAS Flight Support SAS Media SAS Hosting * Includes the SAS Consortium, excluding SAS Trading, and the SAS Commuter Consortium which is a production company and consolidated in SAS Airline. ** Spanair is consolidated according to the equity method with 49%. *** Braathens' results were not consolidated in the SAS Group in 2001. Braathens is included in the SAS Group's consolidated balance sheet at December 31, 2001. 6 Annual Report 2001 – The SAS Group The SAS Group's markets SAS Airline, with the acquisition of Braathens and the planned increase in its holding in Spanair, has strengthened its market position. In total, all the airlines in the SAS Group transported more than 36 million passengers in 2001. Com- petition for passengers in the international market is very intense. Ahead of the expected consolidation of the airline industry, it is important for the SAS Group and for other airlines to have a strong position in the home market in order to meet international competition. Compared with established airlines, SAS Airline has increased its market share in the key international markets. Despite the large decline in Business Class travel, the company has also strengthened its market share in this segment. The SAS Group's total traffic and capacity Market shares for the SAS Group's airlines development in 2001, pro forma* (SAS Airline, Spanair, Braathens, Widerøe and Air Botnia) Total the SAS Group 2001 Change % Number of passengers (million) 36,049 –0.3 RPK (million) 32,171 +2.9 ASK (million) 51,644 +5.9 Cabin factor, scheduled (%) 62.3% –1.9 ** SAS Airline Intercontinental 25% Number of passengers (million) 23,063 –0.8 RPK (million)) 22,956 +1.4 ASK (million) 35,521 +5.1 97% 3% 80% Cabin factor, scheduled (%) 64.6% –2.4 ** 52 % Subsidiary & Affiliated Airlines Intra-Scandinavian Scandinavia-Finland 90% Number of passengers (million) 12,986 +0.4 RPK (million) 9,215 +6.9 89% * ASK (million) 16,123 +7.8 40 % Cabin factor, scheduled (%) 57.1% –0.5 ** * Includes Spanair and Braathens - not consolidated in 2001. ** Change in percentage points. 0 % Definitions and concepts, see page116. % -5 50 45 % 40 25% * Including low-fare airlines. Rezidor SAS Hospitality Rezidor SAS Hospitality's present and future markets Rezidor SAS Hospitality will become one of Europe's Strong position leading companies in hospitality management. The Expansion phase Weak position company has expanded considerably in recent years and Position on a par with industry now operates in 38 countries and had 160 hotels at the end of 2001. Today, Rezidor SAS Hospitality also has a strong position in the Baltic States as well as in Switzer- land and the Benelux countries. In 2001 hotels were added in markets such as France, Germany, Poland, the U.K. and Ireland. Rezidor SAS Hos- pitality is now in an expansive phase in these markets and the goal is to further increase market shares. Annual Report 2001 – The SAS Group 7 The SAS Group The SAS Group's business concept, mission, objectives and values Business concept and mission The capital market perspective governs in conjunction The SAS Group's key task is to offer air travel with a base with: in its home market in Northern Europe. • incorporation The SAS Group will also engage in airline related busi- • long-term development nesses provided such involvement increases the market • divestment of companies or their operations. value of the SAS Group. Rezidor SAS Hospitality aims to be one of Europe's Total shareholder return target leading companies within hospitality management. The target for shareholder return is a minimum annual total return (TSR) of 14% over a business cycle. The Objectives return target refers to the sum of share price apprecia- The airline industry is facing continued deregulation with tion and dividends. This return requirement has been subsequent consolidation and restructuring. In order to translated to an internal financial target, CFROI. remain neutral and independent in this changed scenario, a substantially increased market capitalization is required. The SAS Group's return concept This will be achieved through strong growth and good prof- CFROI is the SAS Group's main return concept since this itability. The SAS Group's targets over the next five years are key indicator best shows the return generated by opera- • to achieve minimum CFROI of 17% per year on average tions in relation to the actual capital investment. This • to raise operating revenue by an average of 14% per return measure reflects the EV/EBITDAR multiple which year with 2000 as the base year. is internationally regarded as the most important value indicator for an airline and which is used by the majority Target for shareholder value of analysts in the airline industry. The SAS Group's aim is The SAS Group's financial objective is to create value for to receive a market valuation which is at least on a par its shareholders. with the industry average. The capital market perspective governs the operation The airline related businesses and hotel business and development of the companies. Every subsidiary should have a return requirement corresponding to rele- must be operated as if it was a publicly owned corpora- vant indicators for those industries. tion although subject to the commitments of being part of the SAS Group and taking advantage of the opportuni- Values in the Group ties that this creates. The SAS Group's goal is to be a company characterized by employees who: • care, can be trusted, are progressive and professional. Development of CFROI, 1990-2001 Annual total return on SAS shares, 1991-2001 % % 121% 40 60 35 45 30 30 25 20 15 15 0 10 –15 5 0 –30 90 91 92 93 94 95 96 97 98 99 00 01 91 92 93 94 95 96 97 98 99 00 01 CFROI Minimum return requirement, 17% Annual total return Target for total shareholder return, minimum 14% The SAS Group's return requirement is set at a minimum of 17% as an average over a business cycle, where average capital allocation for replace- At the beginning of the period 1991-1994, return on SAS shares was ment of the aircraft fleet is taken into account. The period 1990-1993 was affected by recession and the crisis in the airline industry. Towards the characterized by the Gulf War and recession. The SAS Group's return was con- end of the period significant cost savings and economic recovery were siderably below the minimum requirement during that period. In 1994-1998 reflected in the share price and return rose to 121% in 1994. The the SAS Group enjoyed good profitability and return exceeded the 17% mini- average annual effective return in 1991-2001 was 12.3%. mum requirement by a wide margin. In the last three years return has fallen below the SAS Group's 17% minimum requirement and was approximately 8% in 2001. 8 Annual Report 2001 – The SAS Group The SAS Group's strategies Main strategic focus Participation The strategies for the Group's long-term development Internal communication and leadership must be charac- can only be implemented if SAS Airline and the other air- terized by openness. lines in the SAS Group can pull through the present deep There must be clear goals and remuneration struc- crisis in the industry. The primary task for 2002 is there- tures linked to earnings development. Employees should fore implementation of earnings improvement activities feel that they are participating in the development of their which will ensure survival and provide opportunities for business and that there is a personal incentive for this. future competitiveness and development. Awareness creates involvement and supports a culture The SAS Group's main strategic focus is summarized where it is important to be among the industry winners under four main headings: and thus survive in the long term, rather than cementing the present structure, conditions and working methods. Growth Financial strategy Financial flexibility is maintained through high liquidity, Competitiveness good access to funding and an active dialog with the cap- ital market. Value creation The purpose of finance operations is to identify and Participation manage financial risks, relating to currency, interest rates and credits. The aircraft fleet is regarded and managed as a finan- cial asset. An optimization of financing of the fleet is achieved based on requirements for operating efficiency, Growth tax, financing costs, tied-up capital and market value. The SAS Group comprises several airlines which aim to cooperate in an effective traffic system together with Sustainability policy partners and alliances. SAS Airline is the largest carrier In order to contribute to sustainable development, SAS and the base of the air transport operations. The SAS Group employees must take the Group's economic devel- Group's airlines plan to expand in a profitable way and cap- opment into account in their daily work as well as its envi- ture market shares. ronmental and social impact. Growth will be achieved in all the Group's units through a For the SAS Group sustainable development means a combination of organic growth and acquisitions. parallel focus on financial growth, environmental improve- ments and social responsibility. The Group's task, based Competitiveness on its core values, is to create long-term growth in value The SAS Group includes a number of operations whose for its shareholders. This requires making environmental customer base comprises SAS Airline and the other air- and social responsibility as well as respect for cultural lines in the Group. Every such operation must be compet- diversity an integrated part of business activities. itive in its sector and have a competitive price structure. In order to ensure that the SAS Group's policy to con- This requires ongoing efficiency enhancement and use of tribute to sustainable development permeates the entire new technology as well as having agreements and terms organization at all levels, each unit will develop relevant on a par with the competition. Operations must also goals and strategies in line with this policy. exploit their competitiveness and raise revenues from external customers. Value creation The SAS Group endeavors to achieve a stock market valu- ation which is on a level with the world's leading airlines relative to earnings capacity. Communication with the stock market must be open, accurate, relevant and timely. Better sector information and clear communication regarding future expectations must also characterize the provision of information. Annual Report 2001 – The SAS Group 9 The SAS Group The SAS Group's brands Today, SAS has one of the best known and valuable supports the growth of the business. The goal is that the brands in Scandinavia. It has been built up over many build-up of the brand in the SAS Group will ensure clarity years and is now linked to the Corporate Identity estab- and strengthen preferences and loyalty among cus- lished in 1998. tomers and other stakeholders, create pride among In line with the SAS Group's strategic key directions, employees, promote creativity, reveal values and support the Group will streamline the brand structure in the the SAS Group's management philosophy. This means future. the brand will give the business positive support while The SAS Group and SAS Airline are the primary carriers representing the SAS Group as a reliable and environ- of identity. Furthermore, SAS Airline has strong links to mentally responsible partner. the "It's Scandinavian" positioning. Brand-building in the SAS Group will be streamlined in future and comprise the following components: Corpo- New brand structure rate brand, Master brand, Master brand + descriptor, Core values Combined brands, Brand endorsements and Separate Work has started to determine a structure for how the brands. (See example below.) SAS Group uses brands. Businesses that will operate under the SAS brand must follow the SAS Corporate Brand protection Identity Policy and basic values. With the aim of ensuring protection for the brands devel- The dramatic events of autumn 2001 show the impor- oped and utilized by the SAS Group, these are duly regis- tance of a strong brand. A survey conducted at the end of tered in the most important markets. Furthermore, the 2001 showed that SAS's customers regarded the air- names SAS and Scandinavian Airlines System are pro- line's image as twice as important as they did one year tected as commercial and company names in Scandi- ago. According to customers, image is the most impor- navia through registration of various companies. In its tant factor when choosing an airline. work on registration, renewal and monitoring its brands, Strong brands create preference and loyalty and sell the SAS Group cooperates with leading brand protection again and again. companies. The core values which the SAS brand represents are: reliable, professional, progressive (i.e. modern and inno- Sponsoring vative) and considerate. It is on these pillars that the SAS The SAS Group's sponsoring involvement is long term Group builds its brand. (cultural, sporting and "good citizen" activities). The positioning of the SAS brand is regularly moni- Sporting activities include the SAS Invitational golf tored and adjusted. A survey of the SAS Group's posi- tournament and sponsoring of the djuice and Assa Abloy tioning will be conducted in 2002. sailing boats in the Volvo Ocean Race. The SAS Group The next stage will be to establish the value of the SAS has also become a sponsor of the Danish football league brand. – now known as "the SAS League." Cooperation with the Save the Children organization in Value creation Scandinavia continues. The SAS Group also cooperates The goal for the build-up of the SAS brand is to improve with the Bellona environmental organization and sup- earnings relative to the competitive situation. Success- ports the World Wide Fund for Nature WWF as a compa- fully implemented this enhances the brand's value and ny sponsor. Examples of brand structure Corporate brand Master brand + Master brand + Combined brands Brand endorsements Separate brands positioning descriptor The SAS Group SAS Airline SAS Commuter Radisson SAS Member of the Well connected Spanair, Braathens, SAS Flight Academy SAS Group with SAS Widerøe, Jetpak It's Scandinavian Member of the Well connected SAS Group with SAS 10 Annual Report 2001 – The SAS Group Capital market Introduction of a single share Share data Key data per share 1997-2001 Ten-year financial overview The SAS Group's investments and capital tied up Financing and creditworthiness Financial risk management The SAS Group's strategies for increased competitiveness 11 Introduction of a single share SAS AB Circumstances specific to civil aviation On May 8, 2001, SAS AB made three parallel, public Civil aviation operations are subject to extensive regula- offers to the shareholders of SAS Danmark A/S, SAS tion. The right to conduct international civil aviation Norge ASA and SAS Sverige AB to exchange their shares involves specific demands on ownership and control of air- for the same number of newly issued shares in SAS AB. lines according to bilateral civil aviation agreements. The As of June 28, the offers had been accepted by share- airlines to which a state gives such a right must essentially holders representing more than 90% of the shares in be owned and effectively controlled by the state and/or its each company. On July 6, SAS AB was listed in Stock- citizens. This rule does not apply to airlines which only con- holm and on the stock exchanges in Copenhagen and duct services within the European Economic Area (EEA). Oslo. Such companies, however, must be majority owned and The main purpose of this new structure is to obtain effectively controlled by EEA states and/or their citizens. better access to the capital market. A single share of one To avoid the risk of losing these rights, the Articles of class is easier to analyze and provides preconditions for Association for SAS AB contain a provision that gives the more efficient pricing and higher liquidity. The single company the right to redeem shares held by non-Scandi- share provides greater opportunities to participate in navian shareholders or shareholders who are not citizens structural deals,introduce incentive programs, and of a Scandinavian country if such a shareholding consti- achieve a more efficient decision-making structure. tutes a "direct threat" to SAS's civil aviation rights. If In the period July 6 - December 31, 2001, the liquidity redemption is impossible or insufficient, a general meet- of the shares increased significantly, particularly in ing can also approve new subscription of debenture Stockholm. In general, there has been greater interest in shares supported by issued stock options. Similar rules the shares. From a capital market perspective, the intro- exist among other European airlines and are designed to duction of a single share has been good for the SAS protect existing shareholders in these companies from Group. the companies losing their civil aviation rights. The new share structure and the four business areas A simplified share structure with a single share and more transparent sector information divided into four business areas gives greater clarity in the capital market. Private interests Danish State Norwegian State Swedish State 50%* 14.3%* 14.3%* 21.4%* SAS AB - The SAS Group Subsidiary Airline Rezidor SAS Airline & Affiliated Related SAS Airlines Businesses Hospitality * At year-end 2001 the Danish State's holding was 14.5%, the Norwegian State 14.5%, and the Swedish State 21.8%, based on the number of shares outstanding at year-end, 161.8 million. The intention in 2002 is to increase the number of shares to 164.5 million when the above ownership structure will apply. History of the share structure 1918 Det Danske Luftfartselskab A/S ("DDL"), SAS's Danish parent SAS has a long stock exchange history stretching back to 1920 when company, founded. Det Danske Luftfartselskab A/S was listed on the Copenhagen Stock 1920 DDL listed on the Copenhagen Stock Exchange. Exchange. After the formation of the SAS Consortium in 1951, the Con- 1924 AB Aerotransport ("ABA"), SAS's Swedish parent company, sortium's two other owner companies were successively listed sepa- founded. rately on their respective exchanges in Oslo and Stockholm. 1927 Det Norske Luftfartselskap A/S ("DNL"), SAS's Norwegian parent company, founded. 1943 Svensk Interkontinental Luftrafik AB ("SILA"), founded. 1951 ABA, DDL and DNL formed the present SAS Consortium. 1955 SILA (which owned 50% of ABA) was listed on the "Stockbrokers list" in Sweden. 1967 DNL listed on the Oslo Stock Exchange. 1980 SILA listed on the Stockholm Stock Exchange. 1996 Harmonization and change of name for SAS's parent compa- nies to SAS Danmark A/S, SAS Norge ASA and SAS Sverige AB. 2001 SAS AB listed on July 6 on the stock exchanges in Stockholm, Copenhagen and Oslo. The former parent companies were delisted. 12 Annual Report 2001 – The SAS Group and the capital market Share data SAS share performance in 2001 Performance of SAS shares compared with the industry, 2001 SAS's share price performance, in common with that of Market-weighted index 120 other European airlines, was negative during the year. In 110 2001, market value fell 28.5% compared with a 12.6% 100 rise in 2000. SAS shares performed 6.8 percentage 90 points better than the seven largest listed European air- 80 lines. (See diagram, right.) 70 SAS's total market capitalization decreased from 60 MSEK 15,599 to MSEK 11,147 at year-end. Average mar- 50 ket capitalization in 2001 was MSEK 14,515. In the latter 40 part of 2001 the share price trend was mainly affected by Jan. Apr. Jul. Oct. Dec. three factors: the global economic downturn, SAS-spe- Trend for SAS's total market capitalization cific events, and the effects of the terrorist attacks on Average share price performance for Europe's largest listed airlines September 11. The end of the year was positive when In 2001, SAS shares had the third best price performance among the most expectations of a recovery rose and fuel prices fell. traded airline shares. SAS's share price fell 28.5% which is 6.8 percentage points less than the average price trend for comparable competitors. (Index: Alitalia, Air France, British Airways, Finnair, KLM, Lufthansa, Ryanair, SAS.) Total market capitalization trend for SAS in 2001 Source: SIX and SAS SEK billion 20 Industry-wide share price trend 2001 18 The price trend for European airlines' shares was stable in 16 the first half of 2001, although the market was character- 14 ized by uncertainty about economic development, partic- 12 ularly in the U.S. Share price performance in the second 10 half was highly negative as an effect of the terrorist attacks in the U.S. and the worsening business climate. 8 Initially, the terrorist attacks led to substantial overca- Jan. Apr. Jul. Oct. Dec. pacity in the market. Strong action, including capacity In 2001, SAS's total market capitalization fell 28.5% to MSEK 11,147. reductions made in autumn 2001, provided a better bal- Source: SIX and SAS ance between supply and demand. SAS share price trend and trading volume, 1996-2001 Share price, SEK Trading/month, MSEK 150 20 120 16 90 12 60 8 30 4 0 0 1996 1997 1998 1999 2000 2001 Trading per month * Closing price (current price) in SEK ** * Trading pertains to total trading on the stock exchanges in Copenhagen, Oslo and Stockholm and prior to July 6, 2001, for the former parent companies SAS Danmark A/S, SAS Norge ASA and SAS Sverige AB and subsequently applies to SAS AB. ** Prior to July 6, 2001, the share price trend pertains to the former listed parent company SAS Sverige AB. Subsequently the price trend relates to SAS AB on the Stockholm Stock Exchange. Source: SIX and SAS Annual Report 2001 – The SAS Group and the capital market 13 The SAS Group Relative pricing of SAS shares in 2001 % 15 12 9 6 3 0 –3 –6 –9 –12 Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec. Copenhagen Oslo Stockholm The graph shows deviations from a mathematical parity price adjusted for currency for the three different SAS shares until June 28, 2001. During the peri- od prices fluctuated between the extreme values 12.4% and –10.4%. After the listing of SAS AB, the difference decreased significantly and was between 4.6% and –8.1%. The largest deviations after the listing of SAS AB were noted in connection with the major uncertainty directly after September 11. Source: SIX and SAS In the last three months, share prices in the airline indus- Trading in SAS shares corresponds to a trading volume try recovered somewhat for the reasons outlined above. of 65% (44%) of the total number of outstanding shares The falling fuel prices were also positive for the industry (calculated on 164.5 million shares). Adjusted for the in late autumn 2001. three states' 50% participation in SAS, this corresponds to a total trading volume of 131% (88%). Trading in SAS shares Trading measured in number of shares rose on all In conjunction with the listing of SAS AB, the SAS Group stock exchanges in 2001 and was distributed as follows: set a target to be the third most traded airline on the Euro- 35.5 million (35.0) in Copenhagen, 32.9 million (20.1) in pean stock exchanges. A total of 107.5 million (72.5) SAS Oslo and 39.1 million (17.5) in Stockholm. The increase on shares were traded on the three Scandinavian stock the Stockholm Stock Exchange (Stockholmsbörsen) exchanges in 2001, an increase of 48.4% compared with corresponds to 125% in number of shares traded and 2000. Trading in SEK totaled MSEK 9,554 in 2001, which should be seen in the perspective that total trading in corresponds to MUSD 932 based on daily prices in 2001. 2001 fell 10% on Stockholmsbörsen. This made SAS the fifth most traded airline share in Europe. The eight most traded airline shares in Europe, 2001 Breakdown of total number of shares traded on the three stock exchanges, 1996-2001 MUSD Million shares 11.8 12 50 8.6 7.7 6.7 40 3 2.5 30 2 1.6 1.4 20 1.2 1.2 0.9 0.8 1 0.6 0.5 10 0.4 0.3 0 0 h itis s sa M ce S air ia * Br rway an KL Fra n SA an t al ria Copenhagen Oslo Stockholm fth Ry Ali Ibe Ai Lu Air 1996 1997 1998 1999 2000 2001 2001 2000 In 2001 trading increased compared with 2000 by 2% in Copenhagen, SAS shares were the fifth most traded airline shares in Europe in 2001. 64% in Oslo and 125% in Stockholm. SAS's goal is to be the third most traded airline. * Iberia, pertains to trading since April 3, 2001. Source: SIX Source: Factset 14 Annual Report 2001 – The SAS Group and the capital market Share of total trading measured in Swedish kronor of SAS shares 15 largest shareholders in SAS AB on Stockholmsbörsen 2001 vs. 2000 % December 31, 2001 Number of shares Holding, % 0.30 Swedish State 35,250,000 21.4 Danish State 23,500,000 14.3 0.25 Norwegian State 23,500,000 14.3 0.20 Wallenberg foundations 13,155,980 8.0 Odin Fondene 4,628,250 2.8 0.15 Alecta Pensionsförsäkring 4,521,997 2.7 0.10 Folketrygdfondet 4,500,000 2.7 Chase Manhattan 3,761,519 2.3 0.05 Bankers Trust 3,080,255 1.9 0.00 National Bank of Denmark 2,289,294 1.4 Handelsbanken mutual funds 1,587,470 1.0 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. The Swedish Trade Union Confederation 1,305,500 0.8 2001 2000 Northwest Mutual Fd 979,060 0.6 Vital Forsikring 849,735 0.5 Despite a fall in trading on Stockholmsbörsen, trading in SAS shares rose. The graph shows SAS's trading share on Stockholmsbörsen in Storebrand Livsforsikring 816,126 0.5 2000-2001. The largest trading share was noted in the summer in Total 123,725,186 75.2 conjunction with the listing of SAS AB. An increase in trading share could be noted throughout the 2001 calendar year. This corresponded Shareholder categories* to an average increase of 3-4 times compared with the previous year. % of number of shares/votes Source: Stockholmsbörsen and SAS Scandinavian states 50% Institutional shareholders 40-45% Total number of traded SAS shares, 1996-2001 Private individuals 5-10% Million shares Total 100% 120 * Shareholder information has been obtained from three share registers: VP, VPS and VPC. Holdings are based on the full number of shares. At 100 year-end the number of shares was 161.8 million shares. The intention is 80 to raise the number of shares to 164.5 million in 2002. 60 Breakdown of shareholders at the three Scandinavian stock exchanges 40 2001 2000 20 Copenhagen 12,905 8,527 0 Oslo 1,918 3,184 1996 1997 1998 1999 2000 2001 Stockholm 4,700 3,544 Total 19,523 15,255 Trading in SAS shares rose by a total of 48.4% in 2001 compared with 2000. Distribution of shares Source: SIX (according to VPC, VPS and VP) Number of Number of % of share % of all SAS AB total shareholders voting rights capital shareholders Shareholders 1-500 14,039 2,653,486 1.6 71.9 At year-end 2001, the number of shareholders in SAS AB 501-1,000 2,957 2,222,785 1.4 15.1 amounted to 19,523. In the second half of 2001 alone, 1,001-10,000 2,179 5,498,837 3.4 11.2 the number of shareholders increased by approximately 10,001-50,000 215 5,088,573 3.1 1.1 4,000. The principal owners of the SAS Group are the 50,001-100,000 53 3,690,766 2.3 0.3 100,001- 80 139,391,913 86.1 0.4 Scandinavian states. The largest private shareholders Unknown owners – 3,270,036 2.1 – are the Wallenberg foundations, Odin Fondene, Alecta Total 19,523 161,816,396 100.0 100.0 Pensionsförsäkring and Folketrygdfondet. Institutional shareholders represented a total of approximately 40- Total shareholder return (TSR) on SAS shares, 45% of total ownership in SAS AB. 1991-2001 The proportion of shareholders outside Scandinavia is The last distinct recession for the airline industry reached approximately 8% of share capital and voting rights. its lowest point in 1990-1991. A calculation of the per- Ownership outside the EEA area amounts to approxi- formance of SAS shares over the eleven years 1991-2001 mately 4% of share capital. shows an average annual total return of 12.3%. This is 1.7 percentage points below SAS's total return target of 14% over a business cycle. Change in share capital* Month/year Event Number of new shares Total number of shares Par value/share, SEK Nom. share capital 05/2001 Company registration 50,000 50,000 10 500,000 07/2001 Non-cash issue 155,272,395 155,322,395 10 1,553,223,950 08/2001 Non-cash issue 6,494,001 161,816,396 10 1,618,163,960 * In 2002, SAS intends to increase the number of shares from 161.8 million to 164.5 million (164.5 million was the total number of shares before the intro- duction of the single share.) Annual Report 2001 – The SAS Group and the capital market 15 The SAS Group Annual total return (TSR), 1991-2001 and the U.S. in conjunction with the listing of SAS AB. The Shares Average annual return (IRR) company plans to arrange a capital market day in 2002. SAS AB (Copenhagen) 9.9% SAS AB (Oslo) 13.8% Overview – Capital market activities SAS AB (Stockholm) 12.9% Analysts • quarterly meetings/telephone conferences Total (SAS shares) 12.3% • annual capital market day The table shows average total return (Total shareholder return, TSR) per Investors year for the respective SAS shares in local currency in the period January 1, 1991 to December 31, 2001. • quarterly meetings in Copenhagen, Oslo, Stockholm and London • biannual meetings in Frankfurt and Paris • annual meetings in the U.S. and rest of the world Performance of SEK 100 invested in SAS on January 1, 1991 • industry seminars and conferences Share value, SEK Brokers and business press 500 • quarterly meetings • annual seminars 400 300 Increased interest in SAS shares Interest from international analysts is growing and inter- 200 national banks perform regular analyses of SAS shares. A 100 total of 15 international analysts monitor SAS shares and 0 the number of analysts is growing steadily. In Scandi- 91 92 93 94 95 96 97 98 99 00 01 navia, consolidation of banks means that the number of analysts has decreased. SAS is monitored continuously SEK 100 invested on January 1, 1991, had grown to SEK 345 by year-end 2001, including reinvested dividends (corresponds to 12.3% per year). by the largest brokerage houses/banks. Index = 100 (91-01-01) Source: SIX and SAS Financial information on the Internet Dividend policy SAS values the Internet highly as an information channel to SAS AB's annual dividend is determined taking into the capital market. The aim is to provide timely, relevant, account the Group's earnings, financial position, capital accurate and up-to-date information. SAS Investor Rela- requirements, and relevant macroeconomic conditions. tions website contains updated information about the SAS The basic principle is for the dividend over a business Group's financial performance. The site includes stock mar- cycle to be in the region of 30-40% of the Group's income ket information, traffic statistics, financial calendar and oth- after standard tax. er key data. A new version is planned for 2002 with the aim 2001 2000 1999 of improving information and simplifying navigation. Dividend (proposed 2001) 0 740 658 Dividend as % of income after standard tax 0 37 49 Dividend as % of income after standard tax (average) 44 39 39 SAS AB's Board will propose that no dividend is issued for the 2001 fiscal year. This is mainly due to the SAS Group's negative earnings for 2001 and the major eco- nomic crisis currently affecting the airline industry. In such a situation financial strength is of decisive importance. SAS's ambitions in its dialog with the capital market SAS Investor Relations' goal is to strengthen interest in SAS shares among existing and potential investors through the provision of relevant, up-to-date and timely information. Furthermore, investors and capital market players will be provided with information which allows them to understand the company's operations and its ability to improve share- holder value. The target group includes investors, analysts, Ranking of Investor Relations websites in Scandinavia, 2001 brokers and the business press. The SAS Group has con- SAS Investor Relations website is ranked as follows: ducted activities in the capital market through various pre- • Denmark 3rd sentations, both in Scandinavia and internationally, which • Norway 1st • Sweden 12th profile the SAS Group from a capital market perspective. In Source: Web ranking 2001 spring 2001, a major road show was carried out in Europe 16 Annual Report 2001 – The SAS Group and the capital market Key data per share, 1997-2001* Copenhagen, DKK 2001 2000 1999 1998 1997 Earnings after tax –5.30 11.45 7.07 10.92 8.77 Cash flow from operations** –1.74 21.18 7.61 18.75 19.66 Dividend (2001 proposed) 0.00 3.80 3.50 3.15 3.50 Dividend as % of earnings after tax 0% 33% 49% 29% 40% Equity 77.37 93.99 82.12 78.49 72.14 Market price at year-end 53.0 81.5 77.0 72.8 100.0 Highest market price during the year 97.2 87.0 85.0 141.0 119.0 Lowest market price during the year 40.0 59.0 62.8 70.0 65.0 Average price 73.8 74.2 73.7 104.0 90.0 Share price/Equity per share, at year-end 68% 87% 94% 93% 139% Dividend yield, average price 0.0% 5.1% 4.7% 3.0% 3.9% P/E ratio, average neg 6.5 10.4 9.5 10.3 P/CE ratio, average neg 3.5 9.7 5.5 4.6 Number of shares traded, millions 35.49 34.97 29.51 42.20 39.96 Oslo, NOK Earnings after tax –5.72 12.47 7.91 12.31 9.38 Cash flow from operations** –1.88 23.06 8.50 21.14 21.05 Dividend (2001 proposed) 0.00 4.20 3.75 3.70 3.70 Dividend as % of earnings 0% 34% 47% 30% 39% Equity 83.54 102.30 91.81 88.49 77.22 Market price at year-end 57.5 93.5 87.0 64.0 103.0 Highest market price during the year 100.0 93.5 88.0 137.0 123.0 Lowest market price during the year 42.0 70.0 59.5 61.0 65.0 Average price 77.5 79.0 72.6 100.0 88.0 Share price/Equity per share, at year-end 69% 91% 95% 72% 133% Dividend yield, average price 0.0% 5.3% 5.2% 3.7% 4.2% P/E ratio, average neg 6.3 9.2 8.1 9.4 P/CE ratio, average neg 3.4 8.5 4.7 4.2 Number of shares traded, millions 32.86 20.06 20.19 28.20 31.35 Stockholm, SEK Earnings after tax –6.58 12.98 8.38 12.97 10.13 Cash flow from operations** –2.16 24.01 9.02 22.28 22.73 Dividend (2001 proposed) 0.00 4.50 4.00 4.00 4.00 Dividend as % of earnings 0% 35% 48% 31% 39% Equity 96.06 106.50 97.33 93.25 83.40 Market price at year-end 68.0 90.0 76.0 74.5 115.0 Highest market price during the year 115.0 91.5 86.0 143.0 125.0 Lowest market price during the year 51.0 59.0 68.0 77.0 83.0 Average price 86.8 73.5 75.3 106.5 102.0 Share price/Equity per share, at year-end 71% 85% 78% 80% 138% Dividend yield, average price 0.0% 6.1% 5.3% 3.8% 3.9% P/E ratio, average neg 5.7 9.0 8.2 10.1 P/CE ratio, average neg 3.1 8.4 4.8 4.5 Number of shares traded, millions 39.16 17.43 15.01 5.50 10.25 Average on the three stock exchanges, SEK Earnings after tax –6.58 12.98 8.38 12.97 10.13 Cash flow from operations** –2.16 24.01 9.02 22.28 22.73 Dividend (2001 proposed) 0.00 4.50 4.00 4.00 4.00 Dividend as % of earnings 0% 35% 48% 31% 39% Equity 96.06 106.50 97.33 93.25 83.40 Market price at year-end 68.9 94.8 84.2 77.9 113.8 Highest market price during the year 115.5 95.9 90.3 147.8 128.4 Lowest market price during the year 51.8 68.6 69.7 75.1 79.0 Average price 89.0 79.1 79.2 114.1 100.7 Share price/Equity per share, at year-end 72% 89% 87% 84% 136% Dividend yield, average price 0.0% 5.7% 5.1% 3.5% 4.0% P/E ratio, average neg 6.1 9.4 8.8 9.9 P/CE ratio, average neg 3.3 8.8 5.1 4.4 Total number of shares traded, millions 107.5 72.5 64.7 75.8 81.5 Number of shares at year-end, millions 161.8 164.5 164.5 164.5 164.5 Market capitalization at year-end, MSEK 11,147 15,599 13,858 12,820 18,723 * Share data prior to July 6, 2001, pertain to the previously listed parent companies SAS Danmark A/S, SAS Norge ASA and SAS Sverige AB. Key figures pertain to the SAS Group and for 2001 are calculated on 161,816,396 shares and on 164,500,00 shares for 1997-2000. ** Net financing from operations after deduction for paid tax. Annual Report 2001 – The SAS Group and the capital market 17 The SAS Group Ten-year financial overview The SAS Group 1 Statements of income, MSEK 2001 2000 1999 1998 1997 1996 Operating revenue 51,433 47,540 43,746 40,946 38,928 35,189 Operating income before depreciation 743 3,710 2,731 4,101 4,102 3,668 Depreciation –2,443 –2,192 –2,087 –2,125 –1,880 –1,851 Share of income in affiliated companies –70 –1 77 –20 88 5 Income from the sale of shares in subsidiaries and affiliated companies –24 1,033 283 1 1 – Income from the sale of aircraft and buildings 673 490 726 1,014 83 100 Operating income –1,121 3,040 1,730 2,971 2,394 1,920 Net financial items –19 –211 155 –50 –80 111 Income before tax –1,140 2,829 1,885 2,921 2,314 2,031 Balance sheets, MSEK Fixed assets 42,407 33,422 28,587 26,491 23,003 20,787 Current assets, excl. liquid assets 8,693 7,024 7,133 5,958 4,833 4,161 Liquid assets 11,662 8,979 8,495 8,024 9,828 11,074 Shareholders' equity 15,544 17,520 16,011 15,340 13,719 12,424 Long-term liabilities and provisions3 24,832 15,026 12,552 11,207 13,471 14,314 Current liabilities 22,386 16,879 15,652 13,926 10,474 9,284 Total assets 62,762 49,425 44,215 40,473 37,664 36,022 Cash flow statements, MSEK Net financing from operations –350 3,949 1,483 3,665 3,739 3,564 Investments –11,676 –9,886 –5,982 –6,112 –3,256 –2,651 Sale of fixed assets, etc. 8,382 5,559 6,601 2,360 252 1,066 Dividends 4 –754 –666 –637 –678 –493 –2,204 Capital contributions – – – – – – Financing deficit/surplus –4,398 –1,044 1,465 –765 242 –225 External financing, net 7,081 1,528 –1,131 –1,039 –1,488 –562 New issue – – – – – 644 Change in liquid assets 2,683 484 334 –1,804 –1,246 –143 Liquid assets in acquired (+)/sold (–) companies – – 137 – – – Change in liquid assets according to balance sheets 2,683 484 471 –1,804 –1,246 –143 Key ratios Gross profit margin, % 1.4 7.8 6.2 10.0 10.5 10.4 Return on capital employed (ROCE), % –1.4 10.9 8.7 13.4 11.6 10.7 Return on equity after standard tax, % –6.3 13.6 9.4 15.5 13.7 13.9 Equity/assets ratio, % 25 36 37 38 36 35 Income and capital concepts included in CFROI, MSEK Earnings Earnings before depreciation, EBITDA 743 3,710 2,731 4,101 4,102 3,666 + Operating lease costs, aircraft 2,425 1,898 1,346 1,027 859 872 EBITDAR 3,168 5,608 4,077 5,128 4,961 4,538 Adjusted average capital employed5 +Shareholders' equity 16,887 16,238 15,348 14,530 13,072 12,424 +Minority interests 218 131 45 19 19 18 +Surplus value, aircraft 4,666 5,420 4,911 4,073 3,277 1,930 +Capitalized leasing costs (x 7) 15,023 11,113 8,441 6,601 6,059 6,104 – Equity in affiliated companies –1,087 –895 –1,126 –1,102 –705 –653 +Net debt 3,629 1,434 1,887 150 –11 164 Adjusted average capital employed 39,336 33,441 29,506 24,271 21,711 19,987 Cash flow return on investments (CFROI), % 8.1 16.8 13.8 21.1 22.9 22.7 Other financial data, MSEK Financial income 618 518 868 634 674 745 Financial expenses –637 –729 –713 –684 –754 –634 Interest-bearing liabilities 26,124 14,563 11,802 10,277 10,589 11,810 Operating leasing capital 16,975 13,286 9,422 7,189 6,013 6,104 Net debt6 7,652 794 –107 484 –185 164 Adjusted net debt/equity6 1.04 0.25 0.19 0.17 0.10 0.18 Interest expenses/average gross debt, % 4.4 5.2 5.4 6.1 6.3 5.7 Interest coverage ratio –0.8 5.0 3.6 5.3 4.0 4.2 Debt/equity ratio 0.48 0.05 0.00 0.03 –0.01 0.02 1 Pertains to the SAS Group pro forma 1996-2000. 2 Pertains to the former SAS Group, i.e. the SAS Consortium with subsidiaries, but excluding SAS's former three parent companies (SAS Danmark A/S, SAS Norge ASA and SAS Sveige AB ). 3 Including minority interests. 4 1992-1995 pertains to funds paid to parent companies. 5 Average capital 1997-2001. 6 Including Braathens in 2001. Definitions and concepts, see page 116. 18 Annual Report 2001 – The SAS Group and the capital market The former SAS Group 2 SAS 1992-2001 1995 1994 1993 1992 1996-2001 pertain to the SAS Group with a consolidated SAS AB. 1992-1995 presents the old 35,403 36,886 39,122 34,445 SAS Group where the former three parent companies are not consolidated. When evaluating 4,761 3,404 2,032 2,930 SAS over a ten-year period, several factors have to be taken into account. At the start of the period, –1,840 –2,000 –1,782 –1,532 the civil aviation market had not yet been deregulated, and SAS looked different then compared 97 –13 –1 –8 6 869 511 7 with today. 83 12 45 83 3,107 2,272 805 1,480 Operating income 1992-2001 –448 –668 –1,313 –2,329 At the beginning of the period, SAS was hit hard by the recession, which meant fewer passengers 2,659 1,604 –508 –849 and lower freight volumes. The decline came at a time when the company was in the midst of increasing capacity via major investments. In 1993, price pressure combined with a recession and a weakening Swedish krona led to the Board's decision to focus on the core business and SAS 19,345 20,904 24,566 28,790 3,477 3,670 9,973 6,849 started to divest its holdings in most subsidiaries. This had a negative impact on operating rev- 10,078 10,725 9,318 9,829 enue in 1994 and 1995, while operating income strengthened. The economy recovered and air 10,588 9,355 8,631 8,958 travel started to increase in 1994. By then, SAS had also implemented a restructuring program 11,750 15,971 22,741 24,797 and closed unprofitable routes. 10,562 9,973 12,485 11,713 1995 was SAS's best year ever in terms of operating income. The decline in earnings in 1996 32,900 35,299 43,857 45,468 was mainly due to higher costs. 1997 was a good year but by 1998 earnings, excluding capital gains, started to fall due to increased costs. 4,881 2,338 1,377 1,444 1999 was a weak year for airline operations. 2000 was better but characterized by high prices –1,399 –1,391 –1,141 –3,338 for jet fuel. In 2001, the SAS Group's income before tax and capital gains was the worst in the 619 5,305 1,852 552 –591 – – – Group's history and amounted to MSEK –1,790. Earnings before net financial items, tax, deprecia- – – – – tion, capital gains and costs for operating leases for aircraft (EBITDAR) amounted to MSEK 3,168 3,510 6,252 2,088 –1,342 (5,608). Placed in relation to market-based capital employed CFROI was 8% (17%). The minimum –4,157 –3,872 –2,469 1,584 return requirement is set at 17% as an average over an investment cycle, where average capital allo- – – – – cation for replacement of the aircraft fleet is taken into account. –647 2,380 –381 242 Cash flow return on investments (CFROI) is the most important metric for value creation in – –973 –130 216 operations, making it the SAS Group's main focus. It is also the key indicator used by most ana- –647 1,407 –511 458 lysts as a basis for assessment of the value of an airline. CFROI reflects the EV/EBITDAR multiple which expresses the value of operations as a multiple of operating cash flow for the year excluding 13.5 9.2 5.2 8.5 operating aircraft leasing costs. 15.6 10.5 8.7 7.8 Income and capital concepts included in CFROI 18.5 10.0 – – 32 27 21 21 MSEK 2001 Earnings Earnings before depreciation, EBITDA 743 + Operating lease costs, aircraft 2,425 4,761 3,404 2,032 2,930 EBITDAR 3,168 834 450 290 161 Adjusted average capital employed 5,595 3,854 2,322 3,091 + Shareholders' equity 16,887 + Minority interests 218 + Surplus value, aircraft 4,666 + Capitalized leasing costs (x 7)* 15,023 10,588 9,355 8,631 8,958 – Equity in affiliated companies –1,087 18 148 159 203 + Net debt 3,629 1,184 1,750 2,333 850 5,838 3,150 2,030 1,127 Adjusted average capital employed 39,336 –586 –568 –517 –638 Calculation of CFROI 2,544 6,054 13,888 15,590 EBITDAR MSEK 3,168 19,586 19,889 26,524 26,090 = = 8.1% Adjusted capital employed MSEK 39,336 28.6 19.4 8.8 11.8 * In the definition of CFROI the present value of operating lease contracts (NPV) was previously used for calcu- lating capitalized leasing costs. Starting with this report, this calculation is instead based on 7 times the annual cost for operating leases for aircraft. 1,011 933 2,402 1,138 The majority of SAS's operating leases are so-called phasing out leases with a remaining term of less than two –1,459 –1,601 –3,715 –3,467 years. In the capital market, the calculation model 7 times the annual cost is used regardless of the term of the 12,935 17,417 24,403 26,830 leases. SAS therefore chooses to discontinue NPV in favor of 7 times the annual cost for operating leases for 5,838 3,150 2,030 1,127 aircraft. 2,544 6,054 13,888 15,590 Average NPV for the 12-month period amounts to MSEK 5,115 (3,765). 0.35 0.81 1.85 1.77 8.3 7.7 9.9 10.4 2.8 2.0 0.9 0.8 Adjustment to the euro 0.2 0.6 1.6 1.7 The SAS Group implemented an internal communication program for adjustment to the euro, via internal channels as follows: management information, network of euro coordinators and inform- ants, intranet and in-house magazines and meetings at different levels. Continued activities are under way to adjust to the euro within the Group. Annual Report 2001 – The SAS Group and the capital market 19 The SAS Group The SAS Group's investments and capital employed The SAS Group's total aircraft fleet The SAS Group's total aircraft investments In 2001, Braathens, Widerøe and Air Botnia were consol- Renewal of SAS Airline's aircraft fleet idated in the SAS Group's balance sheet. In 2002, conso- SAS Airline is in the midst of an investment program to lidition of Spanair in the SAS Group is also planned. renew its aircraft fleet. The table below shows planned Spanair is 49% owned by the SAS Group. In November investments for SAS Airline based on orders placed for 2001, an agreement was concluded to raise the holding Boeing 737s, Airbus A340/330-300s and Airbus A321s. to 74%. This agreement is now being examined by the SAS's order has a total value of MUSD 985. In addition to EU Commission. The total number of aircraft in the SAS these investments in flight equipment, other investments Group will thus amount to 321 with 32 on order. The table amount to MSEK 800-1,000 per year. (See also section below shows pro forma the SAS Group's total aircraft on SAS Airline's aircraft fleet, page 44.) fleet. SAS Airline The SAS Group's total aircraft fleet Aircraft on order 2002> (excluding aircraft placed on operating leases) (pro forma including Spanair) Owned Leased Total Leased Total 2002 2003 2004 2005 Dec. 2001 in Dec. -01 out Order MUSD (CAPEX) 985 620 235 100 30 Airbus A340-300 3 1 4 3 Number of aircraft in SAS Airline 22 12 7 2 1 Airbus A330-300 4 Airbus A321-200 3 3 6 11 Airbus A320 3 3 6 Spanair's aircraft orders Boeing 767-300 3 12 15 Boeing 737-400 5 5 Spanair is also in the process of renewing its fleet and is Boeing 737-500 17 17 currently phasing out its MD-80s and phasing in Airbus Boeing 737-600 12 18 30 A321s and Airbus A320s. The table below shows firm Boeing 737-700 13 4 17 2 Boeing 737-800 12 5 17 6 orders for Spanair in the period 2002 and beyond. Douglas MD-81 6 10 16 Douglas MD-82 16 29 45 Douglas MD-83 2 20 22 Spanair Douglas MD-87 10 9 19 Aircraft on order for the period 2002> (excluding aircraft Douglas MD-90-30 8 8 placed on operating leases) Douglas DC-9-41 12 12 Avro RJ-85 5 5 Total 2002 2003> Embraer ERJ 145 3 3 MUSD (CAPEX) 300 40 260 Fokker F28 8 8 Number of aircraft in Spanair 8 1 7 Fokker F50 7 2 9 2 deHavilland Q100 16 1 17 deHavilland Q300 9 9 deHavilland Q400 6 18 24 SAAB 340 5 5 5 Braathens' aircraft orders SAAB 2000 5 5 At year-end 2001, Braathens had 2 aircraft on order. Total 125 196 321 7 32 CAPEX for these aircraft amounted to MUSD 35. Breakdown of the Group's fleet by airline: Capital employed SAS Airline 101 99 200 2 22 Airline operations are a highly capital intensive industry. Spanair 46 46 8 Braathens 8 25 33 2 This means major investments are made in production Widerøe 16 11 27 resources which are used over a large number of years. Air Botnia 15 15 5 For this reason it is highly important for all airlines to have a good overview of their capital employed. The capital concept Calculation of the key indicator CFROI is based on a mar- ket-based capital concept in order to take all capital sources into account. Since return is assessed on the basis of the actual capital employed in operations, the SAS Group uses the market value of assets and liabilities. A substantial difference compared with book capital is 20 Annual Report 2001 – The SAS Group and the capital market The SAS Group's capital employed excluding Braathens, 2001 Development of surplus value in SAS Airline's aircraft fleet, 1993-2001 SEK billion MSEK % 40 Off-balance 6,000 60 35 sheet items 5,000 50 30 Capitalized leasing costs 4,000 40 25 20 Surplus value in 3,000 30 aircraft fleet 15 Shareholders' equity 2,000 20 10 1,000 10 5 Net debt 0 0 0 The starting point when calculating the SAS Group's capital employed is 1993 1994 1995 1996 1997 1998 1999 2000 2001 the Group's total equity. The surplus value in the aircraft fleet, net debt and capitalized leasing costs are added to equity. The above diagram Difference market value/book value Difference, % pertains to the SAS Group excluding Braathens which was not included in the SAS Group's statement of income in 2001 and was thus excluded The events of September 11 had a substantial impact on aircraft prices. At from the balance sheet in the calculation of CFROI. year-end 2001, the surplus value in SAS Airline's fleet was MSEK 1,756, a decrease of MSEK 3,765 since 2000. The average surplus value in 2001 was MSEK 4,666. that adjustment is made for capitalized future costs for operating aircraft leasing and the surplus value in the Spanair owned aircraft fleet. Contracted* operating aircraft leasing, 2002-2007 Net Present Value (NPV) at 5.5% MUSD 838 MSEK 8,941 Operating lease commitments Capitalized leasing costs (x7) MUSD 680 MSEK 7,253 Operating leases are used as a tool to achieve optimal MUSD 2002 2003 2004 2005 2006 2007 financing of the aircraft fleet and reduce capital tied up. Total 106.0 118.0 136.0 118.0 97.0 84.0 Flexible rights to extend the leases and early redemption * Only existing contracted aircraft leasing contracts at December 31, 2001. increase operating flexibility, which allows a better adjustment of the aircraft fleet to economic fluctuations. Reduced residual value risks are another positive effect Braathens of operating leases. Contracted* operating aircraft leasing, 2002-2007 Net Present Value (NPV) at 5.5% MUSD 248 MSEK 2,648 Capitalized leasing costs (x7) MUSD 342 MSEK 3,633 SAS Airline Contracted* operating aircraft leasing, 2002-2007 MUSD 2002 2003 2004 2005 2006 2007 Total 48.7 46.2 44.5 43.1 39.5 31.1 Net Present Value (NPV) at 5.5% MUSD 583 MSEK 6,223 * Only existing contracted aircraft leasing contracts at December 31, 2001. Capitalized leasing costs (x7)) MUSD 1,170 MSEK 12,477 MUSD 2002 2003 2004 2005 2006 2007 calculation is still relevant since it measures actual com- Boeing 737 51.6 51.6 51.1 49.9 48.3 42.3 Boeing 767/Airbus 340 51.8 35.2 10.4 7.1 7.1 7.1 mitments. At year-end 2001 the present value of leasing Douglas MD-80/90 31.7 25.3 19.0 12.6 6.3 0 contracts for SAS Airline was MSEK 6,223. SAS Airline, deHavilland Q400 19.1 14.4 14.4 14.4 14.4 14.4 Braathens and Spanair had a total present value on its DC9/F50/ERJ 12.0 0 0 0 0 0 leasing costs at year-end 2001 of MUSD 1,669 or MSEK Total 167.1 126.5 95.0 84.0 76.1 63.8 * Only existing contracted aircraft leasing contracts at December 31, 2001. 17,812. SAS Airline The SAS Group's program to release capital Number of aircraft – contracted at December 31, 2001 In the last three years, the SAS Group has conducted a 2002 2003 2004 2005 2006 2007 program to reduce the Group's total capital tied up. As Boeing 737 24 24 24 24 24 24 part of this program, in 1999 SAS carried out a major sale Boeing 767/Airbus A340 10 6 1 1 1 1 and leaseback transaction together with GECAS com- Douglas MD-80/90 31 24 18 12 6 0 prising 30 aircraft. In the fourth quarter of 2001, SAS deHavilland Q400 17 9 9 9 9 9 DC9/F50/ERJ 17 0 0 0 0 0 carried out a major property deal with GE Capital and Total aircraft 99 63 52 46 40 34 Nordisk Renting. Properties were sold for a total value of SEK 3 billion with a leasing period of 20 years. The cost of leasing is neutral compared with ownership. The SAS Group previously used the present value of operating lease commitments for aircraft. Since the Surplus value in the aircraft fleet stock market to a greater extent uses a multiple of 7, the Over several years, SAS Airline has built up substantial SAS Group has chosen to apply this method since surplus values in the aircraft fleet. These were mainly due November 2001. For the loan market the present value to a for the SAS Group stable price trend for aircraft, a Annual Report 2001 – The SAS Group and the capital market 21 The SAS Group strong U.S. dollar, and a conservative depreciation method Enterprise Value – EV/EBITDAR for aircraft in the SAS Group. EV/EBITDAR is a key ratio which shows how airlines' earn- Events after September 11 have had a major impact on ing capacity is valued in the market measured against the market value of aircraft. Compared with December capital tied up. This ratio takes into account actual capi- 2000, the surplus value of SAS Airline's aircraft fleet fell tal tied up, shareholders' equity, leasing and loans. The by approximately MSEK 3,800. Despite this, SAS Airline difference between the SAS Group's capital tied up still has a surplus value in the fleet of MSEK 1,756 and the which is included in the internal CFROI indicator assessment is that in the present situation there is no (AV/EBITDAR) is that the external ratio is based on the great risk for a write-down of the book value. The table total market value of shareholders' equity (total market below shows SAS Airline's surplus values given variations capitalization). In the internal indicator book sharehold- in market value. A decline in market value in excess of ers' equity plus the surplus value in the aircraft fleet is approximately 10% since year-end means that the mar- used instead. The argument for not using the market val- ket value is less than the book value. In total, aircraft ue of equity in the internal indicator is that the SAS transactions provided a capital gain of MSEK 673 for the Group's investment decisions should not be exposed to SAS Group in 2001. shot-term fluctuations in the share price. In 2001, EV/EBITDAR for the SAS Group was factor 10.5. Surplus value in SAS Airline's aircraft fleet In 2000 the corresponding multiple for the SAS Group Owned at December 31, 101 aircraft MSEK was 4.6 compared with 5-6 for the industry. This shows Estimated market value 18,747 that the SAS Group in 2000 was valued at a discount Book value 16,835 compared with other companies in the industry. Surplus value 1,756 The discount on SAS Airline's shares compared with Summary of total surplus values in aircraft fleet those of its competitors has been reduced significantly in the SAS Group compared with 2000, even if comparisons are difficult to make in a year with major share price and earnings fluc- Owned at December 31 MSEK tuations. The introduction of the single share in 2001, SAS Airline 1,756 Subsidiary & Affiliated Airlines –5 however, probably led to a decrease in the discount. Total 1,751 The SAS Group's value and return targets 2001 2000 1999 1998 Average cost of capital (WACC) EV/EBITDAR 10.5 4.6 5.7 5.0 The SAS Group's average weighted cost of capital is esti- CFROI, % 8.1 16.8 13.8 21.1 mated at approximately 9%. The cost for shareholders' AV/EBITDAR 12.3 6.0 7.2 4.7 equity is calculated based on assumed inflation of 2% and a market premium of over 5%. The Group's costs for liabilities are assumed to be 5.5% and the leasing cost is based on market interest and depreciation rates. Breakdown of the market value of SAS Airline's total aircraft fleet, 2001 Breakdown of owned and leased aircraft in SAS Airline at December 31, 2001 Number of Number of Owned aircraft 56% owned aircraft, 101 leased aircraft, 99 Leased aircraft 44% The total market value of SAS Airline's aircraft fleet in operation amounted At year-end 2001 approximately 50% of the aircraft fleet was leased. to SEK 33.3 billion. The value of aircraft owned by SAS was SEK 18.6 billion. 22 Annual Report 2001 – The SAS Group and the capital market Financing and creditworthiness The total financing requirements of the SAS Group are from the U.S. rating institute Moody's was downgraded handled centrally by the SAS Group's Finance Unit. three categories from A3 to Baa3 for long-term debt and from P1 to P3 for short-term liabilities. Despite this, the Financing SAS Group's creditworthiness is good compared with oth- Financing mainly takes the form of syndicated bank loans, er airlines. The SAS Group is making long-term efforts to bond issues, direct borrowing, debenture loans, and regain the strength of its creditworthiness. finance and operating leasing. Short- and long-term ratings in the airline industry (Moody's) Transactions carried out in 2001 Short-term Long-term Outlook A MEUR 1,000 Euro Medium Term Note Program (EMTN Lufthansa P-2 Baa1 negative Southwest Airlines Baa1 negative Program) was set up in the spring, which is a standardized Qantas P-2 Baa1 negative general agreement for the issue of bonds. The program The SAS Group P-3 Baa3 stable was ready in the first quarter of 2001. Japan Air Lines Baa3 negative All Nippon Airways Baa3 negative In the period May-June approximately MEUR 600 was British Airways – Ba1 negative issued within the framework of the EMTN Program. In Delta Airlines Ba3 negative addition, a MUSD 500 Euro Commercial Paper (ECP) Pro- American Airlines NP B1 negative Northwest Airlines B1 negative gram was established in the first quarter, which is used for Continental Airlines B2 negative issuing short-term commercial papers. Part of SAS's capi- tal procurement involves evaluating and implementing The SAS Group also receives credit ratings from the Japanese rating insti- operating leases. In 2001, operating leases were set up in tute Japan Rating and Investment Information, Inc. In January 2002 SAS's rating was downgraded two categories from A+ to A–, but remains at A1 the Japanese market for financing of five Boeing 737- for short-term debt. 800s, one 737-700 and three 737-600s as well as one Air- bus A340. The combined value of these transactions The equity/assets ratio deteriorated in 2001 and amounts to approximately SEK 4 billion. Including a sale amounted to 25% at December 31, 2001. Net debt in- and leaseback on one Boeing 767 and three deHavilland creased in 2001 and amounted to MSEK 7,652 at year-end. Q400s, the total value of established operating leases was When evaluating the creditworthiness of airlines it is approximately SEK 5 billion for 2001. As part of the financ- important to take off balance sheet financing into account. ing of SAS Airline's investments in the new Airbus A340/ At the end of 1999, the performance of the SAS Group's 330 and A321, a general agreement for a total of USD 1 bil- lease-adjusted net debt against shareholders' equity was lion was concluded towards the end of 2001 with three 19% and at year-end 2001 approximately 100%. With banks and the three export financing institutions (ECAs) in Spanair consolidated this burden will further increase in the U.K., France and Germany. In 2001, SAS utilized 2002 to 130-160% but the SAS Group's lease-adjusted net approximately MUSD 305 of the ECA facility. debt/equity ratio will remain among the strongest in the industry. Creditworthiness The economic downturn and the events of September 11 Key ratios – financial strength, equity/assets and debt/equity ratios have put pressure on creditworthiness throughout the air- for the SAS Group (incl. Braathens) line industry. In January 2002, the SAS Group's rating % 120 100 Development of net debt, December 1991- 2001 MSEK 80 18,000 60 16,000 14,000 40 12,000 20 10,000 8,000 0 6,000 Dec. 31 Dec. 31 1999 2000 1998 2001 4,000 2,000 Net debt/equity Net debt + NPV operating 0 lease/equity Equity/assets ratio (Equity/total assets) Dec. 31 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 The SAS Group's net debt including NPV operating leases will reach its 1991 highest point in 2002. Starting in 2003, the SAS Group's financial key The SAS Group's net debt rose to MSEK 7,652 at year-end 2001. figures are expected to strengthen again. Annual Report 2001 – The SAS Group and the capital market 23 The SAS Group Financial risk management Existing committed credit facilities for the SAS Group, The SAS Group, with its international and capital-intensive December 31, 2001 operations, is exposed to various types of financial risks – liquidity and borrowing risks, credit risks, currency risks Utilized on Un- Expiry Amount Dec. 31 utilized of validity and interest rate risks. These risks are managed centrally Facility MUSD 2001 MUSD MUSD period by the SAS Group's finance unit within the framework of a Revolving credit facility 700 300 400 May 2004 financial policy adopted by the Board, which is designed to Bilateral bank facilities 150 – 150 2002/2003 control and manage financial risks. ECA facility 90 0 90 – Total 940 300 640 Liquidity and borrowing risks Liquidity and borrowing risks refer to the risk that suffi- Credit risks/counterparty risks cient liquidity is not available when required, and that refi- Credit risks arise from the risk that a counterparty will be nancing of matured loans will be costly or problematic. unable to fulfill his part of an agreement. For investments When raising new loans, the aim is to spread the maturity the credit risk is the nominal amount. For derivative instru- profile evenly over time (see diagram). ments a valuation is performed in accordance with interna- tional market practice. Derivatives are mainly used to create Maturity structure of gross debt, December 31, 2001 % the desired currency and interest rate exposure on the net 30 debt. The financial policy stipulates that transactions pri- marily should be carried out with counterparties with high 25 creditworthiness. ISDA agreements (a netting agreement) 20 are signed with most counterparties, reducing counterpar- 15 ty risk considerably. Limits are set for each counterparty, 10 which are continuously monitored and revised. The SAS 5 Group bases its credit/counterparty limits on mathematical probability calculations of anticipated future credit losses. 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Currency risks Repayment of the utilized part of a revolving credit facility (green area), The SAS Group has currency exposure for both transac- corresponding to 14 percentage points of the gross debt, is planned in 2002. The facility matures in 2004. tion risk and translation risk. Transaction risk comprises commercial flows in foreign currency which are exposed to In order to reduce the liquidity risk, actual liquidity risk so that earnings are affected when exchange rates (short-term investments, cash and bank balances) and change. Translation risk comprises the translation effects committed credit facilities should amount to 25% of one on balance sheet items due to changed exchange rates. In year's fixed costs for the SAS Group. This corresponds to order to minimize currency risk, the currency composition SEK 8.5 billion, of which 50%, corresponding to SEK 4.25 of liquid assets is matched against the interest-bearing billion, must be kept in actual liquidity. Actual liquidity gross debt. must be invested in instruments with high liquidity or a The currency composition of the interest-bearing net short remaining term. At December 31, 2001, the SAS debt is spread to match the currency composition of the Group's actual liquidity amounted to MSEK 11,662 net operating cash flow. Net operating deficit currencies (8,979) and together with committed credit facilities, liq- are mainly DKK and USD. The anticipated deficit in these uidity preparedness was approximately MSEK 18,490. currencies is hedged on an ongoing basis up to 90% for SAS had total unutilized credit commitments of MUSD the next 12 months. 640 at December 31, 2001. Currency breakdown of the SAS Group's revenues, 2001 Currency breakdown of the SAS Group's expenses, 2001 % % Others 2.6 Others 2.3 EUR 9.5 EUR 12.9 GBP 2.1 SEK 27.6 SEK 31.6 JPY 1.9 GBP 4.4 USD 19.9 USD 10.5 DKK 19.9 DKK 12.0 NOK 18.4 NOK 24.4 24 Annual Report 2001 – The SAS Group and the capital market Currency composition expenses/revenues share of total operating expenses in the global airline indus- The currency composition of the net debt is revised on an try rose from an average of 11% in 2000 to approximately ongoing basis against rolling 12-month liquidity fore- 12% in 2001. casts. In addition, part of the net debt is denominated in Demand for crude oil and oil products has declined due to USD to match the large asset base in USD in the form of the present global business climate, and demand specifi- aircraft. The size of the net debt in relation to total assets cally for jet fuel has declined still further due to the sharp is shown in the diagram below. decline in the global airline industry. The SAS Group's balance sheet, 2001 The SAS Group's policy for hedging jet fuel Assets (MSEK) Shareholders' equity and liabilities (MSEK) The SAS Group's policy is to hedge 40-60% of anticipat- Aircraft and Shareholders' ed consumption on a rolling 12-month basis. spare parts equity 22,076 15,544 In 2001, the SAS Group hedged an average of 56% of Noninterest- its fuel purchases. The SAS Group has hedged 45% of Noninterest- bearing liabilities bearing assets 21,094 anticipated consumption in 2002, mainly with caps 22,214 options. In 2002, SAS intends to coordinate hedging of } Net debt 7,652 Interest-bearing 18,472 jet fuel for the airlines in the Group. The SAS Group is assets Gross debt 18,472 positioned ahead of a possible price fall this year as well. Sensitivity to fuel price increases also decreases in Currency and interest rate risks arise on the net debt which comprises a small part of interest-bearing liabilities. These risks are limited and related pace with SAS Airline's renewal of its fleet. The Airbus to operating activities. A330/A340 which is replacing the Boeing 767, has 17% and 11% better fuel efficiency respectively per seat kilo- meter. The Airbus A321 is 25% more fuel efficient than Estimated breakdown of operating income (EBITDA), 2001* MSEK the Douglas MD-81, while the Boeing 737-800 is 34% more fuel efficient per seat kilometer than the Douglas Surplus currencies Deficit currencies MD-82. Corresponding improvements also apply in the NOK 3,200 USD 4,700 SEK 2,300 DKK 3,900 form of lower carbon dioxide emissions. EUR 1,800 Others 800 Changed insurance terms Total net cash flow 700 The aim of the Group's insurance policy is for all assets * A table showing the impact of exchange rate fluctuations on the SAS and operations to have the best possible insurance cov- Group's earnings is provided in Note 29 on page 93. erage based on competitive terms in the global market. Interest rate risks The SAS Group's airline insurance contracts are of the all The SAS Group's interest rate risk comprises the negative risks type and cover both the aircraft fleet including spare changes in market value which arise due to movements in parts and technical equipment as well as all liability expo- the yield curve (market interest rates on different terms) sure contingent on airline operations. Other insurance The interest rate risk is controlled by matching the interest contracts cover all property as well as transport, disrup- rate composition of liquid assets against interest-bearing tion and general liability exposure. By showing good gross liabilities. The interest rate risk is spread according to claims statistics, the SAS Group can influence the premi- the same principle as currency risks. ums charged by its insurance providers. The fixed interest period on the net debt is between one The airline insurance market has been dramatically and six years. Various derivatives, such a long-term interest affected by the events of September 11. Insurance premi- rate swaps, FRAs (Forward Rate Agreements) and futures, ums for the SAS Group in 2001 amounted to MUSD 15.5. are used to adjust interest rate terms. The average interest For 2002, premiums for war and terrorist risks alone are rate maturity varied in 2001, but averaged around 2.3 years. expected to amount to approximately MUSD 55. The duration for the interest-bearing gross debt amount- Since September 25, 2001, it has no longer been pos- ed to approximately 4.4 years at year-end. On December sible to obtain insurance in the commercial markets 31, 2001, the SAS Group's interest-bearing liabilities against third-party damage on the ground resulting from amounted to MSEK 26,124 (14,563). acts of war and terrorism for damage in excess of MUSD 50. This meant that the SAS Group, in common with the Price risks/jet fuel majority of the world's airlines, was forced to request The SAS Group is exposed to price risk relating to jet fuel. Of guarantees from their respective governments at guar- the SAS Group's cost base in 2001, approximately 10% antee charges which were substantially higher than the comprised fuel costs. The price of jet fuel fell from January to market prices that applied prior to September 11. If state December 2001 by approximately 36%, but since the price guarantees are no longer available, premium costs for fall mostly occurred in the final quarter of 2001, the lower war and terrorist risks will rise by an additional approxi- prices did not have a significant impact on costs. Fuel costs' mately MUSD 20 on an annual basis. Annual Report 2001 – The SAS Group and the capital market 25 The SAS Group The SAS Group's strategies for increased competitiveness The SAS Group's governance philosophy nificant action is being taken to counteract the effects of In 2000, the SAS Group's governance philosophy was weaker revenues and to raise long-term competitiveness. reformulated to reflect the move towards more independ- . ent units with clear profit responsibility. In 2001 this has The Group's earnings improvement taken the form of a number of profit units within the Group. activities in the short and long term The new Group structure with four business areas sup- The SAS Group's action program is divided into two main ports the principle of greater clarity and transparency in parts. The first part comprises measures of a traditional the different units in the Group. The governance philoso- nature such as strengthening costs and revenues. These phy is based on profit responsibility encouraging profes- activities are now under way and will have a significant sionalism and motivation. Governance and management earnings impact in 2002 and a full effect in 2003. of the SAS Group must be permeated by common values. The SAS Group is developing towards more independent The SAS Group's short-term measures, 2001-2002 businesses each of which must be competitive within its SAS Airline MSEK 5,100 field. For example, SAS Cargo Group A/S became an inde- Subsidiary & Affiliated Airlines MSEK 1,300 Total MSEK 6,400 pendent corporation on June 1, 2001. Program for increased competitiveness Measures within SAS Airline in SAS Airline In the wake of the events of September 11, SAS Airline SAS Airline is today a pure-play network airline with its decided on September 26 to reduce its fleet by 16 air- primary strategic focus on the business segment. This craft. This corresponds to a capacity reduction of 12%. results in a large number of frequencies, average smaller The surplus of 16 aircraft was handled by returning 12 aircraft sizes, a broad product range and other service DC-9-41s early and by selling the four remaining aircraft. elements. This leads to a higher unit cost than for com- The 12 DC-9-41s were due to be phased out in 2002 but parable competitors. The diagrams below show the unit were instead phased out in the fourth quarter of 2001. revenue (yield) and unit cost compared with the most As a result of these cutbacks, 800-1,000 employees important competitors. SAS Airline's high yield is mainly were made redundant. In order to enhance revenues, fare due to a higher proportion of business travelers than adjustments were implemented with effect from October comparable airlines. 2001. As a result of the continued weak demand, further In 2001 economic conditions changed for the entire capacity reductions of 3-5% were decided on November industry as well as for SAS Airline. The weaker business 6, corresponding to a surplus of 5-6 aircraft. A further climate, the effects of September 11 and the threat of a 2,500 jobs were affected. In order to cover dramatic continued recession, mean that SAS Airline does not increases in insurance costs and higher costs for security count on Business Class returning to historically high lev- measures and control, a charge of USD 4 per passen- els or on yield and revenues strengthening significantly. ger/trip was also introduced in November 2001. SAS Airline is in the midst of its worst crisis ever, and sig- Unit cost variations with flight distance, Europe 2000 Yield variations with flight distances, Europe 2000 Cost/available tonne kilometer, U.S. cents Revenue/revenue tonne kilometer, U.S. cents 180 350 160 300 140 250 120 100 200 80 Average Average flight distance 150 flight distance 60 (km) (km) 100 40 20 50 0 0 600 800 1,000 1,200 1,400 1,600 1,800 600 800 1,000 1,200 1,400 1,600 1,800 SAS Airline AEA average AEA SAS Airline AEA average AEA SAS Airline has far shorter average flight distances than most of its com- SAS Airline has a clearly higher yield than most other European airlines, petitors. The fact that SAS still stays slightly above the regression line is which is partly due to shorter flights. Adjusted for this, the yield is still due to a higher proportion of business travelers and smaller aircraft types. higher due to a higher proportion of full-fare passengers, smaller aircraft and active yield management. 26 Annual Report 2001 – The SAS Group and the capital market On November 6 a cost-reduction program of MSEK possible, among other things, by shorter turnaround 2,400 was also initiated. This program covers all parts of times, simpler handling and more effective utilization of SAS Airline's organization and will have a full effect from the 24-hour day. This is also a result of focusing on point- 2003. Negotiations with all trade union organizations to-point traffic rather than network traffic, which facili- took place in February 2002. MSEK 500 still remains and tates optimization. The aim is for SAS Airline to increase will be achieved using other measures with similar effects. its utilization rate considerably. As a result of this work has started on evaluating the SAS Airline's short-term measures, 2001-2002 present production strategy. The intention is to reduce Reduced route network (21 aircraft) MSEK 500 structural costs and raise profitability. Some of the chal- Revenue enhancement MSEK 2,200 lenges are to reduce the complexity that exists today and Cost reductions MSEK 2,400 increase flexibility and scalability, i.e. timely and profitable Total MSEK 5,100 adjustment of production to temporary demand fluctua- tions and production disruptions. Measures within Subsidiary & Affiliated Airlines Environmental aspects are also being taken into account and Airline Related Businesses in the development of the new production strategy. Pro- The earnings improvement activities within the business ductivity increases often have positive effects in the form areas total MSEK 1,300. The main part of the action pro- of reduced negative environmental impact. gram relates to Spanair with approximately MSEK 600. Utilization rate of the aircraft fleet, 1996-2001 Air Botnia is affected by approximately MSEK 120, and Block hours per day Widerøe by MSEK 60. These measures will have a full 16 effect in 2003. 14 12 SAS Airline's long-term restructuring, 2002-2004 In addition to the short-term measures, the second part 10 of the program consists of more long-term structural 8 measures which mainly concern SAS Airline's produc- 6 tion, product and distribution areas. Planning is in the 4 final phase. Implementation will take place in the latter 1996 1997 1998 1999 2000 2001 part of 2002 and is expected to have an earnings impact from 2003. SAS Airline has identified four strategic DC-9/MD-80/MD-90/B-737/A321 B-767/A340 including SAS Commuter structural earnings improvement areas. The utilization rate of the aircraft fleet measured in block hours per day has remained constant for the last six years. Areas for SAS Airline's long-term restructuring, 2002-2004 Business model and control New customer offering Distribution Expectations and demands on air transport are continu- Production ously changing. In recent years special requirements for business travel have changed. As Nordic business life has Product and service become more international and many foreign businesses have become established in the region, travel frequency has increased. Analyses show that customers place great Production strategy importance on flexibility, simplicity and precision. SAS In order to return to levels of a satisfactory return on cap- Airline is therefore currently developing a new short route ital, CFROI over 17%, SAS Airline is focusing on a struc- product. Check-in via the Internet and a newly developed tural reduction in production costs. The most important service concept have a central place in the new product. structural cost drivers are design of the traffic program, Moreover, there will be a dedicated fleet for this product service and product content, the composition of the air- and a new price system with more choice for business craft fleet and aircraft utilization. By changing the traffic travelers and others. program productivity can be improved among pilots and cabin crews, as well as within Ground Handling and tech- Distribution strategy nical operations. The proportion of sales via the Internet and ticketless Among "network airlines" there is considerable poten- travel is increasing for airlines worldwide. The new elec- tial to raise the utilization ratio of the aircraft fleet. Today, tronic product strengthens customer relations and SAS Airline uses the short- and medium-haul fleet for just reduces SAS Airline's distribution costs. Additional endeav- over seven hours per day. Low-fare airlines normally use ors will be made in this area. (For a description see sec- their aircraft for up to 12 hours per day. This is made tion Distribution channels, page 49.) Annual Report 2001 – The SAS Group and the capital market 27 The SAS Group Business model and control Unit cost development in SAS Airline in 2001 For a year now SAS Airline has gradually been imple- SAS Airline's unit costs increased by a total of 3.4% in menting a new business model where "different" service 2001 compared with 2000. Sales costs and costs for jet providers are given their own business responsibility fuel decreased during the year. On the other hand, pay- within their specific area of operation. roll expenses and other expenses increased compared Motives include: with the previous year. • raising powers of initiative and profit awareness through- At the beginning of 2001, SAS Airline planned a pro- out the organization duction increase of 8-10% for 2001/2002. Among other • reaching a broader customer base and more sources of things, phasing in the new Airbus A321 and Airbus A340 revenue than those that can be reached with the air has led to costs for training and planning for pilots and transport business alone cabin crew, which had a negative impact on the unit cost. • reducing overheads. Payroll expenses were also negatively affected by a These operations are organized as independent busi- new salary agreement concluded with the pilots in sum- ness units with assignments for SAS Airline. Their inde- mer 2001. pendence from SAS Airline allows them to also generate Capacity was reduced considerably as market growth revenues from external customers. Two such operating became lower than planned. There is a lead time for chang- areas were converted into business units in the past year, ing the cost base, which explains the increase in unit costs Scandinavian Ground Services and Scandinavian Techni- particularly in the fourth quarter of 2001. Normally approx- cal Services. imately 25% of costs are variable over the short term. Increased costs for insurance and extensive security Process work arrangements also had a negative impact on the unit cost. The process work which has been under way in SAS Airline for many years supports efforts to improve earn- SAS Airline – Unit cost development, 2001 ings and focuses on identifying, measuring, analyzing, Adjusted Share of total improving and developing processes. MSEK 2000 2001 difference, % Sales costs 2,606 2,324 –0.8 Jet fuel 4,444 4,030 –1.2 Government user fees 3,870 3,858 0.8 Payroll expenses 13,118 13,872 2.2 Other expenses 10,515 11,659 3.3 Total 34,553 35,743 3.4 Volume component (ASK=5.1%) The table is based on the net cost principle and excludes aircraft leasing costs. / 10 8 6 4 2 0 –2 –4 1st quarter 2nd quarter 3rd quarter 4th quarter 28 Annual Report 2001 – The SAS Group and the capital market SAS Airline Earnings trend Flight safety work within SAS Airline Targets Strategies Business environment for the airline industry Macroeconomic and sensitivity analysis Market and traffic trends Operational key figures Aircraft fleet Human resources Distribution channels Global network - Alliances and partnerships 29 SAS Airline SAS Airline comprises SAS's passenger transport opera- Key figures, SAS Airline tions with its own aircraft and under its own brand. The 2001 2000 business area includes the production company SAS Operating revenue, MSEK 41,166 39,233 Commuter as well as the independent business units Earnings before depreciation and Scandinavian Ground Services and Scandinavian Techni- leasing costs, EBITDAR, MSEK 1,802 4,308 cal Services. Scandinavian Ground Services is responsi- EBITDAR margin, % 4.4 11.0 ble for SAS's passenger and ramp services at all airports. Earnings before depreciation, Scandinavian Technical Services is responsible for tech- EBITDA, MSEK –430 2, 529 nical maintenance of the fleets of SAS Airline and other Income before tax, MSEK –1,499 1, 951 customers. CFROI, % 5 12 Investments, MSEK 10,227 9,093 SAS Airline is one of the founders of the global cooper- ation Star Alliance in 1997. In addition, SAS Airline has a Number of aircraft 200 203 number of European cooperation partners. Number of passengers (000) 23,063 23,240 In 2001 SAS Airline had an operating revenue of Number of destinations 94 92 MSEK 41,166 (39,233) and approximately 915 daily de- Number of daily departures (average) 915 938 partures to 94 destinations in 33 countries. Average number of employees 22,364 23,777 CO2 emissions, grams per RTK 1,449 1,447 SAS Airline (operating revenue MSEK 41,166) Earnings trend SAS Airline's operating revenue rose 4.9% in 2001 to to MSEK 1,802 (4,308), a decrease of 58.2%. Operating MSEK 41,166. income is affected by costs relating to the European Earnings before depreciation and leasing costs Cooperation Agreement (ECA) of MSEK 335 (see below). (EBITDAR) for the period January-December amounted In addition, earnings were charged with an EU fine of MSEK 378, higher insurance costs particularly in the EBITDAR for SAS Airline (quarterly figures) fourth quarter, and increased costs for engine mainte- MSEK % nance and traffic disruptions. 1,500 15 Production increased by 5.1% during the year. In view of the less favorable traffic trend, SAS Airline decided in 1,000 10 the autumn to cut production by 5-7% compared with the 2001 level. Capacity plans are changed continuously 500 5 to adjust production to market demand. 0 0 Operating expenses increased in the period January- December by MSEK 4,439 or 12.7%, of which higher –500 –5 payroll expenses accounted for MSEK 1,893 MSEK and 4th quarter 1st quarter 2nd quarter 3rd quarter 4th quarter other expenses for MSEK 2,546. Adjusted for currency 2000 2001 2001 2001 2001 effects, operating expenses increased by 5.1%. EBITDAR EBITDAR margin 30 Annual Report 2001 – SAS Airline Flight safety work within SAS Airline Flight safety is SAS Airline's most important prerequisite tem went into operation at the beginning of 2002 and for conducting its operations. During the year SAS Airline allows application of a new risk evaluation method to continued with systematic efforts to improve methods detect risks and more effective allocation of resources in and systems in order to continually enhance safety with order to improve flight safety. even greater precision. The intention is also to find indicators which better Flight safety is defined as the absence of unacceptable describe flight safety conditions in the company. SAS has risk. Unacceptable risk means the risk of an incident that a strong flight safety culture. The aircraft are fitted with the could lead to a crash. flight safety enhancing equipment available in the market. The employees, their attitude and expertise, are the Processes and procedures are continuously revised and basic and most important factor for achieving and further further developed, both in the management system and developing flight safety in the company. Every employee in production. has a defined responsibility for flight safety at SAS Airline. SAS has traditionally kept flight safety separate from This is why the corporate culture in which employees work security. However, there has always been a connection is of decisive importance. Responsibility and procedures with a need for coordination and support between these must be well defined and exception reporting and continu- areas. SAS Airline always makes assessments of security al improvements must be a natural part of these efforts. in airspace and at airports where various types of acts of Flight safety work is part of SAS Airline's quality system war or other disturbances have occurred. and is conducted with the stringency and methods pro- vided by modern quality theory. Consequently, the entire Measures within security company is covered by these methods. This holistic Last autumn's terrorist attacks in the U.S. have in a deci- approach was manifested through a new central staff, sive manner highlighted the importance of security for Corporate Flight Safety & Security, which was set up dur- flight safety. The entire civil aviation industry is now ing the reorganization in May 2001. This staff supports engaged in minimizing the risks of similar and other acts SAS Airline's management as regards Flight Safety, of terrorism. SAS Airline has adopted the official require- Security and Emergency Response. ments and recommendations presented in the wake of September 11. The airline industry and SAS Airline as an Exception management and analysis individual company make an assessment of the pro- During the year extensive work was carried out to create a posed security measures and their positive and possibly joint exception reporting system for flight safety inci- negative impact on flight safety. An assessment is also dents. The system is web-based and contains a database made of what passengers are prepared to accept if they where different methods of analysis are applied. The sys- are not to find air transport too inconvenient or too costly. Air disaster at Milan's Linate airport On October 8, flight SK686 collided with a Cessna at Milan's Linate airport. The SAS MD-87 had just received clearance for takeoff from the air traffic control tower for its flight to Copenhagen. While the crew on the SAS aircraft were preparing for takeoff, a German-registered Cessna Citation taxied towards the runway. The SAS MD-87 collided with the Cessna and slid sideways into an airport building. A total of 118 people died, including the 110 people who were on board the SAS flight. Four people died in the German- registered Cessna and four people who worked in the airport building lost their lives. This airport accident is still under investigation by the Italian Accident Investigating Authority. SAS's Family Assistance Team is continuing its efforts to assist and support the relatives and friends of those who died. Compensation to next-of-kin In accordance with existing compensation rules within the EU, SAS has paid compensation to next-of-kin of USD 25,000 per passenger to cover immediate financial requirements which the relatives may have as a direct effect of this tragic acci- dent. Additional demands for compensation have been submitted and will be submitted. SAS has a strict liability to com- pensate for proven damage up to 100,000 special drawing rights, SDRs (approximately MSEK 1.3) per passenger. SAS has no liability over and above this, provided SAS can prove that SAS had taken all necessary action to avoid damage or that it was impossible for SAS to take such action. The accident is still the subject of an inquiry. Both payment of the USD 25,000 amounts and additional compensation liability and legal costs are covered by SAS's third party liability insur- ance. The value of the totally destroyed aircraft is covered by SAS's hull insurance. Annual Report 2001 – SAS Airline 31 SAS Airline Continuous flight safety work is conducted at both strategic management level and at tactical/operational level by everyone involved in carrying out air transport. Flight safety work includes training of employees at all levels, established routines, high demands on materials and careful selection when recruiting new 32 Annual Report 2001 – SAS Airline employees. New information channels have been set up to broaden awareness of flight safety related problem areas, including a channel aimed directly at pilots. SAS always gives priority to flight safety as its top quality parameter. Annual Report 2001 – SAS Airline 33 SAS Airline SAS Airline's targets Financial targets Operating standards and actual results In the period 2002-2004 SAS Airline will increase its 2001 2000 Standards operating revenue by an average of 5% per year and Total loss 11 0 0 achieve a minimum CFROI of 17% over a business cycle. Canceled flights (irregularity) 2.3% 1.7% max. 1% Flights delayed more than 15 minutes (punctuality) 14.9% 12.3% max. 12% Customer targets Flights delayed more than 2 minutes 41.9% 36.9% max. 25% The Customer Satisfaction Index, CSI, reflects how well SAS Proportion of customers who have to wait Airline is meeting customer expectations and how the com- so long for a reply from SAS's telephone reservations that the call is lost 13.0% 37% max. 10% pany is assessed in relation to the "ideal" airline. The airline Delayed baggage 0.6% 0.6% 0.4% had set its CSI target as 75 for 2001 but only scored 70. Damaged baggage 0.09% 0.07% 0.05% 1 Accident at Milan's Linate airport with SK686 on October 8, 2001. This decline is due to the fact that it is becoming increasing- ly hard to meet customer expectations, which is a general Human resource targets trend in the airline industry. One important explanation for The aim is to further improve the working environment at this negative development of customer satisfaction is the SAS Airline and raise SAS Airline's attraction as a employer low image score. The areas where customer satisfaction over the long term. Annual PULS surveys (PULS = Employ- has generally improved are those relating to EuroBonus ee surveys on life at SAS) show a clear improvement. The and service on board (Inflight Services). Key factors for result in the 2001 survey was 2.22 on a scale of 0-3. The increasing customer satisfaction are image, customer target is 2.3 in 2003 and 2.5 in 2005. PULS is being devel- treatment, timetable/route network and punctuality. oped to provide an even clearer link between motivated employees, satisfied customers and a good financial Quality targets result. The aim is to increase participation in PULS over a SAS Airline's overall punctuality declined in 2001 com- three-year period by at least 10 percentage points so that pared with 2000 but a clear improvement was noted in at least 80% of employees take part. autumn 2001. The target is to be the most punctual airline in Europe. Environmental targets SAS Airline's punctuality target sets a 12% limit to the One of SAS Airline's environmental targets is to be among number of flights that may be delayed by a maximum of the airline industry leaders in adapting its operations to the 15 minutes. SAS Airline scored 14.9% (12.3) in 2001. environment, and to make environmental management an The corresponding figures for airlines in AEA was 21%. integral part of the business management process. These The target for irregularity, the proportion of canceled targets include: flights, is a maximum of 1% in the summer months and a • Within the framework of SAS Airline's financial and maximum of 2% in the winter. An increase in irregularity qualitative goals all operations will be conducted with was noted in 2001 due to canceled flights after Septem- minimum environmental impact. ber 11 and the difficult weather conditions at the end of • SAS Airline will have an environmental standard on a par December 2001. with the leading competitors in the industry The target for lost calls in the direct sales channel is a • SAS Airline's environmental objectives and measures will maximum of 10%. be coordinated and harmonized with other targets for pro- duction, quality and finances. SAS Airline – Customer Satisfaction Index, 1996-2001 SAS Airline – Human resource targets, employee perception CSI of the working environment, PULS 80 2.5 75 70 2.0 65 60 1.5 55 50 1.0 1996 1997 1998 1999 2000 2001 1998 1999 2000 2001 Result Target Result Target In 2001, the Customer Satisfaction Index (CSI) amounted to 70 and the The PULS index for 2001 rose from 2.19 to 2.22, an increase of 1.4%. target was 75. 34 Annual report 2001 – SAS Airline SAS Airline's strategies SAS Airline's three top priorities are: Distribution strategy • Safety SAS Airline's products must be available in the markets • Punctuality and through the channels where the prioritized customer • Service segments wish to obtain their information. Flight safety Traffic system Flight safety is SAS Airline's foremost quality parameter. SAS Airline aims to be the leading airline in Scandinavia. The already very high flight safety at SAS will be main- The traffic system is concentrated to the traffic flows tained and further strengthened by • to/from/within Denmark, Norway and Sweden • Continuous competence development within flight • between local markets and the rest of the world via safety. Scandinavia • The establishment of a more efficient reporting system. • between Europe and North America/Asia via Copen- • Evaluation of reported flight safety related data in a hagen. model which provides a complete picture of how flight SAS Airline's expansion of its intercontinental route operations are carried out and indicates where efforts network will strengthen the entire traffic system. In should be made to further enhance safety. Copenhagen, Oslo and Stockholm, capacity will be extended and new international nonstop connections Customer and product strategy established. In other major Scandinavian cities, capacity SAS Airline's customer strategy is based on three cus- will be extended to Copenhagen. Capacity will also be tomer groups which are cultivated per segment: the cus- extended for the whole of Scandinavia to partners' hubs tomer who flies with SAS and pays for the trip personally, in order to offer connections to destinations not served the customer who flies with SAS, and the purchaser, i.e. the by SAS Airline. company or organization paying for the trip. SAS Airline's products and services are developed and Partner strategy adapted to meet customers' needs for simplicity, choice SAS Airline's partner strategy is designed to create more and consideration. and more effective connections as well as other travel • Simplicity means that products and services are designed benefits which SAS Airline would otherwise not be able to so that they are as convenient and simple as possible for offer its customers. This is achieved by developing a glob- the customer to use and for SAS Airline to produce and al traffic system and uniform products within the frame- offer. work of Star Alliance, and creating an effective feeder • Choice for the customer means that SAS Airline endeav- system together with regional partners in the Nordic ors to offer a product range that is so broad that the cus- countries and serving new markets. tomer can influence the design of his or her trip to a high level of detail. Environmental strategy • Consideration means that SAS Airline shows the greatest Environmental activities shall be conducted at all levels possible understanding and perception of customers' and within all units in SAS Airline, thus increasing environ- needs and situation. mental awareness throughout the organization. Annual Report 2001 – SAS Airline 35 SAS Airline Business environment for the airline industry The events of September 11 in New York led to a sharp tries concerned. The Scandinavian countries have con- decline in air traffic in almost all markets. At the same time, cluded a number of such agreements in recent years with costs for insurance and airport security rose considerably. third countries, based on their common, very liberal avia- Extensive rationalization has been started in the industry tion policy. with substantial adjustments to most major airlines' route Even though "open skies" agreements have become networks, redundancies and other restructuring. more frequent, large parts of air traffic in the world are The situation in which the airline industry now finds still characterized by traditional aviation protectionism, itself will accelerate the consolidation process which has where countries through terms in the bilateral civil avia- been regarded for some time as both necessary and tion agreements try to promote the interests of their own unavoidable. The attitude of the authorities to the chal- airlines. This is the case for the majority of countries lenges created by the crisis has varied considerably in served by SAS Airline's intercontinental operations, with different countries. There is a risk that this will distort the exception of the U.S. A liberalization of these bilateral competition between different airlines and airports. relations is an essential element in the intercontinental expansion which SAS Airline has started. Civil aviation policy The deregulation of European civil aviation in the 1990s Developments in the civil aviation sector has meant that in recent years no civil aviation policy fac- Bilateral aviation agreements with nationality clauses, i.e. tors have restricted free market access for air transport that an airline must be majority owned and controlled by within the EU/EEA area. An agreement has also been national interests, still provide the formal basis for inter- reached between the EU and Switzerland on including national air traffic operations outside the EU/EEA area. Switzerland in the EU's deregulated market. The agree- This means that cross-border acquisitions or mergers ment is currently awaiting ratification. are made difficult between airlines with operations that extend outside this area. Discussions have been initiated, Fewer market restrictions in Europe however, with the International Civil Aviation Organiza- In recent years, the EU Commission has conducted tion (ICAO) and the European Civil Aviation Conference negotiations with ten Eastern and Central European (ECAC) about replacing the present nationality require- countries aimed at including these countries in the EU's ment with rules that provide greater flexibility as regards deregulated civil aviation market. Agreements have now ownership and control. The next round of negotiations been reached with nine of these countries, while negotia- within the World Trade Organization (WTO) will also have tions with the remaining tenth country are continuing. It this issue on the agenda. Therefore, cross-border acqui- should be noted that the agreements negotiated with sitions or mergers should increase in the civil aviation these Eastern and Central European countries provide sector in the foreseeable future. One contributory factor interim solutions which cover the next three to four years. to such a development is that the traditional state owner- These agreements are now undergoing a legal examina- ship in the major airlines is gradually decreasing. tion by the EU Court. The present crisis in the airline industry may lead to postponement of these agreements Alliances and cooperation coming into force. However, it can be expected that SAS's The present nationality requirement has led airlines to European traffic, within a few years and with a few isolat- form more or less extensive alliances designed to create ed exceptions, can be conducted without any market global traffic systems and improve their total offer to restrictions determined by civil aviation policy. customers. Such cooperations often require the approval of the competition authorities. The differing views which "Open skies" agreements these authorities have about the effects of such cooper- Based on a proposal from the European airline industry, ation on competition constitute a problem. Above all, talks are now being held within the EU on the possibility of there is a difference in approach between on the one starting discussions with the U.S. with a view to creating a hand the U.S. regulators, who in principle welcome the joint, deregulated civil aviation market and harmonizing development of alliances in open civil aviation markets, the other conditions that apply to civil aviation. and on the other the EU Commission and the European Outside the EEA, civil aviation is still regulated by bilater- national competition authorities which have a more al agreements between governments. In recent years such restrictive attitude. agreements have increasingly taken the form of "open skies" agreements, which contain a bilaterally agreed deregulation of market access for the airlines of the coun- 36 Annual report 2001 – SAS Airline Infrastructure Real examples are needed to show the rest of Europe that It has always been difficult to build new infrastructure for cross-border airspace can be created and that it is possi- air transport to keep pace with traffic development. The ble to enhance the efficiency of these operations so that lead time for a new runway, or a totally new terminal com- the number of control centers in Europe can be reduced. plex, can be more than ten years. Lack of capacity has led to greater crowding, competition for slots, an increased Environment number of delays and a low service level for passengers. The substantial increase in air traffic has led to the envi- Lack of capacity also results in higher fuel consumption ronmental effects caused by aviation attracting increas- and consequently to both a greater environmental impact ing political attention. This relates to the growing noise and higher costs. This situation characterized many places problem at many large airports, emissions of nitrogen in Europe in the 1990s. oxides which are acidic and cause eutrophication, and the Stagnation and the crisis in autumn 2001 have certainly airline industry's effect on the global climate in the form provided a short breathing space since there has been a of carbon dioxide emissions. temporary decline in air traffic. The airline industry has Discussions are also ongoing on different ways to demanded that those responsible for infrastructure accept reduce air transport's emissions to air. In Europe, there is their share of responsibility in the crisis by avoiding price considerable interest in emissions-based landing charges. rises or reducing charges. SAS's changeover to larger air- An EU model is being drawn up within the framework of craft has reduced the company's need to increase capacity ECAC. This model partly follows the Swedish system in the three hubs in Scandinavia in the short term. which is based on how much nitrogen oxides aircraft emit. There is a risk, however, that the infrastructure providers The EU Commission is taking part in this work and it is not will delay overdue, essential investments in order to meet unlikely that the EU will adopt this model as an EU recom- their internal financial targets. The risk lies in the long lead mendation, in the same way as with the corresponding times for implementation of many capacity improve- ECAC model for noise-based landing charges. ments. If traffic should rise quickly after the crisis, the lack ICAO is examining how air transport's contribution to of capacity in the infrastructure will obstruct this recovery. climate change can be reduced and has commissioned In its dialog with infrastructure providers, SAS is there- the Committee on Aviation Environmental Protection fore recommending caution when halting investments (CAEP) to analyze the effects of various market-based that increase capacity. solutions. The Committee recommends open trading in SAS welcomes the EU's "A Single European sky" initia- emission rights. In such a case, the airline industry will be tive. This initiative is the only reasonable, accessible way a net purchaser of emission quotas. ICAO will be looking to quickly create a well coordinated European airspace, more closely at how the international airline business can with long-term capacity. be incorporated into a quota trading system. The capacity situation remains good in Scandinavia and Within the EU there is a powerful lobby for the intro- the third runway at Arlanda airport outside Stockholm will duction of a carbon dioxide tax on jet fuel. The Commis- provide good additional capacity. sion has expressed its approval of a tax on jet fuel but The initiative to try to create a common upper airspace wants to see an international solution so that European in the Nordic region is very important and encouraging. airlines do not find themselves in a less favorable com- petitive situation. The EU is therefore actively pursuing Airspace capacity within Europe relative the question of economic controls within ICAO. to anticipated demand in 2005 More detailed information is provided in SAS's 2001 (Capacity as % of demand) Environmental Report on the Internet. Airports in Europe with at least 25% undercapacity Number 25 20 15 10 5 0 2005 2010 2015 2020 Red areas show where substantial airspace overcrowding is expected. Blue Based on growth plans in the airline industry, the number of existing airports areas show where airspace capacity exceeds demand by a wide margin. in Europe with a lack of capacity is expected to grow if nothing radical is done. Source: AEA Yearbook Source: ECAC/Eurocontrol Annual Report 2001– SAS Airline 37 SAS Airline Macroeconomic and sensitivity analysis Macroeconomic trends in 2001 Intergovernmental Panel on Climate Change (IPCC), has Economic development was positive in SAS Airline's main assessed that air transport will rise by an average of 5% markets in the first part of 2001. Signs of an economic per year by 2015. Industry experts and analysts are agreed downturn started to show in April and intensified in sum- that the airline industry will see positive development in mer and autumn 2001. Uncertainty increased as a result future years. The largest traffic increases are expected in of events on September 11 and deepened the worsening traffic within and to and from Asia, particularly China. economic situation in the U.S. and Europe. The trend for SAS Airline often reflects the economic Global forecast average annual passenger traffic climate. Sweden is the largest market and accounts for (RPK) growth, 1999-2019 about 40% of SAS Airline's total ticket sales. GDP growth Annual growth (% per year) 9 in Sweden was 1% in 2001 compared with 2.5% in 2000. 8 This shows a clear weakening of the Swedish economy 7 which had a negative impact on SAS Airline in 2001. 6 SAS Airline sells approximately 25% of its tickets in 5 Europe domestic 4 Norway where GDP growth was 1.3% (2.2). China domestic Africa - Europe Europe - USA Europe - Asia Intra-Europe 3 China - Asia In Denmark, which accounts for around 15% of ticket Asia - USA USA dom. Intra-Asia 2 sales, GDP growth was 0.9% (3.0). 1 0 1 16.8 13.3 8.8 7.6 6.5 3.9 2.9 2.4 2.3 2.2 SAS Airline – sensitivity analysis The figures under the columns indicate each area's forecast share of the air The following approximate relations exist between the opera- transport market in 2019 measured in revenue passenger kilometers (RPK). tional key figures* and SAS Airline's earnings for 2001. 1 % of RPK, global 2019. Source: Airbus Industrie Passenger traffic (RPK) • 1% change in RPK had an earnings impact of approximately MSEK 225. Airline industry cycles RPK (Business Class/Economy Class) The weak trend in the global economy in general and in • 1% change in RPK had an earnings impact of approximately MSEK 135 in Business Class and approximately MSEK 90 in the U.S. in particular was reflected in the airline industry. Economy Class. In addition to the global economic trend, the airline indus- Cabin factor try is also affected by other factors such as the number of • 1 percentage point change in the cabin factor had an earnings aircraft in operation and available seat capacity. In 2001, impact of approximately MSEK 340. especially after September 11, overcapacity in the airline Unit revenue (Yield) • 1% change in passenger revenue per passenger kilometer had industry rose despite extensive capacity adjustments. an earnings impact of approximately MSEK 300. According to the latest forecasts, capacity looks set to Unit cost rise by approximately 4% in 2002 and 2-3% in the period • 1% change in the unit cost had an earnings impact of approxi- 2003-2006. mately MSEK 290. • New aircraft delivered in 2001 made up approximately Jet fuel • 1% change in the price of jet fuel affected costs by approxi- 8% of the world's aircraft fleet. The corresponding fig- mately MSEK 40 excluding hedging. ure for 2002 is estimated at 6%. • 1% change in consumption of jet fuel corresponds to approxi- • Aircraft taken out of operation are expected to be mately 41,000 tonnes CO2. approximately 2% per year through 2006. Exchange rate sensitivity • 1% weakening of the SEK against other currencies means: approximately MSEK 10 per year in improved operating cash Forecast net increase in global total aircraft fleet flow % approximately MSEK 35 increase in the net debt 4.0 approximately MSEK 250 increase in hidden reserve in assets. 3.5 These effects on earnings cannot be totaled but reflect the earn- 3.0 ings sensitivity of SAS Airline in the present situation. 2.5 * Definitions, see page 116. 2.0 1.5 1.0 Global forecasts 0.5 One of the world's largest aircraft manufacturers, Airbus 0 Industrie forecasts an average annual growth of 4.9% until 2002 2003 2004 2005 2006 2019. The UN's scientific council on climate issues, the Source: DKW 38 Annual Report 2001 – SAS Airline September 11, 2001 of 9.0%. This is explained by, among other things, the The situation for the airline industry worsened dramati- introduction of SAS Airline's new intercontinental aircraft cally on September 11. Demand in some markets fell by fleet on Asian routes in autumn 2001. SAS Airline has more than 25% overnight. Airlines were forced to ground captured market shares from its competitors. (See dia- several aircraft which meant that capacity decreased by gram below.) approximately 10% among European airlines. The num- Air traffic over the North Atlantic was hardest hit and ber of aircraft in the parking areas, including those in fell in the first week after the events on September 11 by California and Arizona in the U.S., has risen from approxi- 56% (AEA). In the period September 11 through Decem- mately 1,100 aircraft at year-end 2000 to approximately ber 31, traffic for AEA on average decreased by 31%. 2,100 in December 2001. Compared with other airlines, Traffic in Europe (AEA) increased in the weeks before SAS Airline has coped with the decline in traffic relatively September 11 by approximately 3%. In the subsequent well. After September 11, traffic fell by 17.6% for airlines period until year-end 2001, traffic fell 12%. in the AEA. In the same period, SAS Airline had a decline Change in RPK (revenue passenger kilometers, scheduled) Change in RPK (revenue passenger kilometers, scheduled) per week on flights over the North Atlantic per week for flights to Asia % % 30 50 15 40 30 0 20 –15 10 0 –30 –10 –45 –20 –60 –30 Week Week 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 year 2001 year 2001 SAS Airline AEA Source: SAS, AEA SAS Airline AEA Source: SAS, AEA Change in RPK (revenue passenger kilometers, scheduled) Change in RPK (revenue passenger kilometers, scheduled) per week for flights in Europe per week international total % % 15 20 15 10 10 5 5 0 0 –5 –5 –10 –10 –15 –15 –20 –20 –25 Week Week 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 year 2001 year 2001 SAS Airline AEA Source: SAS, AEA SAS Airline AEA Source: SAS, AEA AEA International scheduled traffic (RPK) %, growth in RPK 15 12 9 6 Kosovo Conflict 3 2nd Oil Crisis September 11 0 Libya Conflict and Chernobyl –3 –6 Gulf War –9 –12 2001 –15 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 J F M A M J J A S O N D Source: AEA Annual Report 2001 – SAS Airline 39 SAS Airline Market and traffic trends SAS Airline's route sectors to insufficient capacity to meet demand in Economy SAS Airline divides its passenger traffic operations into Class. This is now being remedied through the succes- six route sectors: intercontinental routes, European sive introduction of Airbus A340/330s on intercontinen- routes, intra-Scandinavian routes, Danish domestic traf- tal routes. fic including Greenland, Norwegian domestic traffic, and In October 2001 the total market between Scandinavia Swedish domestic traffic. and the U.S. decreased by 43%. The decline in Business Class was 52%. SAS has adjusted its traffic program to Intercontinental routes the U.S. by suspending the Oslo-New York route and can- SAS Airline's intercontinental routes serve the large traf- celing one of two Copenhagen-New York round trips in fic flows between Scandinavia and the U.S. and between the period November 2001 through April 2002. Scandinavia and Asia. In the U.S., SAS runs services to As a long-term effect of the changed travel patterns, four destinations: New York, Chicago, Seattle and Wash- SAS Airline has decided to postpone introduction of the ington. The Copenhagen-Washington route was opened San Francisco route. U.S. traffic is strategically impor- in May 2001 and is the most recent addition to the tant, especially to the U.S. East Coast which is SAS Air- intercontinental map. Asian destinations were Delhi, line's main market in the U.S. Bangkok, Singapore, Tokyo and Beijing. During the year a decision was made to suspend the The events of September 11 hit SAS's intercontinental Copenhagen-Delhi route in February 2002. The reces- traffic hard, particularly on U.S. routes. On the other sion in India and the related decline in Business Class hand, Asian routes, apart from Tokyo, were only marginally were the main reasons for the route's falling profitability. affected. Other Asian routes showed favorable development. In Up until August 2001 there was a weaker trend in the the autumn, SAS Airline continued to capture market Scandinavia-USA market. The total decline was 3%, with shares, despite a falling total market. Demand in Econo- an 8% fall in the business segment. The effects of reces- my Class was very high and the Copenhagen-Beijing sion and weakening traffic numbers were felt most in the route in particular had a substantial increase in both Swedish market. In a falling market, however, SAS Airline Business Class and Economy Class. China is a strategi- succeeded in capturing market shares of 1-2%. The total cally important market for SAS. SAS will have a daily serv- traffic figure for U.S. traffic in the first half of 2001 ice to China in 2002. increased by 2% in Business Class and by 9% in Econo- SAS is continuing the planned phasing in of the Airbus my Class, including the new destination Washington. A340. This will provide an expansion in the number of Scandinavia-Asia had a positive market development seats on existing routes of approximately 40% per route. until August 2001. Business Class traffic decreased but total traffic showed an increase of 10%. SAS's traffic in European routes Asia in the same period rose 4% in Business Class and The largest passenger flows in SAS's European traffic are 1% in Economy Class. SAS captured market shares in between Scandinavia and the key European business cen- Business Class on all route sectors except India, but lost ters for Scandinavian business such as London, the major ground somewhat in Economy Class. This was partly due German cities and Paris, Amsterdam, Brussels and Helsinki. SAS Airline – traffic by route sector, 2001 SAS Airline – passenger revenue, 2001 RPK, revenue passenger kilometers % Swedish domestic (11.0%) Intercontinental (16%) Norwegian domestic (8.5%) Intercontinental (36.0%) Domestic (28%) Danish domestic (1.6%) Intra-Scandinavian (8.3%) Europe (41%) Europe (34.6%) Intra-Scandinavian (15%) The proportion of revenue passenger kilometers (RPK) for intra- Passenger revenue for intra-Scandinavian traffic, as well as for Danish, Scandinavian traffic, as well as for Danish, Norwegian and Swedish Norwegian and Swedish domestic traffic, accounted for 43% of total domestic traffic, accounted for 29.4% of total traffic in 2001. passenger revenue in 2001. 40 Annual Report 2001 – SAS Airline The total market for most of these traffic flows showed SAS Airline's passenger traffic trend fairly similar development, with a relatively strong rise at SAS Airline total 2001 2000 Change, % the beginning of the year followed by a weaker trend from Number of passengers (000) 23,063 23,240 –0.8 May-June 2001. The international total traffic to and from RPK, millions 22,956 22,647 +1.4 Scandinavia therefore only showed a weak increase of ASK, millions 35,521 33,782 +5.1 approximately 1-2% in the first half of 2001. The down- Cabin factor, % 64.6 67.0 –2.4* Cabin factor incl. other ward trend with falling traffic in Business Class was notice- traffic/production, % 64.7 67.0 –2.3* able, which was seen in a total decline of approximately 9%. Cabin factor incl. EuroBonus In the individual Scandinavian markets the greatest decline travelers, % 68.0 ** ** Yield, adjusted for currency effects, SEK +0.7 was in the Swedish market. Total traffic in SAS Airline's Business Class, % of RPK 27.4 29.0 –1.6* most important markets to and from Sweden fell in the first Intercontinental routes half of 2001 by a full 7%. As a whole, SAS Airline was able to Number of passengers (000) 1,220 1,201 +1.6 strengthen its position during this period through an RPK, millions 8,264 8,150 +1.4 increase in total market shares of approximately 1%. Its ASK, millions 10,526 10,110 +4.1 Cabin factor, % 78.5 80.6 –2.1* share of total Business Class travel rose by about 3%. Yield, adjusted for currency effects –0.7 In the latter part of the year market conditions changed European routes dramatically. In order to adjust capacity to actual demand, Number of passengers (000) 7,838 7,650 +2.5 SAS Airline decided on different forms of production cut- RPK, millions 7,937 7,702 +3.1 backs, including closure of minor and unprofitable routes, ASK, millions 13,588 12,527 +8.5 and reduced frequencies and aircraft sizes on major routes Cabin factor, % 58.4 61.5 –3.1* Yield, adjusted for currency effects –2.6 and route sectors. Intra-Scandinavian routes Stavanger-Aberdeen, Copenhagen-Bologna/Krakow/ Number of passengers (000) 4,003 4,255 –5.9 Kaliningrad/Barcelona/Tel Aviv were suspended in 2001. RPK, millions 1,900 1,874 +1.4 SAS Airline also streamlined its services to London by dis- ASK, millions 3,343 3,108 +7.6 continuing flights to Stansted Airport and concentrating Cabin factor, % 56.8 60.3 –3.5* Yield, adjusted for currency effects –0.4 entirely on London/Heathrow. The reduction in production was mainly achieved by Danish domestic routes, including Greenland Number of passengers (000) 955 980 –2.5 phasing out the old DC9 fleet faster than planned. The RPK, millions 365 372 –1.9 introduction of the new and larger aircraft type, Airbus ASK, millions 559 550 +1.6 A321, was started in the final months of the year and is pro- Cabin factor, % 65.3 67.6 –2.3* Yield, adjusted for currency effects +4.5 gressing at a slightly slower rate than planned. The competitive situation changed in the autumn, dras- Norwegian domestic routes Number of passengers (000) 3,839 3,850 –0.3 tically in some areas, which resulted in SAS Airline carrying RPK, millions 1,962 1,977 –0.7 out rapid production increases to destinations including ASK, millions 3,300 3,466 –4.8 Zurich, Brussels and London. Cabin factor, % 59.5 57.0 +2.4* Yield, adjusted for currency effects +12.2 Intra-Scandinavian routes Swedish domestic routes The intra-Scandinavian routes have a key role, partly by Number of passengers (000) 5,209 5,305 –1.8 RPK, millions 2,528 2,572 –1.7 meeting the local market's transportation require- ASK, millions 4,204 4,020 +4.6 ments, and partly by ensuring growth in the total traffic Cabin factor, % 60.1 64.0 –3.9* system. Increased European and intercontinental traf- Yield, adjusted for currency effects +1.1 fic is generated through an efficient feeder system to * Change in percentage points. ** Information not available. Definitions and concepts, see page 116 the international traffic hub at Copenhagen airport. The local market (excluding transfer traffic) for travel between the Scandinavian countries, which accounts fourth quarter of 2001, the market fell by approxi- for approximately half of total travel on these routes, mately 13%. Production adjustments were implemented rose approximately 3% in January-August 2001 com- in this market as well. pared with the same period in the previous year. In total, traffic increased in this period by approxi- Domestic routes mately 4%. Since the increase in production was higher Danish domestic routes including Greenland (about 9%), due to anticipated faster growth, both in Danish domestic traffic, which largely functions as feeder local traffic and international transfer traffic, the cabin traffic to SAS Airline's international traffic system in factor fell. The Swedish market in particular showed a Copenhagen, and Greenland traffic developed well. The negative trend. previous downward trend in Danish air traffic, caused by In October 2001, the market fell by approximately an improved infrastructure for land-based traffic, has 13% compared with the same period a year ago. In the stabilized and the purely local market rose slightly com- Annual Report 2001 – SAS Airline 41 SAS Airline pared with the previous year. Most of the increase on year started with a strong first quarter. A noticeable Danish domestic routes largely comprised a growing vol- decline in growth occurred in the autumn. This weaken- ume of transfer traffic. In order to further strengthen the ing could already be detected at the end of the summer. transfer flow to and from Jutland, SAS Airline decided to The number of domestic passengers in 2001 totaled fly between Copenhagen and Billund. Five daily flights approximately 7.5 million, a decline of approximately 2% started in January 2002. compared with the previous year. Leisure travel decreased more than business travel. Since November, Norwegian domestic routes the number of departures has been reduced to meet the The total domestic market in Norway fell by approxi- lower demand. Stockholm mately 5% in 2001. In the same period, SAS Airline's Today, SAS Airline provides services to 15 destinations traffic rose 1%. The decline in the total market is evenly in Sweden. Falcon Air has stopped flying on the Stock- distributed throughout the country and is due to a 8% holm-Umeå route, so this entire route's traffic require- fall in the low-fare market. This decline is largely due to ments are now covered by SAS Airline. In the Swedish increased charges and subsequent price increases from domestic market SAS Airline has competition from April 1. Considerable fare increases in the order of 25- Malmö Aviation which flies from Bromma to Gothenburg 30% over the last two years have also contributed to the and Malmö. A new company, Nordic Airlink, started a decline in volume. Stockholm-Luleå service in November. In total, SAS Airline The full-fare market in total is on a par with the previ- has a market share of approximately 80%. ous year but showed a declining trend. SAS's full-fare The Swedish Market Court's decision means that as of traffic was stable with growth in 2001 of around 3%. October 28, 2001, SAS may not issue redeemable This positive development was due to an improvement EuroBonus points on Swedish domestic routes exposed in SAS Airline's position in the market in southern Nor- to competition. At present, this prohibition applies to way, which is the most important market in terms of routes from Stockholm to Gothenburg, Malmö and Luleå. domestic and international traffic. On January 1, 2001, SAS Airline reduced its fares by 6% as a result of parliament's decision to reduce the VAT Swedish domestic routes rate for public transport from 12% to 6%. Otherwise, dur- The Swedish domestic market has grown strongly in ing the year fare increases were implemented due to recent years. This positive trend was broken in 2001. The higher costs for increased security measures. Oslo Stockholm SAS Airline's market position in Scandinavia SAS Airline's extended home market covers a popula- tion of over 100 million Oslo Stockholm Copenhagen The above picture shows SAS Airline's market shares in domestic Approximately 18 million people live in Scandinavia. SAS Airline's natu- markets in the Scandinavian countries, intra-Scandinavian (90%), on ral catchment area for passenger traffic also includes Finland, the traffic to the U.K. (35%), Europe (50%) and intercontinental traffic Baltic States, the northern part of Poland and the northern part of (25%), based on bookings in the reservations systems. Among other Germany. SAS Airline has defined this as its extended home market things through investment in the new intercontinental fleet, the aim is with a population of over 100 million. to raise market share to 30-35%. 42 Annual Report 2001 –SAS Airline SAS Airline – Operational key figures Ten-year overview (incl. SAS Cargo) Traffic/Production 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 2 Number of cities served1 94 92 97 101 102 104 98 96 100 98 Number of flights, scheduled 334,039 343,482 343,611 328,327 320,410 309,636 295,028 297,688 314,940 * Kilometers flown, scheduled (million) 265.1 263.4 261.1 251.9 244.3 235.7 218.5 217.2 225.6 202.9 Total airborne hours, scheduled (000) 412.1 417.4 417.2 403.6 390.4 375.5 352.6 350.2 367.9 326.0 Number of passengers carried, total (000)3 23,243 23,395 22,225 21,699 20,797 19,828 18,835 18,823 18,619 16,808 Available tonne kilometers, total (million) 4,846.3 4,621.5 4,621.3 4,501.1 4,346.0 4,130.8 3,586.2 3,514.0 3,576.4 3,389.8 Available tonne kilometers, scheduled 4,798.3 4,584.3 4,560.9 4,459.0 4,290.6 4,092.6 3,546.2 3,500.8 3,566.6 3,345.0 Available tonne kilometers, other 48.0 37.2 60.4 42.1 55.4 38.7 40.0 13.2 9.8 44.8 Revenue tonne kilometers, scheduled (million) 3,034.0 3,016.7 2,834.5 2,680.0 2,571.5 2,392.2 2,172.7 2,163.2 2,106.9 1,929.9 Passengers and excess baggage 2,263.9 2,204.2 2,041.9 1,877.1 1,827.7 1,754.6 1,670.4 1,666.8 1,637.3 1,488.0 Freight 717.6 758.4 741.4 755.7 693.7 590.4 452.8 445.9 420.4 391.7 Mail 52.5 54.1 51.2 47.2 50.1 48.2 49.5 50.5 49.2 50.2 Total load factor, scheduled (%) 63.2 65.8 62.1 60.1 59.9 58.5 61.3 61.8 59.1 57.7 Available seat kilometers, scheduled (million) 3 35,981 34,189 33,910 31,766 31,333 30,646 28,447 28,154 28,581 26,396 Revenue passenger kilometers, scheduled (million) 3 23,296 22,923 21,707 20,883 20,339 19,487 18,506 18,466 18,138 16,554 Cabin factor, scheduled (%) 3 64.7 67.0 64.0 65.7 64.9 63.6 65.1 65.6 63.5 62.7 Business Class, share of revenue passenger kilometers (%) 27.4 29.0 29.1 31.0 31.7 31.5 32.0 30.7 28.7 27.5 Average passenger trip length, scheduled (km) 1,010 974 966 971 986 990 989 983 976 990 Traffic revenue/revenue tonne kilometers (SEK) 11.96 11.63 11.42 11.90 11.94 11.77 12.91 12.07 11.24 10.48 Passenger revenue/revenue passenger kilometers, scheduled (SEK) 1.48 1.38 1.36 1.35 1.34 1.31 1.39 1.29 1.21 1.06 Passenger revenue/available seat kilometers, scheduled (SEK) 0.96 0.93 0.86 0.89 0.87 0.83 0.90 0.85 0.77 0.66 Airline operating expense/available tonne kilometers, scheduled (SEK) 8.72 7.96 7.39 7.17 6.73 6.53 7.17 7.21 6.69 6.18 Revenue tonne kilometers/employee, scheduled (000) 85.2 126.9 121.4 127.6 129.4 119.6 119.1 115.9 108.4 93.5 Revenue passenger kilometers/ employee scheduled (000) 1,022.9 952.6 906.4 994.1 1,023.6 1,025.9 1,014.0 989.5 933.1 802.0 Jet fuel price (cents/gallon) 89 94 60 66 75 78 67 66 71 76 CO2, gram/revenue passenger kilometers 176 179 192 196 194 193 184 181 188 178 Punctuality (% within 15 minutes) 85.1 88.0 83.5 82.7 88.0 87.8 87.6 91.3 90.0 90.6 Regularity (%) 97.7 98.3 97.8 98.1 99.0 98.7 97.5 98.7 98.7 99.0 Breakeven load factor (%) 4 SAS Airline 72.9 68.4 64.7 60.3 56.4 55.5 55.5 59.7 59.5 61.6 AEA * 66.5 67.4 62.7 64.6 64.0 63.9 65.7 65.5 63.8 IATA * 63.0 61.4 60.1 61.1 60.8 59.5 61.0 61.8 61.0 1 Destinations served by SAS aircraft (summer period). 2 Figures include 7 months of Linjeflyg's traffic and production data. 3 Including other traffic/production. 4 Breakeven load factor. * Figures not available. Definitions and concepts, see page 116. Annual Report 2001 – SAS Airline 43 SAS Airline SAS Airline's aircraft fleet A340-300 - The new aircraft for SAS Airline's SAS Airline's system will acquire additional seat capacity intercontinental routes corresponding to approximately three aircraft. In 2001, SAS started phasing in the long-haul aircraft Air- Despite "Configuration 2000" larger aircraft are need- bus A340-300 which together with the Airbus A330-300 ed on some European routes. Larger aircraft are required will replace the Boeing 767-300ERs, which have been in because of the limited number of takeoff and landing SAS Airline's fleet since 1989. Four A340-300s were slots at some airports. The largest European aircraft so delivered in the second half of 2001. The first aircraft far, the MD-90, has 147 seats in the new configuration. went into intercontinental traffic in September 2001. Fol- lowing exercise of an option in the past year, the order A321-200 - SAS Airline's large new totals 11 aircraft. SAS Airline has an option for an addi- aircraft for Europe tional six aircraft. Against this background, a decision was made in 1999 Passenger comfort will be improved compared with that SAS Airline should acquire a larger aircraft for Euro- today when the new aircraft are introduced. Business pean flights and an order for 12 A321-200s was there- Class comfort will be enhanced, and part of Economy fore placed with Airbus. The first three A321s were Class will become "Economy Extra." A330-300s and phased in to the aircraft fleet in the final quarter of 2001. A340-300s have identical fuselages and their cabins will The A321 in SAS Airline's version is equipped with so- be almost identical. The real distinction between the air- called flex seats which allow the cabin size to vary craft is number of engines and range. The A340-300 has between 160 and 184 seats depending on the need for four engines and is designed to fly very long distances Business Class seats on long European routes. A typical with a full load. The A330-300 has two engines and is capacity will be 174 seats. The first A321-200s will main- optimized for shorter intercontinental flights. The flight ly traffic the so-called capital triangle between Copen- crews are trained to fly both A330s and A340s. hagen, Oslo and Stockholm. The A330-300s and A340-300s have approximately Despite the decline in traffic in the second half of 2001, 40% more seats than the 767-300ERs. There are 261 SAS Airline will be able to benefit from its investment in seats in the new aircraft compared with the approximately larger aircraft. It will be possible to reduce the number of 189 in today's aircraft. Freight capacity will also increase. In flights between certain cities and thus achieve savings. most cases the effective increase will be 40-45%, but even For example, on weekdays SAS Airline operates 20 flights more in cases where the Boeing 767 had a limited range. a day between Copenhagen and Stockholm. The number The first aircraft have been used on Delhi, Beijing, SAS Airline's aircraft fleet, December 31, 2001 Bangkok/Singapore routes. 3 3 Owned Total Owned Leased Total Leased 2 Dec. 00 Dec. 00 Dec. 01 in Dec. 01 out Order Configuration 2000 for SAS Airline's Airbus A340-300 3 1 4 3 European routes Airbus A330-300 4 The "Configuration 2000" project will be completed in Airbus A321-200 3 3 9 2002, which means that SAS Airline will rebuild 72 MD-80s Boeing 767-300 ER 4 13 3 9 12 and MD-90s to give these aircraft more seats. In total, Boeing 737-600 15 30 12 18 30 Boeing 737-700 6 6 5 1 6 Boeing 737-800 13 13 12 5 17 6 Douglas MD-81 9 19 6 10 16 Douglas MD-82 13 28 16 15 31 Aircraft used in SAS's own operations, 1995-2004 Number Douglas MD-83 2 2 2 2 151 161 163 178 174 186 174 171 175 176 Douglas MD-87 11 18 10 6 16 200 175 Douglas MD-90-30 8 8 8 8 Douglas DC-9-21 2 150 Douglas DC-9-41 19 12 12 125 Douglas DC-9-81 1 100 Embraer ERJ 145 2 3 3 75 Fokker F28 9 9 8 8 50 1 Fokker F50 7 19 7 2 9 2 0 25 deHavilland Q400 5 11 6 17 23 5 0 SAAB 2000 3 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total 102 203 101 99 200 2 27 1 airBaltic Long-haul aircraft Short- and medium-haul aircraft 2 Including aircraft expected to be delivered on operating leases SAS Commuter 3 Owned/finance leased aircraft 44 Annual Report 2001 – SAS Airline of flights can now be reduced without any real reduction SAS Airline took delivery of 23 new aircraft during the in service to customers. year: four Airbus A340-300s, three A321-200s, four Boe- ing 737-800s, and 12 deHavilland Q400s which are used Surplus aircraft and postponed deliveries by SAS Commuter. SAS Airline reduced its traffic program substantially in During the year, SAS completed sale and leaseback response to the downturn in the market in autumn 2001. deals for a total of 14 aircraft: one A340-300, one Boeing The reduction in the intercontinental traffic program led 767-300, five Boeing 737-800s, one Boeing 737-700, to a surplus of two Boeing 767s. three Boeing 737-600s, and three Q400s. At year-end, In the short-haul fleet, all the aircraft taken out of oper- SAS owned 101 of 200 aircraft. ation so far have been DC-9-41s. All DC-9-41s are leased At year-end, SAS Airline had 27 aircraft on firm order for in and will be returned to their owners in 2002. A surplus a total value of approximately USD 1.5 billion. of MD-80s and/or Boeing 737s will probably occur in 2002 as deliveries of A321s and Boeing 737s continue. DC-9-41 – A faithful servant leaves the fleet Against this background, SAS Airline has requested On January 1, 2002, the last flight was conducted with a and been granted postponements in its deliveries from DC-9-41. This flight marked the end of a historic era. SAS both Airbus and Boeing. Airline has flown DC-9s for nearly 35 years. The first SAS Re-deliveries of leased out aircraft increase the aircraft Airline flight with a DC-9 took place on October 7, 1967, surplus which has arisen due to reductions in the traffic with an aircraft leased from Swissair. The DC-9s which program. In most of 2001, SAS Airline had six F28- SAS Airline had ordered from Douglas Aircraft started to 4000s leased out to Air Botnia. These were returned to be delivered at the end of 1968 and a total of 61 were SAS Airline before the end of the year. delivered in 1968-1979. Development of the aircraft fleet in 2001 Reduced environmental impact SAS's aircraft fleet decreased by three units in 2001 and In 2001, ICAO decided to introduce a new and more strin- comprised 200 aircraft at year-end, of which 26 were not gent noise certification standard for new aircraft types. used in SAS's operations. Two aircraft were leased out and This will be called Chapter 4 and is at a level which is about the others comprised a surplus or were overhauled for 3 dB lower than the present Chapter 3. The aircraft which return to their owner. SAS Airline is currently buying – A321, A330, A340, Boe- Since the end of 2000, SAS Airline has leased a few ing 737 and deHavilland Q400 all have a noise level lower Embraer 145s ( jet with 48 seats) from Skyways on a "wet than the new standard. In addition, ICAO's member states lease" basis. Skyways operates the flights with its own adopted a resolution which will regulate other noise- staff as assigned by SAS Airline. The number of leased in reducing activities at airports. This resolution is now being Skyways aircraft rose from two to three in 2001. drafted by the EU as a directive which may lead to some During the year 23 aircraft were phased in to the fleet, restrictions at the most sensitive airports in Europe. SAS's while 26 aircraft were phased out. One was lost in the crash fleet will probably not be affected by this directive. in Milan. One F28-4000 was sold and 25 leased in aircraft The continued modernization of SAS Airline's fleet were returned to their owners: one Boeing767-300, one meant that fuel consumption and therefore CO2 emis- MD-87, one DC-9-81, seven DC-9-41s, two DC-9-21s, ten sions were reduced per available seat kilometer (ASK) by Fokker F50s, and three SAAB 2000s. At year-end two air- 4.6%, and despite the falling traffic base by 1.3% per craft were leased out, which is six fewer than in 2000. paying passenger (RPK). Average age of the aircraft fleet, 1996-2001 Forecast average age of the aircraft fleet, 2002-2004 Years Years 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 DC-9/MD-80/MD-90/B-737/A321 B-767/A340 DC-9/MD-80/MD-90/B-737/A321 B-767/A340/330 including SAS Commuter including SAS Commuter The average age in 2001 of the aircraft in SAS Airline's operations, Average age of the total aircraft fleet in 2002 will be 7.0 years and in 2004 including SAS Commuter, was 7.7 years. 7.4 years. Annual Report 2001 – SAS Airline 45 SAS Airline SAS Airline's aircraft fleet in traffic, December 31, 2001 Airbus A340-300 Airbus A321-200 Boeing 767-300 ER Boeing 737-600/700/800 Number of aircraft: 4 Number of aircraft: 3 Number of aircraft: 12 Number of aircraft: 30/6/17 Number of seats: 261 Number of seats: 160-184 Number of seats: SAS version 188- Number of seats: 91-103/116-137/179 Max. takeoff weight: 275.0 tonnes Max. takeoff weight: 85.0 tonnes 204 Max. takeoff weight: 57.6-59.9/61.7/70.6 Max. load: 43.0 tonnes Max. load: 19.0 tonnes Max. takeoff weight: 185 tonnes tonnes Length: 63.7 meters Length: 44.5 meters Max. load: 37.4 tonnes Max. load: 13.0/15.5/19.5 tonnes Wingspan: 60.3 meters Wingspan: 34.1 meters Length: 54.9 meters Length: 31.2/33.6/39.5 meters Cruising speed: 875 km/h/545 mph Cruising speed: 840 km/h Wingspan: 47.6 meters Wingspan: 34.3 meters Range: 12,800 km Range: 3,000 km Cruising speed: 860 km/h/535 mph Cruising speed: 850 km/h/530 mph Fuel consumption: 0.034 liters/ Fuel consumption: 0.036 Range: 10,500 km Range: 1 900/1 400 km seat kilometer liters/seat kilometer Fuel consumption: 0.038 liters/ Fuel consumption: 0.045 liters/ Engine: CFM56-5C4 Engine: CFM56-5C4 seat kilometer seat kilometer Engine: P&W 4060 Engine: CFM56-7B MD-87 MD-81/82/83 MD-90-30 DC-9-41 Number of aircraft: 16 Number of aircraft: 16/31/2 Number of aircraft: 8 Number of aircraft: 12 Number of seats: SAS version 110- Number of seats: SAS version Number of seats: SAS version Number of seats: SAS version 105 125 141/145 141/147 Max. takeoff weight: 51.5 tonnes Max. takeoff weight: 61.2 tonnes Max. takeoff weight: Max. takeoff weight: 70.8 tonnes Max. load: 12.5 tonnes Max. load: 14.8 tonnes 63.5/67.8/72.6 tonnes Max. load: 16.0 tonnes Length: 38.3 meters Length: 39.8 meters Max. load: 14.6/17.1/16.4 tonnes Length: 46.5 meters Wingspan: 28.5 meters Wingspan: 32.9 meters Length: 45.1 meters Wingspan: 32.9 meters Cruising speed: 815 km/h Cruising speed: 815 km/h/505 mph Wingspan: 32.9 meters Cruising speed: 815 km/h/505 Range: 2,600 km Range: 3,500 km Cruising speed: 815 km/h/505 mph Fuel consumption: Fuel consumption: 0.047 liters/ mph Range: 2,800 km 0.054 liters/seat kilometer seat kilometer Range: 2,600/3,200/4,300 km Fuel consumption: 0.041 liters/ Engine: P&W JT8D-9/-11 Engine: P&W JT8D-217C Fuel consumption: 0.045/0.047/ seat kilometer 0.045 liters/seat kilometer Engine: IAE V2525-D5 Engine: P&WJT8D-217C/-219 deHavilland Q400 Fokker F50 Number of aircraft: 23 Number of aircraft: 9 Number of seats: SAS version 72 Number of seats: SAS version 46- Max. takeoff weight: 29.0 tonnes 50 Max. load: 7.3 tonnes Max. takeoff weight: 20.8 tonnes Length: 32.8 meters Max. load: 4.9 tonnes Wingspan: 28.4 meters Length: 25.3 meters Cruising speed: 660 km/h/410 mph Wingspan: 29.0 meters Range: 1,000 km Cruising speed: 520 km/h/320 Fuel consumption: 0.045 liters/ mph seat kilometer Range: 1,400 km Engine: P&W 150A Fuel consumption: 0.038 liters/ seat kilometer Engine: P&W 125 B 46 Annual Report 2001– SAS Airline SAS Airline's human resources SAS Airline's employees have experienced a year which ment activities. Training activities for new employees were has put all ingrained roles to the test – from an expansive suspended and redundancy notices were served on both program for the future at the beginning of 2000 to a com- probationers and permanent employees. prehensive stagnation throughout the airline industry This has been handled in a serious and respectful way towards the end of 2001. in order, among other things, to ensure that the employ- A new organization and partly new working methods ees concerned could consider returning to SAS Airline if have been introduced. The world was shaken by the ter- the market changes and recruitment needs arise. rorist attacks in the U.S. and by terrorist threats in most parts of the world. Despite all this turbulence employees Earnings improvement activities have managed to handle customers in a professional way. Extensive efforts to improve SAS Airline's financial posi- Taking care of customers and giving them the best serv- tion were started in late autumn 2001. Some of these ice in every imaginable situation has therefore really been activities mean that 3,500 redundant positions in the put to the test at SAS Airline in 2001. operations will be removed. Furthermore, productivity A number of employees have also participated in differ- among employees will be raised through production- ent ways with work and support to relatives in connection adjusted working hours, the introduction of improved with the accident in Milan at the beginning of October technology and more efficient working methods. These 2001. These employees have shown both competence activities have also included a salary freeze and waiving and empathy in these difficult encounters. of negotiated salaries. Work on SAS's earnings improvement activities is SAS Airline's human resources policy extensive and is being conducted with great intensity, Employees meet customers' expectations and are the air- involving all employee groups and managers. Everyone at line's foremost competitive advantage. SAS Airline is involved in these activities which are not confined to production-related measures but also affect Number of employees head office functions. Other administration at SAS Airline At December 31, 2001, SAS Airline had a total of 25,488 has also been affected by cost savings and staff cutbacks. employees, of whom 44.5% were women. Recalculated to full-time equivalents, the average number of employees Development and change within the business area in 2001 was 22,364 (23,777). Every year SAS Airline measures how employees perceive Employee turnover within Scandinavia in the different their work situation and the conditions provided for doing age groups was 4.1% (6.6). The average age of employees their work in the annual PULS survey (PULS = Personal in Scandinavia was 39.9 years (40.4). A breakdown of Undersökningar om Livet i SAS, Employee surveys on life employees by age is shown in the diagram below right. at SAS). The measurements for 2001 showed that the result Recruitment improved by 2 points, which means an improvement of At the beginning of 2001, SAS Airline carried out extensive 1% over the previous year. The PULS survey was conduct- recruitment of flight and sales staff in order to meet its ed at the beginning of the second quarter of 2001 and planned expansion. This recruitment ceased entirely in before the dramatic events which affected SAS Airline and autumn 2001 in conjunction with SAS Airline's improve- the industry later in the year. Annual Report 2001 – SAS Airline 47 SAS Airline The purpose of PULS is to help raise SAS's attraction as an Project to reduce sick leave employer over the long term. PULS will now be changed Work started in 2000 to reduce sick leave among through an even clearer link between motivated employ- employees in certain cabin groups continues. Projects ees, satisfied customers and a good financial result. The designed to reduce sick leave are also under way among aim is to increase participation in PULS over a three-year other employee groups. period by at least 10 percentage points to 80%. In 2001, however, total absence due to sick leave rose The number of performance reviews held by managers by 0.6 percentage points to 6.9%. with their employees increased by 4 percentage points in The goal is to reduce total sick leave to 5% by 2003, 2001 to 68%. which is a low figure on the Scandinavian labor market. Training activities Sick leave, % Terrorist attacks in the world have led to more rigorous 2001 2000 airline security. For this reason, SAS Airline has contin- Operational employees 7.6 7.5 ued and extended its focus on safety and security issues Salaried employees 6.0 5.6 with a large number of security related training activities. Cabin employees 9.2 8.1 Pilots 4.3 2.8 Total 6.9 6.3 Occupational injuries The number of occupational injuries increased during the year compared with the previous year, but placed in rela- Death in service tion to the size of the workforce occupational injuries Six of SAS Airline's employees died in the accident at decreased in 2001. Linate airport in Milan. This tragic event represents a great loss for both the relatives and friends of those who Number of occupational injuries/H value*, 2001 died and for their workmates. Occupational injuries H value 2001 2000 2001 2000 Union relations Denmark 245 214 17.8 16.6 During the year, SAS's new management set up a coop- Norway 102 82 8.1 8.5 eration forum with the major union organizations in Sweden 59 64 3.6 4.2 Scandinavia in order to create a dialog on the process of Total 406 360 9.5 9.7 change the company is undergoing. Work in cooperation * Number of occupational injuries in relation to number of working hours. groups where the unions participate was dominated in the first six months of the year by the SAS Group's orga- Working environment issues nizational changes. In the spring, SAS Airline conducted an extensive pro- In the latter half of 2001, the industry's and SAS Air- gram of seminars for all pilots in order to raise participa- line's market and price development were discussed, as tion in SAS's goals, strategies and financial position, well as related work to enhance efficiency and cost con- flight safety, customer satisfaction and the pilot's role. trol. The reality which the airline industry went through Almost 1,000 pilots participated in the two-day seminar in autumn 2001 has meant that the unions have had to program and their response was highly positive. There re-evaluate their positions. SAS Airline's management were also opportunities to meet senior management to has carried out comprehensive information and commu- discuss the current and future situation for SAS Airline nication work on prerequisites for SAS Airline and the and the airline market as a whole. industry. During the year an extensive neck/back project was also carried out among 800 employees at Arlanda air- port. Both salaried and operational employees attended and more than 100 received successful treatment. This project will continue to identify stress-related problems among the same group so that people with such prob- lems can be helped and treated. In the cabin organization, where approximately 3,500 cabin crew work, development started on a new schedul- ing system, CAS. This tool is planned to be in operation in June 2002. PBS (Preferential Bidding System) will be implemented in autumn 2002. 48 Annual Report 2001 – SAS Airline SAS Airline's distribution channels Distribution channels are a central part of an airline's competitive- SAS Direct (Call Centers) ness. Effective distribution builds up both short- and long-term The restructuring of SAS Direct led to further efficiency customer relationships, which in turn affect the development of enhancement. Sales of leisure products rose markedly market shares. during 2001. During the year, SAS Direct worked to raise its service Distribution cost trends at SAS level and be able to answer telephone calls within the In the base year 1997 SAS Airline's total distribution time required so that the call is not lost. costs in Scandinavia comprised approximately 20% of Compared with lost calls in previous years, the trend total passenger revenue. In 2001, the figure was 16.8%, was positive in 2001. In 2000 the proportion of lost calls an increase of 2.8% compared with 2000, which was was 37%. The figure for 2001 was approximately 13% mainly due to reduced passenger revenue as a result of compared with the target of a maximum of 10%. This the events on September 11. quality level is the best ever for SAS Direct in Scandi- SAS Airline is continuing to adjust its distribution strat- navia. The explanations for this positive development egy to the market in order to further reduce costs. Distri- are a lower number of calls after September 11, on aver- bution costs are reduced through a changed sales age 10% below forecast, and higher productivity among mix/channel mix. This is because electronic trading is ris- employees. Automated handling of non-revenue provid- ing and a differentiated remuneration structure is ing calls and calls with low revenues, via voice response emerging between the traditional travel agencies and the systems and function development at www.scandina- new electronic players in the market. SAS Airline is vian.net, contributed to an improvement in the level of reviewing alternative payment systems in Scandinavia. lost calls. Credit card costs are expected to be reduced through the introduction of the SAS Corporate Card. www.scandinavian.net The SAS website offers SAS Airline's customers new self- Travel agencies service solutions. In 2001, www.scandinavian.net was the SAS Airline has increased its market shares via travel agencies in a most visited travel site in Scandinavia, with 40,000 visi- declining market. The goal is to further develop relationships with tors a day. The trend is clear and indicates strong growth the travel agencies in 2002. Travel agencies remain SAS Airline's in the future. Electronic sales rose 230% in 2001 com- largest and most important distributor. pared with the previous year and the business segment accounted for 40% of total sales. SAS Airline's own elec- Electronic travel agencies tronic sales in 2001 thus accounted for 4% of total rev- In 2001, SAS Airline established cooperation with a num- enues. ber of new electronic travel agencies, both to reduce dis- In 2002 the Internet website www.scandinavian.net tribution costs and raise revenues. This channel will will be upgraded to offer customers greater choice and become more important for sales efforts towards new flexibility. niches and existing customer segments. Electronic channels – lower costs and higher customer value % 20 17 14 11 8 5 Se 00 Ja 00 De 00 01 Oc 00 Ap 0 Ap 1 Ju 0 Ju 1 Ma 0 Ma 1 Ju 0 No 0 No 01 Ma 00 Ma 01 Fe 00 Fe 01 Au 0 0 0 y-0 y-0 0 0 0 0 l.-0 g.- c.- v.- v.- p.- r.- r.- b.- b.- n.- t .- n.- r.- r.- n.- n.- Ja Number of tickets sold, booked and/or used electronically SAS's goal was that 20% of all tickets should be sold and/or used electronically before year-end 2001. SAS achieved this goal, putting SAS Corporate Card was introduced in autumn 2001. it in top place among European airlines for this type of distribution. Annual Report 2001 – SAS Airline 49 SAS Airline Proportion of electronic channels 2001 2000 Sales via the Internet 4% 2% Proportion of tickets sold, Travellink AB is a full-service travel agency with its main booked or used electronically 20% 10% focus on sales of travel services over the Internet. Travel- link is active in Sweden, Norway and Denmark and focus- New concept es mainly on companies. In spring 2002, Travellink will In 2001, SAS Airline in cooperation with Nordea devel- launch a service for the leisure market as well. Travellink oped a new credit card, called SAS Corporate Card (SCC), is 60% owned by the SAS Group. Other owners are which functions as an electronic ticket while also contain- Amadeus Global Travel Distribution S.A. and Tele2 AB. ing Travel Pass and Travel Pass Corporate functions. SCC www.travellink.com is a key component in SAS's strategy to reduce distribu- tion costs and meet customer needs. The concept is pri- EuroBonus marily intended to create and offer a travel administration The overriding strategy for SAS EuroBonus is to develop system suitable for small and medium-sized companies. lasting and profitable relationships with frequent travel- ers, while at the same time this dialog with customers Future focus within distribution provides considerable information for future product In order to raise the proportion of electronic sales and development. SAS EuroBonus gained high rankings in further reduce distribution costs, SAS is working actively customer surveys yet again in 2001 and received the to develop integrated solutions for its largest customers. "Freddie Award" for the Best Frequent Flyer Program for SAS's aim is to raise the proportion of sold electronic the fifth consecutive year. The number of members rose tickets (E-ticket), Travel Pass Corporate and the tradi- during the year to almost 2.4 million. tional Travel Pass. SAS Airline makes ongoing provisions for unutilized bonus trips. This amounted to MSEK 757 (594) at December 31, 2001. Product examples - Electronic channels E-ticket • Electronic ticket (paperless travel) requires less handling throughout the distribution chain – customer, travel agency and airline. TP • Travel Pass, individual product. The customer either buys travel for a set period or a specific number of trips (punch ticket) between two cities or a geographic area and pays in advance. This product is paperless. Key figures EuroBonus TPC • Same as above but for companies. The customer company pays per sector flown and receives statistics per 2001 2000 Change, % TPC card, which simplifies travel administration. Total number of members 2,394,783 2,106,783 13.7 SCC • SAS Corporate Card, contains E-ticket, TP and TPC – of whom in Denmark 378,249 331,042 14.3 in one and the same card, and is at same time a charge – of whom in Norway 824,511 679,310 21.4 card since it is linked to MasterCard. This product further – of whom in Sweden 600,297 478,879 25.4 simplifies travel administration since the customer – of whom internationally 591,726 617,642 –4.2 receives complete payment statistics for flights, hotels, Proportion of Gold members 2.6% 2.8% –0.2 * car rentals, etc. Proportion of silver members 7.0% 7.7% –0.7 * * Change in percentage points 50 Annual Report 2001 – SAS Airline Global network Alliances and partnerships – SAS Airline and its airline partners within Star Alliance™ fly to nearly 900 destinations in 130 countries Products and services within Star Alliance™ • 15 partner airlines which serve nearly 900 destinations in 130 • Star Alliance Convention Plus, a product program designed countries. for conference organizers and participants worldwide. • Coordinated timetables with extensive code-sharing. • Joint ticket offices in selected major cities. • Earn and redeem bonus points in Star Alliance members' • Joint service functions at selected airports (ticket office, respective loyalty programs. check-in, lounges, etc.). • Program with alliance-wide identification of and service to • Star Connection Teams at selected airports. priority passengers. (Check-in, baggage, etc.) • Improved through check-in to final destination. • Access to some 500 lounges worldwide for eligible passen- • Development of IT infrastructure to support new products gers. and services within the alliance. • All the alliance's flights and timetables available in all major • Functional and cultural training for alliance members' electronic reservations systems. employees who work with customer service. • Round-the-world tickets and Europe flight passport. • Close cooperation on environmental and safety issues. • Star Alliance website with reservations service. (www.staralliance.com). Annual Report 2001 – SAS Airline 51 SAS Airline Industry trends Development of Star Alliance Global competition and changes in regulation of the air- line industry are causing most major international airlines 1995 SAS and Lufthansa announce a strategic cooperation, which is approved by the EU Commission. to continue to seek growth and consolidation through Later SAS announces cooperation with Thai Airways Inter- strategic alliances, mergers and other forms of integra- national and United Airlines. tion with other airlines. 1996 SAS and Air Canada announce cooperation. By making joint use of all partners' networks, market Cooperation between SAS, Lufthansa and United Airlines approved by the U.S. authorities. positions, resources and expertise, the airlines con- 1997 Star Alliance formed (SAS, Lufthansa, United Airlines, Air cerned can offer their customers a better and more com- Canada, Thai Airways International). prehensive range of products and services than they Varig joins alliance. could offer on their own. 1999 Air New Zealand, Ansett Australia and All Nippon Airways At the same time, cost efficiency is improved through join alliance. coordination and economies of scale, joint purchasing 2000 Austrian Airlines Group, Singapore Airlines, British Midland and Mexicana join alliance. and shared IT and product development. 2001 An organization and management are set up to develop The difficult financial consequences for the airline the Star Alliance cooperation based in Frankfurt, Germany. industry, which were caused by a recession in 2001 and No new partners join. accentuated by the terrorist attacks, will probably lead to acquisitions and mergers designed to create larger and stronger airlines. Star Alliance's mission and vision Star Alliance's mission is to contribute to the long-term Major alliances in the airline industry profitability of its members beyond their individual ability. • Star Alliance™, launched in May 1997 as the first really Star Alliance's vision is to be the leading global airline global airline alliance, comprises SAS Airline, Lufthansa, alliance for the frequent international traveler. United Airlines, Air Canada, Varig, Thai Airways Internation- The addition of four new airline members in 2000 al, All Nippon Airways, Singapore Airlines, Air New Zealand, allowed Star Alliance to successfully further develop its Ansett Australia, British Midland International, Austrian Air- global traffic system. In order to further increase value for lines, Lauda Air, Tyrolean Airways and Mexicana. the alliance's customers and members, and raise com- • oneworld™, launched in September 1998, comprises petitiveness, the intention is to take advantage of the British Airways, American Airlines, Cathay Pacific, Qan- alliance's size and global presence through further inte- tas, Iberia, LanChile, Finnair and Air Lingus. gration between members' networks, products and serv- • SkyTeam™, introduced in June 2000, comprises Air ices, IT systems and other resources. France, Delta Air Lines, AeroMexico, Korean Air, Alitalia and Czech Airlines. Strategic development areas and objectives • KLM and Northwest Airlines launched their alliance in The following objectives and strategic development 1993. KLM recently announced a planned partnership areas have been identified: with Continental Airlines, which already cooperates with • Global network - by creating a global route network with Northwest Airlines in the U.S. the best possible connections via several hub airports, Star Alliance can offer the most effective and flexible Star Alliance™ - SAS's global partner strategy global travel in the market. Star Alliance continues to be the cornerstone of SAS's • Simple and smooth travel - easily accessible products partnership strategy. The advantages of membership of and services from one total supplier of all members' the alliance have been considerable for SAS Airline, espe- product range, as well as fast and smooth transfers cially as regards growth in passenger numbers and traffic between members' flights. revenues. • Bonus program - travel with the different Star Alliance airlines provides bonus points and other benefits linked to alliance members. The world's major airline alliances in brief • Brand - Star Alliance is and will remain the leading alliance Annual Share of total brand. revenue Passengers/ world RPK • Sales - the alliance's products and services are available (USD billion) year (millions) 2001 2000 through all members' distribution channels, giving cus- Star Alliance™ 68.0 317 21.4% 21.3% oneworld™ 50.5 198 16.2% 16.4% tomers easy access to and a single point of contact for SkyTeam™ 34.6 178 10.0% 10.8% the full product range. KLM/Northwest 20.2 90 7.4% 6.4% • IT - common IT solutions provide effective support for Total alliances 173.3 783 55.0% 54.9% the alliance's products and services. . • Employees - training programs ensure that customers Source: Airline Business/Star Alliance. always meet competent and well-trained staff. 52 Annual Report 2001 – SAS Airline European cooperation agreement sion-approved joint venture agreement (which runs until SAS Airline-British Midland-Lufthansa December 2005) for air traffic between Scandinavia and On November 9, 1999, British Midland, Lufthansa and Germany. Joint timetables, ticket prices, and other mar- SAS concluded a three-party joint venture agreement, keting and sales activities, including bonus programs, the European Cooperation Agreement (ECA), whereupon have strengthened market positions for both parties. the parties agreed to coordinate their existing and future Results from the development of transfer traffic from scheduled traffic within the EEA (European Economic Scandinavia via Lufthansa's main hub in Frankfurt are Area) to and from London and Manchester. The agree- good. Joint venture traffic between the home markets of ment was approved by the EU Commission in March Scandinavia and Germany, on the other hand, was 2001 with effect from January 1, 2000. The agreement adversely affected by the trend after September 11, 2001. runs for eight years until December 31, 2007. The main purpose of this agreement was to "integrate each party's Austrian Airlines Group scheduled European air passenger transport services to The joint venture cooperation between Austrian Airlines and from London Heathrow and Manchester airport." and SAS Airline for air traffic between Scandinavia and The market showed negative development in 2001 Austria, which was concluded in April 2000, encountered and routes within the U.K. and between the U.K. and the problems related to competition law and failed to have rest of Europe were affected by a weaker economy, foot- the anticipated effect. The parties agreed to terminate and-mouth disease and finally the events of September this agreement after 2001. They will continue to cooper- 11. The ECA agreement contains a profit and loss distri- ate over air traffic outside each partner's hubs as regards bution structure which means that the parties' overall marketing, sales and bonus programs. result on the routes covered by the agreement, is distrib- uted in relation to set targets based on previously reported Earnings impact - Partner cooperations 2001 earnings trends. The total effect from partner cooperations decreased by There is still considerable uncertainty regarding earn- MSEK 250 compared with 2000, due to the crisis in the ings development on the ECA routes and the parties are airline industry. examining a number of measures designed to improve profitability. Despite this, a negative result is also expect- SAS Airline's regional airline partners - ed in the current year which is taken into account in the Well connected with SAS SAS Group's full year forecast for 2002. In the fourth In addition to global cooperation, SAS Airline has also quarter of 2001, the ECA agreement had a negative earn- established partnerships with a number of regional air- ings impact of MSEK 215 for SAS Airline and MSEK –335 lines in Scandinavia and neighboring areas. What these for the period January-December 2001. partners have is common is that they complement and The agreement will continue to have a negative impact on extend SAS Airline's regional route network in Scandi- the SAS Group's earnings in 2002, but SAS Airline is eval- navia, Finland and other Baltic countries, on routes which uating possible changes designed to reduce its exposure. otherwise could not be operated at a profit. By coordinat- ing timetables, the regional partner airlines transport Cooperation with Lufthansa passengers to and from SAS Airline's international net- Lufthansa is SAS Airline's single most important partner. work, with easily accessible connections via SAS Airline's The cornerstone of this partnership is the EU Commis- Scandinavian hubs. Key figures for Star Alliance, 2001 Annual Passengers/year Destina- Daily RPK operating revenue (million) tions Countries Aircraft departures (billion) (USD billion) Employees Air Canada 31.0 150 28 376 1,800 60.3 6.3 45,000 Air New Zealand/Ansett Australia 21.8 190 20 191 1,000 62.4 3.7 22,966 All Nippon Airways 43.2 60 11 144 590 54.2 8.6 14,639 Austrian Airlines Group 8.0 125 67 90 410 11.6 2.0 7,162 British Midland International 6.0 31 12 60 306 3.1 0.9 6,309 Lufthansa 47.0 349 91 324 1,349 85.3 11.5 31,305 Mexicana 8.3 49 10 58 207 12.6 1.0 6,900 SAS Airline 23.0 94 33 200 915 23.3 4.0 22,968 Singapore Airlines 12.8 119 41 91 222 60.3 4.6 14,600 Thai Airways International 17.7 73 34 80 286 41.4 3.0 25,782 United Airlines 87.0 307 26 604 2,294 200.5 19.4 101,849 Varig 11.0 120 20 87 453 25.4 3.0 17,740 Star Alliance 316.8 894 129 2,305 9, 832 640.4 68.0 317,220 Source: Airline Business/Star Alliance Annual Report 2001 – SAS Airline 53 SAS Airline Through the established business concept "Well The following airlines participate in the "Well connected" connected with SAS," based on customer needs and concept: Air Botnia in Finland, airBaltic in Latvia, Cimber Air expectations, the advantages of the cooperation for cus- in Denmark, Skyways in Sweden and Widerøe in Norway. tomers are made clear. Since the selected airlines must meet a number of spe- Other European airline partners cific product and service requirements in order to qualify, SAS Airline has a number of cooperation partners in order "Well connected with SAS" also provides quality assur- to further strengthen and complement its position in mar- ance. At the same time, the designation increases the kets which are important for SAS Airline and its customers. exposure and draws attention to the SAS brand. "Well con- nected with SAS" is now displayed on some 60 aircraft. Icelandair "Well connected" partner airlines serve 50 destinations Its geographic position makes Iceland a good departure in Scandinavia and neighboring countries which are not point for passengers from Northern Europe to the U.S. SAS served by SAS Airline. In total, with SAS Airline, 140 desti- Airline has a code-sharing cooperation with Icelandair over nations are served. the North Atlantic, as well as to destinations in Europe via Copenhagen. Icelandair carries 1.4 million passengers a Well connected partners key figures, 2001 year and serves 23 destinations outside Iceland. Widerøe's The U.S. authorities have approved the cooperation Cimber Skyways Air Flyve- agreement between SAS Airline and Icelandair. airBaltic Air Holding Botnia selskab SAS Group's holding 47.2% 26.0% 25.0% 100.0% 63.3% Maersk Air Passengers/year In 1999, SAS Airline and Maersk started a commercial (000) 249 889 1,280 452 1,409 cooperation over code-sharing, ground and IT services Number of aircraft 6 15 36 10 27 and Maersk Air's participation in SAS Airline's EuroBonus Number of destinations 8 19 31 11 40 Number of daily program. This cooperation was reported to the EU Com- departures 25 91 220 66 240 Stockholm mission. RPK (million) 160 286 487 254 357 The EU Commission made an unannounced visit to Annual operating revenue (MSEK) 462 926 – 974 2,135 SAS Airline and Maersk Air in June 2000 and revealed Number of employees 285 366 850 303 1,227 that the parties had also concluded a cooperation on the division of certain markets in contravention of the EU's fined by competition rules. Both parties were *Stockholmthe Com- The SAS Group's airlines and its "Well connected mission in July 2001, in SAS Airline's case the fine was partners" serve 140 destinations within Scandinavia and neighboring countries MEUR 39.375. SAS Airline has appealed against the size of the fine, but not the infringement as such, to the Euro- Well connected partners pean Court of First Instance. airBaltic Cimber Air As a consequence of this unlawful cooperation, the Skyways Holding person responsible for the agreement has left SAS Air- Part of the SAS Group line. A further consequence of these events was the res- Air Botnia ignation of the SAS Group's Board of Directors on Widerøe's Flyveselskap November 6, 2001. In autumn 2001, the parties conclud- ed a new and more limited cooperation which the parties have notified to the EU Commission. FINLAND Estonian Air NORWAY Estonian Air carries 292,000 passengers per year and complements SAS Airline by flying in cooperation with Oslo Helsinki SAS Airline between Estonia and Stockholm and Copen- Stockholm hagen respectively. Estonian Air participates in the SAS ESTONIA SWEDEN EuroBonus program. LATVIA DENMARK LITHUANIA Copenhagen BELARUS POLAND GERMANY 54 Annual Report 2001 – SAS Airline Subsidiary & Affiliated Airlines Subsidiary Airlines Spanair Braathens Widerøe's Flyveselskap Air Botnia Affiliated Airlines Skyways Holding Cimber Air airBaltic Grønlandsfly British Midland 55 Subsidiary & Affiliated Airlines The acquisition of Braathens and the changed owner- Key figures (Widerøe and Air Botnia)* ship in Spanair, will give SAS Airline an opportunity to 2001 2000 further expand and raise the efficiency of its use of Operating revenue, MSEK 3,123 2,568 Copenhagen as SAS's traffic hub. The acquisition of Earnings before depreciation and Braathens will also provide synergies in 2002 which are leasing costs, EBITDAR, MSEK 510 376 estimated to amount to approximately MSEK 800. Earnings before depreciation, EBITDA, MSEK 317 257 Income before tax, MSEK 7 106 Business environment Number of aircraft (incl. Braathens) 75 ** Consolidation - national and regional airlines Number of passengers, scheduled, million 2.0 1.8 The airline industry has traditionally been built up by Number of destinations 51 52 national carriers which serve their home markets. These Number of daily departures 306 320 markets have functioned as catchment areas for interna- Average number of employees 1,530 1,495 tional flights and also in some cases intercontinental * Braathens' results are not consolidated in the SAS Group in 2001. flights. Deregulation of civil aviation has changed the Braathens is included in the SAS Group's consolidated balance sheet preconditions and structure of the industry. at December 31, 2001 and therefore in the Group's aircraft fleet. For airlines which previously operated under regulat- Spanair is consolidated according to the equity method with 49%. ed conditions, airspace has successively opened, which ** Information not avaliable. has allowed the airlines to compete in new markets. This trend has increased the need of consolidation between the national and regional carriers since competition has Subsidiary & Affiliated Airlines includes the subsidiaries intensified sharply. Survival today requires a strong posi- Braathens, Air Botnia, Spanair (agreement in place on tion in the home market and a strong traffic hub from increased ownership in 2002) and Widerøe Flyveselskap which travelers can be flown directly. The events of Sep- and the affiliated companies Skyways Holding, Cimber tember 11 in the U.S. have accelerated consolidation in Air, British Midland, airBaltic and Grønlandsfly. the airline industry. Spanair* Braathens* Subsidiary & Widerøe's Affiliated Airlines Flyvelselskap (operating revenue (operating revenue MSEK 3,123) MSEK 2,135) Air Botnia (operating revenue MSEK 974) Affiliated Airlines* * Operating revenue not con- solidated in the SAS Group for 2001. Passenger traffic development - Spanair, Braathens, Widerøe and Air Botnia Number of passengers (000) RPK, mill ASK, mill Cabin factor, % 2001 2000 Change, % 2001 2000 Change, % 2001 2000 Change, % 2001 2000 Change, %pts.* Total Subsidiary & Affiliated Airlines 12,986 12,930 0.4% 9,215 8,623 6.9% 16,123 14,958 7.8% 57.1% 57.6% –0.5%pts. Spanair** 5,633 5,028 12.0% 5,651 5,102 10.8% 9,495 8,285 14.6% 59.5% 61.1% –1.6%pts. Braathens 5,492 5,995 –8.4% 2,953 2,925 1% 5,336 5,413 –1.4% 55.4% 54.0% 1.4 %pts. Widerøe 1,409 1,506 –6.5% 357 377 –5.3% 711 725 –1.9% 50.2% 52.0% –1.8%pts. Air Botnia 452 401 12.7% 254 219 16.0% 579 533 8.6% 44.0% 41.0% +3.0%pts. * Change in percentage points. ** Figures relate to Spanair's fiscal year, November-October. 56 Annual Report 2001 – Subsidiary & Affiliated Airlines Subsidiary Airlines Unit cost variations with flight distance, Europe Cost/available tonne kilometer, U.S. cents 180 Facts 2000/01* 1999/00* 1998/99* 160 The SAS Group's holding 49% 49% 49% 140 Operating revenue, MEUR 778 611 504 120 EBITDAR, MEUR 53 42 95 100 EBITDAR, margin 6.8% 7.0% 18.8% Average 80 CFROI 4% 5% 16% 30%* flight distance 60 (km) 1) Number of cities served 35 31 29 40 2) Number of passengers, scheduled, million 5.7 5.0 3.7 20 Number of flights, scheduled 65,591 49,671 33,274 0 Punctuality (% within 15 minutes) 86% 70% 54% 600 800 1,000 1,200 1,400 1,600 1,800 * Fiscal year November 1-October 31 SAS Spanair AEA average AEA 1) Excluding charter 2) Including charter * Lower unit cost than AEA average Background Investment case - control over a strategic asset Spanair was formed by SAS and the Spanish company In November 2001, the SAS Group concluded an agree- Teinver in 1986. Operations started in March 1988. ment to raise its holding from 49% to 74% in Spanair in Spanair was initially a charter airline which served the SAS order to gain control of a strategic holding. This agree- Leisure Group, among others. In February 1994, Spanair ment is being examined by the EU Commission. started scheduled airline operations. Scheduled flights The Spanish domestic market is among the fastest have shown very strong growth since then and today growing in Europe with annual growth of 11% in 1996- account for 74% of Spanair's flights. 2000. The air travel market's penetration (the number of The fleet comprises 48 aircraft. The number of passen- annual flights per inhabitant) is relatively low in Spain with gers in 2001 amounted to 8.1 million (incl. charter) and less than 2 trips/inhabitant. Compared with Scandinavia 5.7 million excluding charter. The number of employees at with 3-4 trips/inhabitant, this shows there is major future year-end was 2,438. potential for continued growth. Spanair is Spain's second largest airline and invest- Spanair is a highly cost effective airline with approxi- ments in capacity and slots gave Spanair a 24.5% share of mately 30% lower costs than comparable competitors. the Spanish domestic market in 2001. Spanair also has Spanair also has considerable potential as regards yield. 14% of the landing rights at Madrid's Barajas Airport, By focusing on product development, such as punctuality which is of major strategic value. Spanair started inter- guarantees and VIP lounges, Spanair will attract more continental flights in November 1997, a venture which business travelers, for example between major business subsequently proved to be strategically incorrect. centers such as Barcelona and Madrid. The SAS Group has three representatives on Spanair's Spanair's route network board and key people in Spanair's management. It is the SAS Group's aim to make Spanair a Star Alliance member in Stockholm the near future and thus strengthen its role in Star Alliance. Copenhagen Earnings trend 2001 In 2000/01 Spanair's traffic rose 11% and capacity including charter rose 18%. Earnings were negatively Paris (Charles de Gaulle) Frankfurt affected by the intercontinental traffic, particularly after Vienna La Coruña September 11. Against this background, Spanair has Santiago de Compostela decided to discontinue its intercontinental routes. Vigo Lisbon Barcelona Future prospects Valencia Madrid Ibiza Mahón An extensive improvement program of MEUR 67 (incl. Palma de Seville Alicante Mallorca suspension of the intercontinental traffic) is currently Malaga under way, and will have its full effect in 2003. A posi- Santa Cruz de Tenerife Lanzarote tive operating result is expected in 2002. Fuerteventura Tenerife Sur Gran Canaria www.spanair.es Malabo Subsidiary & Annual Report 2001 – Subsidiary & Affiliated Airlines 57 Affiliated Airlines Investment case SAS Airline has had a relatively low share of the Norwe- Facts* 2001 2000 1999 gian domestic market due to competition from Braa- The SAS Group's holding 98.48% 0% 0% thens. The situation in Norway has been unlike that in the Operating revenue, MNOK 6,013 5,807 5,241 rest of Europe. This is due to the regulation and distribu- EBITDAR, MNOK 505 318 –244 tion of Norwegian civil aviation after the second world EBITDAR, margin 8.4% 5.5% –4.6% EBITDA, MNOK –167 –362 –618 war, where Braathens mainly focused on domestic serv- CFROI 8.0% 4.9% –4.4% ices and SAS Airline on international flights. After the Number of cities served 24 24 23 deregulation of the Norwegian market in 1994 and the Number of passengers, scheduled,million 5.5 6.0 5.9 opening of the major airport at Gardermoen in 1998, Number of flights, scheduled 93,773 104,916 108,698 competition has intensified. Braathens' weak position in Punctuality (% within 15 minutes) 91.3% 91.3% 84.5% CO2 emissions, tonnes 404,215 419,267 451,798 the international market made it difficult for the airline to * Excluding operations in Sweden. Braathens' results are not consoli- find a role in European air traffic. dated in the SAS Group in 2001. Braathens is included in the SAS For the SAS Group the investment in Braathens is Group's consolidated balance sheet at December 31, 2001. strategically and industrially correct. The acquisition means that: • The SAS Group strengthens its position in its home Background market. Braathens was established in 1946 and has 4,600 employ- • SAS/Braathens release major synergy effects. The syn- ees. The fleet comprises 33 aircraft. In 2002, the fleet will ergy gains are expected to amount to MSEK 800 in be reduced to 23 aircraft. In 2001, Braathens transported 2002 and will then further increase. 5.8 million passengers including charter and had an oper- • The merger of the airlines will make it possible to achieve ating revenue of MNOK 6,013. the same cabin factor as Swedish domestic traffic, which In spring 2001, Braathens' financial problems became will reduce carbon dioxide emissions substantially. acute and the company's major shareholders saw no • SAS Airline will ensure a passenger base for its Euro- alternative other than to invite the SAS Group to become an pean and intercontinental networks. owner. In May 2001, the SAS Group accepted this subject to approval from the Norwegian Competition Authority. Responsible takeover This approval was announced on October 23, 2001. The merger of SAS and Braathens gives the SAS Group a On December 20, 2001, 98.48% of Braathens' share- responsibility for infrastructure in Norway and the aim is holders had accepted the SAS Group's offer. The remain- to continue to offer customers a good product range at ing shares were taken over in February 2002. competitive prices. The route network will be restructured before April 1, 2002, so that a comprehensive and effec- Braathens' route network tive traffic system with less environmental impact can be Longyearbyen (February 2002) provided. Tromsø Bardufoss Harstad/Narvik Earnings trend 2001 Bodø Despite a smaller market in Norway, Braathens improved Trondheim its gross operating margin from 5.5% in 2000 to 8.4% in Kristiansund Alesund Molde 2001. This improvement resulted from cost reductions Bergen as well as new routes and more frequencies to Spain and Haugesund Oslo Stavanger Nice. EBITDAR was MNOK 505. Aberdeen Kristiansund Newcastle Billund Future prospects Braathens will remain as a separate subsidiary in the SAS London Amsterdam Group, with its own organization and market. The core business and network will be on Norwegian domestic routes, but the company will also serve international niche routes and conduct charter traffic. Braathens has make Milan major cutbacks in its operations. The network and func- Nice tions will soon with coordinated with those of SAS Airline. Barcelona These measures will provide a basis for Braathens to Alicante return to profitability and improve its equity/assets ratio. Malaga www.braathens.no 58 Annual Report 2001 – Subsidiary & Affiliated Airlines Facts 2001 2000 1999 Facts 2001 2000 1999 The SAS Group's holding 63.3% 63.3% 63.3% The SAS Group's holding 100% 100% 100% Operating revenue, MSEK 2,135 1,851 1,699 Operating revenue, MSEK 974 772 265 EBITDAR, MSEK 371 318 145 EBITDAR, MSEK 129 62 –113 EBITDAR, margin 17.4% 17.2% 8.6% EBITDAR, margin 13.2% 8.0% –42.6% EBITDA, MSEK 254 224 119 EBITDA, MSEK 2 11 –165 Income before tax, MSEK 79 56 –94 Income before tax, MSEK –33 –5 –174 CFROI 16.5% 15.5% 8.6% CFROI 15% 16% –31% Number of cities served 40 38 41 Number of cities served 11 14 10 Number of passengers, scheduled, million 1.4 1.5 1.6 Number of passengers, scheduled, million 0.5 0.4 0.2 Number of flights, scheduled 87,455 89,931 95,968 Number of flights, scheduled 24,090 27,084 21,170 Punctuality (% within 15 minutes) 90.4% 90.3% 86.7% Punctuality (% within 15 minutes) 92% 92% NA CO2 emissions, tonnes 94,563 97,052 100,784 CO2 emissions, tonnes 92,075 88,100 43,300 Background Background Widerøe's Flyveselskap was formed in 1934 and has about Air Botnia has been 100% owned by the SAS Group since 1,200 employees. The SAS Group has had a 63.3% stake in 1998 and has 303 employees. Air Botnia has 10 aircraft at the company since 1998. The head office is located in Bodø its disposal which fly to 11 destinations with 66 flights per and there is also an administrative office in Oslo. Operating day. The company is part of SAS Airline's traffic system and bases are in Hammerfest, Bergen, Bodø, Oslo and Sande- contributes to the development of new markets. Products, fjord. Widerøe is Norway's largest regional airline with 27 timetable and service are coordinated with SAS Airline. aircraft in operation and services to 35 destinations in Nor- Air Botnia offers competitive feeder traffic to/from Fin- way and five abroad. Widerøe is included in SAS Airline's land, primarily to Stockholm and Copenhagen, but also to traffic system on domestic and international routes. SAS Oslo and Gothenburg and other Nordic destinations. Air Airline's traffic system is complemented on the Sande- Botnia and SAS Airline together have a total of more than fjord/Torp-Stockholm, Copenhagen, Bergen-Stavanger, 100 daily flights between Finland and the three Scandina- Stavanger-Aberdeen and Oslo-Gothenburg routes. vian countries. The total travel market fell in Norway in 2001. Contributo- Air Botnia renewed its aircraft fleet in 2001 with five Avro ry factors to this decline were the introduction of passenger RJ85s and five SAAB 2000s. tax in April 2001 on Norwegian domestic routes and uncer- At year-end 2001, the average age of the aircraft fleet tainty regarding the economic outlook. Efforts were initiat- was 2.6 years, placing it among the youngest fleets in ed in 2001 to handle this decline through adjustment of Europe. The fleet meets all present and all known future fares, capacity adjustments and a cost efficiency program. environmental requirements. The punctuality target was met in 2001 and during the In September, Air Botnia's technical maintenance organ- year Widerøe received the European Regions Airline Asso- ization was approved as a JAR-145 organization for the ciation's (ERA) Silver Award in the "Airline of the year" Avro RJ85 aircraft. Similar JAR-145 approval for the SAAB competition. 2000 is expected in mid-2002. Successful turnaround Earnings trend 2001 Widerøe has completed an extensive restructuring pro- The earnings trend declined after September 11 due to gram in recent years. The results of this have been suc- lower passenger volumes and business travel. Moreover, cessful and had a positive earnings impact in 2001. insurance premiums rose and security costs were charged against earnings. Earnings trend 2001 An earnings improvement program was started and In 2001 Widerøe reported income before tax of MNOK the traffic program was adapted to the new market situa- 79, which is an earnings improvement of 41% and tion. This program will further improve Air Botnia's com- Widerøe's best-ever result. petitive cost structure. Income before tax for 2001 CFROI amounted to 16.5% which almost meets the amounted to MSEK –33. SAS Group's return requirement. Future prospects Future prospects The earnings improvement program will continue in Widerøe expects improved earnings in 2002 although 2002. The effects of measures designed to adapt the market situation is hard to assess. The aim is to be the resources and costs to the lower demand and the adjust- leading regional airline in Northern Europe through prof- ed traffic program are expected to result in Air Botnia itable growth in new market segments with a continued achieving a positive earnings trend in the latter part of focus on costs. 2002. www.wideroe.no www.airbotnia.fi Subsidiary & Annual Report 2001 – Subsidiary & Affiliated Airlines 59 Affiliated Airlines Affiliated Airlines Affiliated Airlines include a number of regional airlines in which the SAS Group is a part owner. The total of five airlines complement and extend SAS's traffic system by flying to and from SAS Airline's traffic hubs on routes with weak traffic. Skyways, Cimber Air and airBaltic fly under the designation "Well connected with SAS." Regional airlines Facts 2001 2000 1999 Facts 2001 2000 1999 SAS Group's holding 25% 25% 25% SAS Group's holding 47.2% 34.2% 34.2% Operating revenue, MSEK * 1,731 1,233 Omsättning, MSEK 462 369 315 EBITDAR, MSEK * 181.2 203.0 EBITDAR, MSEK 91 65 6 EBIT, MSEK * 7.3 42.8 EBIT, MSEK 15 1 –60 Number of passengers (000) 1,326 986 759 Number of passengers (000) 249 218 194 Skyways has access to 36 aircraft and flies to 31 Swedish airBaltic has its base in Riga, Latvia. The company has domestic destinations and some international routes. six aircraft at its disposal. airBaltic provides services Skyways complements SAS's traffic system on interna- between Riga and Copenhagen and Stockholm respec- tional routes. tively, and also flies to destinations in the Baltic region SAS Airline and Skyways concluded a cooperation and in Eastern Europe. agreement in March 1997. This cooperation includes code- The earnings trend in 2001 was positively affected by sharing, ground handling, bonus program and distribution. an increased cabin factor and more flights combined The cooperation was registered with the EU Commission in with a stable cost development. Weak development was 1997. In August 2000, the Swedish Competition Author- noted, however, in the fourth quarter. ity made an unannounced visit to both SAS Airline and Sky- ways. In May 2001, the Competition Authority presented its preliminary findings that the parties had been involved Facts 2001 2000 1999 in market division. SAS Airline and Skyways have had a close dialog with the competition authorities and made SAS Group's holding 37.5% 37.5% 37.,5% Operating revenue, DDK * 738 724 clarifications and amendments to the agreement, which EBITDAR, DDK * 46 91 is now approved by the Swedish Competition Authority. EBIT, DDK * –15 34 Number of passengers (000) 206 308 282 The company conducts air services to/from and within Facts 2000/01 1999/00 1998/99 Greenland and has 10 aircraft and 12 helicopters in opera- SAS Group's holding 26% 26% 26% tion. Grønlandsfly serves 24 destinations and had nearly Operating revenue, MSEK 926 779 693 500 employees in 2001. EBITDAR, MSEK 138.5 106.9 122.1 EBIT, MSEK 34.1 20.0 51.0 Number of passengers (000) 889 870 779 European airline Cimber Air is a regional airline in Denmark. The company has 15 aircraft at its disposal. Cimber Air complements SAS Airline's traffic system on domestic routes in Den- Facts 2001 2000 1999 mark and on the Copenhagen-Berlin route. Cimber Air SAS Group's holding 20% 20% 40% also cooperates with Lufthansa on German domestic and Operating revenue, MSEK * 10,994 9,439 EBITDAR, MSEK * 1,989 1,639 European regional routes. EBIT, MSEK * 224 231 The cooperation with Cimber Air is approved by the Number of passengers (000) 6,730 7,098 6,547 Danish competition authorities until March 2003. The earnings trend for 2000/2001 was not affected by British Midland International, together with Lufthansa, is a the events of September 11 since Cimber Air's reporting SAS Airline partner in the European cooperation (ECA), and period is from May to April. Earnings instead showed a pos- in Star Alliance. British Midland's aircraft fleet comprises 60 itive development compared with the previous fiscal year. aircraft. 31 destinations are served in the U.K. and in the rest of Europe. The company also services the Manchester- Washington DC route. (See also description of British Midland on page 53.) * Information not available at the end of February 2002. 60 Annual Report 2001 – Subsidiary & Affiliated Airlines Airline Related Businesses SAS Cargo Jetpak Scandinavian IT Group SAS Trading SAS Flight Academy SMART Others SAS Flight Support SAS Media SAS Hosting 61 Airline Related Businesses Airline Related Businesses includes SAS Cargo, SMART, Key figures for Airline Related Businesses SAS Trading and Jetpak – all of which make most of their 2001 2000 sales to external customers. SAS Flight Academy and SAS Flight Support sell services to both internal and Operating revenue, MSEK 8,148 5,788 Operating income, EBIT 149 162 external airlines. Scandinavian IT Group has most of its Income before tax, MSEK 160 180 sales within the Group. Investments, MSEK 542 381 Average number of employees 4,038 2,540 SAS Cargo Group A/S 28% (operating revenue MSEK 2,698)* Jetpak AB 4% (operating revenue MSEK 355)* Scandinavian IT Group AS 25% (operating revenue MSEK 2,463)* Airline Related SAS Trading Businesses 24% (operating revenue (operating revenue MSEK 8,148) MSEK 2,275)* SAS Flight Academy AB 6% (operating revenue MSEK 627)* SMART AB 6% (operating revenue MSEK 593)* Others SAS Flight Support SAS Media SAS Hosting, etc. * Operating revenue before Group eliminations. Key figures % of operating revenue Operating revenue Operating income, EBIT outside SAS MSEK 2001 2000 1999 2001 2000 1999 2001 2000 1999 SAS Cargo 2,698 – – – – – – – – Jetpak 355 244 222 10 16 14 99.5 97.4 97.1 Scandinavian IT Group 2,463 2,121 2,247 104 74 90 3.6 4.3 7.3 SAS Trading 2,275 2,148 2,188 2 64 21 98.0 99.0 99.9 SAS Flight Academy 627 606 607 62 98 108 35.4 37.6 32.6 SMART 593 584 683 62 –20 33 99.8 99.0 98.4 62 Annual Report 2001 – Airline Related Businesses tributory factor. Within Europe it was difficult to compete with low-cost land transport. Freight tonnage to the Far East remained high but did not reach the high levels of recent years. SAS Cargo maintained its market shares in 2001 2000 1999 the Nordic region despite falling demand. Operating revenue 2,698 – – Towards the end of 2001, capacity within global air Traffic revenue, MSEK 2,170 2,225 2,109 Flown tonnes, 000 263,431 286,785 284,675 freight decreased substantially. This was due to SAS Car- Tonne km, 000 878,364 944,342 900,958 go's competitors suspending routes and taking aircraft Cargo yield, SEK/tonne km 2.44 2.33 2.28 out of operation, which had a positive impact on SAS Car- Number of employees 1,180 1,184 1,176 go's air freight. SAS Cargo was formed as an independent corporation on June 1, 2001. The figures for earlier periods pertain to the operations con- ducted by SAS Cargo within SAS Airline, previously called SAS airline Main strategic focus operations. Customers In recent years, the transport and logistics industry has Incorporation 2001 undergone major structural changes which led to consol- SAS Cargo was established on June 1 as an independent idation among market players. corporation, SAS Cargo Group A/S, wholly owned by the In order to meet this development, SAS Cargo took the SAS Group. initiative to strengthen customer relations, mainly in the Nordic home market. Customer Advisory Boards and Development in 2001 Agent Advisory Boards have been formed to develop cus- SAS Cargo's traffic revenue amounted to MSEK 2,170 tomer relations. (2,225) in 2001. The total flown tonnage amounted to During the year, SAS Cargo concluded an agreement 263,431 tonnes (286,785). Yield rose from SEK with Northern Cargo, which is a representative for some 2.33/tonne km to SEK 2.44/tonne km. Development in of Norway's major fish exporters. This agreement is the 2001 should be seen in the light of the tragic events of first of its kind in the Nordic region and guarantees SAS September 11 in the U.S. and the subsequent crisis for Cargo a revenue of approximately MNOK 40. international civil aviation in an already weak market. Networks Market development In 2001, SAS Cargo maintained its agreements with oth- Global demand for air freight fell in 2001. The market er air freight companies on scheduled services to the Far was characterized by overcapacity and a less favorable East. The network includes a route between Gothenburg business climate. According to IATA, the freight market in Sweden and Osaka in Japan as well as scheduled serv- fell by approximately 8% in 2001 compared with 2000. ices to Hong Kong and Singapore. In some markets the price for air freight was under The phasing in of the Airbus A340 on SAS Airline's intense pressure. routes to the Far East will provide 45% more freight Cargo yield (the price of air freight) was under strong capacity for SAS Cargo to Beijing, Bangkok/Singapore pressure in 2001. Despite this, SAS Cargo maintained its and Tokyo. The Airbus A321 will allow freight containers price level which reduced competitiveness. Above all, this to be transported on European routes. This will provide a affected air freight volumes from the U.S. to Scandinavia, better service for transit freight, shorter transport times where decline in American exports to Europe was a con- and simpler handling routines. Freight and mail traffic, 2001/2000 2001 2000 Freight Mail Total Freight Mail Total Million Million Million Million Million Million tonne km tonne km tonne km tonne km tonne km tonne km Intercontinental 452,179 29,324 481,503 501,024 28,904 529,928 Europe 21,329 13,288 34,617 25,742 14,223 39,965 Intra-Scandinavian 4,081 1,065 5,146 4,846 1,086 5,932 Total International 477,589 43,677 521,266 531,612 44,213 575,825 Denmark 5,754 1,096 6,850 5,285 1,343 6,628 Norway 3,949 7,206 11,155 4,569 7,734 12,303 Sweden 401 0 401 558 0 558 Total domestic 10,104 8,302 18,406 10,412 9,077 19,489 All Cargo 335,371 3,321 338,692 346,482 2,546 349,028 Total 823,064 55,300 878,364 888,506 55,836 944,342 Airline Annual Report 2001 – Airline Related Businesses 63 Related Businesses Integrated freight cooperation Future prospects SAS Cargo and Lufthansa Cargo started integrating In response to the weaker business climate in the market sales and marketing activities in Europe and the Nordic for air freight, an extensive action program was launched region two years ago. One of SAS Cargo's goals for 2001 in the second half of 2001. This program which goes was to raise competitiveness through an integrated under the name "SAS Cargo Fitness" contains some 100 freight agreement with Lufthansa Cargo and Singapore different activities and will run until June 2003. The Airlines Cargo. Such a cooperation agreement was pre- action program is expected to provide an earnings boost sented on September 26. of approximately MSEK 100. As a result of cooperation between the companies (the The unstable market trend for air freight makes it diffi- WOW Alliance) new, harmonized express products were cult to assess the prospects for SAS Cargo in 2002. launched on October 1, 2001. Since that date the three www.sascargo.com companies' express products have been handled freely over the combined route network with an improved capacity, quality and time guarantee. This means that SAS Cargo can offer customers the "SAS Priority" prod- uct to 47 new destinations. The next stage will be to har- monize the three companies' general cargo products, with a launch expected in the second quarter of 2002. 2001 2000 1999 Operating revenue, MSEK 355 244 222 of which external (%) 99.5 97.4 97.1 Quality, safety and environment EBITDA, MSEK 19 20 18 In 2000, SAS Cargo in North America and the freight ter- Operating income, EBIT, MSEK 10 16 14 minals in Gardermoen-Oslo, Landvetter-Gothenburg and Income before tax, MSEK 10 17 16 Arlanda-Stockholm received certification according to ISO Number of employees 125 83 76 9002. In the first quarter of 2001, the terminal in Copen- hagen also received ISO certification. In the fourth quarter Jetpak is the market leader in "same day" logistics in the of 2001, the terminals in Bergen and Stavanger in Norway, Nordic region. These operations are conducted by Jetpak and the terminals in Malmö and Norrköping in Sweden, Nordic AB which is a wholly owned subsidiary of the SAS achieved quality certification from Det Norske Veritas. Group. The company is represented in the Nordic coun- The goal for the future is to change certification of the tries by wholly owned subsidiaries. The largest delivery freight terminals to the new ISO 9000-2000 standard. firm in the Nordic region, Adena-Picko's, is part of Jetpak. This work is expected to take place over the next two Jetpak's core business is to offer the Nordic transport years. SAS Cargo is working to formulate an environmen- market time-guaranteed door-to-door express deliveries, tal management system according to ISO 14001 which local delivery services and customized service logistics will be integrated with the quality system. solutions. Jetpak is one of the fastest growing players As a consequence of the events of September 11 in the within express logistics within the Nordic region and is U.S., SAS Cargo has increased security in the handling represented in more than 150 locations with more than and transport of air freight. Substantial investments have 800 delivery vans. been made in new security equipment. As regards secu- Jetpak has cooperation agreements with all airlines rity, SAS Cargo is thus on a par with existing and future that fly within and between the Nordic countries and official requirements. cooperates with the express delivery company DHL to more than 220 countries. There was a marked decline in the market throughout 2001. The industry has enjoyed positive development for several years. This trend has now been broken. This was particularly noticeable for transport within the Nordic region where the sales increase in recent years has been 20-30%. As a result of this weaker trend, a program to compensate for lower revenues was implemented in spring 2001. A further review of costs is now under way after the weak market development in the autumn. Despite the weak market trend, Jetpak's income before taxes reached MSEK 10 (17). www.jetpak.com 64 Annual Report 2001 – Airline Related Businesses stores are operated in concession agreements where the airport operator is offered store management for a specific number of years with the rent as a value factor. When the contract expires, the store goes out to a new tender. 2001 2000 1999 During the year SAS Trading submitted tenders for the Operating revenue, MSEK 2,463 2,121 2,247 tax-free stores in Copenhagen and in Sweden. In both of which external (%) 3.6 4.3 7.3 EBITDA, MSEK 245 207 222 cases the concessions went to a competitor. Operating income, EBIT, MSEK 104 74 90 Earnings during the year were negatively affected by Income before tax, MSEK 96 61 82 the weak Swedish krona, the downward trend in airline Number of employees 1,274 1,182 1,143 traffic and the fact that SAS Trading's distributor went bankrupt. Scandinavian IT Group is one of the major IT operations in In 2002, SAS Trading will prioritize growth and change Scandinavia. The company is 100% owned by the SAS of corporate culture. This will develop these operations Group. The product portfolio ranges from advanced IT into a competitive retail trading chain with a qualified applications to the best infrastructure and consulting serv- businesslike approach. ices in the market. The high level of expertise required in www.scandinavian.net the civil aviation industry makes Scandinavian IT Group a competent partner for many airlines. The SAS Group is Scandinavian IT Group's largest cus- tomer. One of the company's main strategies is to increase the proportion of customers outside the SAS Group. The intention is to supply the best IT solutions in the civil aviation industry and develop new product con- 2001 2000 1999 cepts within and outside the airline business. Operating revenue, MSEK 627 606 607 Today, Scandinavian IT Group supplies about 40 air- of which external (%) 35.4 37.6 32,6 lines including Star Alliance members with products and EBITDA, MSEK 150 176 184 Operating income, EBIT, MSEK 62 98 108 services,. Income before tax, MSEK 56 92 103 Operations have seen positive development in recent Number of employees 200 193 189 years. Operating revenue has almost doubled in five years. In 2001, operating revenue totaled MSEK 2,463 SAS Flight Academy is a wholly owned subsidiary of SAS and income before taxes amounted to MSEK 96 (61). and operates leading training centers for pilots, air host- www.scandinavianIT.com esses/stewards, flight technicians and ship's officers. The company has ISO 9001 certification and is a Type Rating Training Organization (TRTO) approved by civil aviation authorities for type training of pilots according to the European JAR-FCL rules. In addition to SAS, SAS Flight Academy trains person- nel from approximately 150 other airlines and military organizations. The main operations are conducted at 2001 2000 1999 Arlanda Airport, but also via subsidiaries in Denmark and Operating revenue, MSEK 2,275 2,148 2,188 of which external (%) 98.0 99.0 99.9 Norway. EBITDA, MSEK 38 97 49 In order to further strengthen SAS Flight Academy's Operating income, EBIT, MSEK 2 64 21 position as a leading European training centre a deHavil- Income before tax, MSEK –1 75 38 Number of employees 658 639 590 land Q400 full flight simulator was installed in March 2001 and an Airbus A330/A340 full flight simulator in June 2001. SAS Trading is an independent business unit in the SAS The negative development in the airline industry led to Group and one of the world's leading operators within Trav- slightly lower training volumes for SAS Flight Academy in el Retail. At year-end 2001, operations comprised 55 stores the final quarter of 2001. In particular sales to customers at 34 airports in Sweden, Norway, Denmark, Estonia, Latvia outside SAS Airline fell in the last quarter. In response to and Poland. The business concept is to "buy in, market and the fast-changing market, SAS Flight Academy reviewed sell high-profile branded goods to frequent air travelers with its organization in the autumn and prepared an action a customer-perceived price advantage in its own stores." program designed to enhance organizational efficiency. SAS Trading has 658 employees and operating revenue Income before tax for 2001 amounted to MSEK 56 (92). amounted to MSEK 2,275 during the year. The airport www.sasfa.com Airline Annual Report 2001 – Airline Related Businesses 65 Related Businesses additional market shares, product development and effi- ciency enhancement to position the company for the future. 2001 2000 1999 The company's operating revenue amounted to MSEK Operating revenue, MSEK 593 584 683 98 in 2001 and income before tax was MSEK –20. of which external (%) 99.8 99.0 98.4 EBITDA, MSEK 71 –5 55 www.sasflightsupport.com Operating income, EBIT, MSEK 62 –20 33 Income before tax, MSEK 95 4 37 SAS Media AB Number of employees 249 294 351 SAS Media is 100% owned by the SAS Group. The com- pany has 45 employees and offices in Oslo and Stock- Scandinavian Multi Access Systems SMART AB (SMART), holm. is owned 95% by the SAS Group and 5% by Amadeus The company publishes SAS's inflight magazine Global Travel Distribution S.A. Scanorama and SAS Magasinet in Denmark, Norway and SMART is Northern Europe's leading company in elec- Sweden. Production is financed with revenues from tronic trading and distribution of travel and travel-related advertising to the target group "on board" under the services and arranges travel electronically to a value of Meet the Scandinavians concept. Advertisers can also approximately SEK 70 billion per year. The company has communicate with the target group through other chan- three business areas and at year-end had 249 employees nels within the SAS Group which are also marketed by and offices in Copenhagen, Oslo, Stockholm, Riga and SAS Media. Vilnius. In the next few years SAS Media will focus more on the SMART's most important cooperation partner is digital media world. Database technology allows publica- Amadeus, the world's largest reservations and distribu- tion in several different channels, such as the Internet, tion channel for the travel industry. SMART is general WAP, screens on board and printed publications. The aim agent for Amadeus in its home markets of Scandinavia of this focus is to cooperate with other units in the SAS and the Baltic region. Group to produce cost-effective information, entertain- In 2001, the number of Amadeus reservations via ment and market communication. SMART decreased by approximately 11%. In terms of SAS Media works with an environmental management earnings this could be compensated to some extent by a system which integrates external and internal environ- favorable exchange rate development between EUR and mental issues (TCO6E). SEK. Overall, SMART's operating revenue increased by In 2001 operating revenue amounted to MSEK 63. 1.5% in 2001. Earnings were positively affected by lower Income before tax was MSEK 6. costs and amounted to MSEK 95 (4) before tax. In order www.sasmedia.se to streamline its operations, SMART sold its subsidiary FM Partner during the year. SAS Hosting www.smart.se SAS Hosting is a unit within the SAS Group which pro- vides airline competence and sells integrated IT solutions to approximately 40 airlines and service companies. The Other units main business is to offer solutions for airlines' core SAS Flight Support, SAS Media and SAS Hosting are oth- processes such as distribution, inventory systems, yield er major operations within Airline Related Businesses management, ticket handling, flight information, depar- and have a total operating revenue of approximately ture control, etc. In addition, SAS Hosting offers support MSEK 400. at strategic level. SAS Hosting cooperates with its part- ner Scandinavian IT Group which allows SAS Hosting to SAS Flight Support AB offer new technical products such as Internet reserva- SAS Flight Support AB (SFS) has been 100% owned by tions, mobile solutions, wireless LAN, and so on. the SAS Group since 1995 and conducts operations SAS Hosting had an operating revenue of approxi- within flight navigation, flight planning, performance and mately MSEK 250 in 2001. FMS data. SFS is one of the major players in the global www.sashosting.com market. The company gained a number of new customers dur- ing the fiscal year. Major resources have been placed in product development in order to strengthen the compa- ny's market position. The latter part of 2001 was charac- terized by a focus on operating strategies and organiza- tional development. SFS is now focusing on capturing 66 Annual Report 2001 – Airline Related Businesses Rezidor SAS Hospitality Vision, objective and main strategy Operating revenue and earnings trend Business environment and market Ethical, social and environmental responsibility Future prospects 67 Rezidor SAS Hospitality Financial targets Key figures The main financial target is to achieve an annual growth 2001 2000 1999 in value, EBITDA, of 20% as an average over a five-year Operating revenue, MSEK 3,510 3,122 2,963 period through growth and profitability. Income before tax, MSEK 208 583 544 EBITDA1, MSEK 266 354 290 Operating revenue and earnings trend in 2001 Gross profit margin, % 2 33 34 33 Rezidor SAS Hospitality has a strong position in its home REVPAR2, SEK 638 619 584 markets compared with its competitors and has little Occupancy rate 2 67% 69% 69% exposure to the U.S. This meant that the company per- Number of rooms occupied (000) 2 4,964 4,876 4,506 formed relatively well in 2001. Operating revenue Investments, MSEK 176 308 150 amounted to MSEK 3,510 (3,122), an increase of 12.4%. Capital employed, MSEK 1,593 1,942 2,234 The increase in operating revenue was due to a higher Average number of employees 3,103 3,131 3,071 number of hotels and higher average rates. The price Energy consumption, kWh/sq.m. 303 311 346 increase is a result of a weaker Swedish krona. In total, this development meant that Rezidor SAS Hospitality 1 Pro forma adjusted in ownership structure. 2 Including hotels operated on a management basis. captured new market shares during the year. Occupancy in the entire system (excluding hotels with license agreements) fell to 67% (69) and the gross margin Legal structure (owned, leased and hotels with management agree- On October 1, 2001, SAS's hotel operations, SAS Interna- ments) decreased to 33% (34). Despite the weak market tional Hotels, changed its name to Rezidor SAS Hospitality. situation in 2001, the gross margin is almost unchanged The change of name reflects a partly new direction for the compared with 2000. company. The company's strategic focus has changed Income before tax decreased to MSEK 208 (583) in from operating hotels primarily in its own properties with a 2001 and includes capital gains from property sales of base in Scandinavia to a worldwide hotel management MSEK 63 (267). Earnings before net financial items and business with several brands. The company operates in 38 depreciation (EBITDA, pro forma adjusted for sale of countries from Shanghai in the east to Galway in the west, properties) decreased to MSEK 266 (354). from Cape Town in the south to Svalbard in the north. Investments totaled MSEK 176 (308) during the year. The legal structure was changed to facilitate future development. Since January 2001, all hotel operations Repeat-purchase rate have been conducted by a new Danish parent company: Rezidor SAS Hospitality endeavors to maintain and raise Rezidor SAS Hospitality A/S. its high repeat-purchase rate (88% in 2001). Rezidor SAS Hospitality (operating revenue MSEK 3,510) Vision Main strategy Rezidor SAS Hospitality will become one of Europe's lead- The main strategy is to add more brands to the portfolio ing companies in hospitality management – with a portfolio and therefore be able to offer: of strong brands, focused on different segments in the mar- • property owners - the optimal solution for each property ket with corresponding high-performing products. • guests - a broad spectrum of strong products in different price categories Objective • shareholders - active value creation through fast and Rezidor SAS Hospitality's objective is to be the most focused growth attractive hotel company with which to be a guest, employ- • employees - greater career opportunities within the dif- ee or business partner. ferent brands and continuous personal development. 68 Annual Report 2001 – Rezidor SAS Hospitality Business environment City hotels have been established in cities such as in The global travel market has had a stable annual growth Sofia, Bratislava, St. Petersburg and Tallinn. In addition to of approximately 5% for many years and the hotel market city and airport hotels, Radisson SAS has expanded in has generally followed this trend. Demand as well as the leisure market with a focus on leisure and recreation capacity vary in the different geographic markets. In hotels. Europe, the U.K. and the Netherlands are ranked high in terms of capacity utilization, but this trend is receding. Brand strategies As opposed to Germany which has a low capacity utiliza- Market development is clearly heading towards increas- tion but with rising demand. Demand in Sweden fell sig- ingly large players which work up the market with a col- nificantly as a result of the economic downturn, while lection of brands. The proportion of independent hotels, Denmark, Finland and France are among markets with i.e. hotels outside the large brand families, is decreasing. strong demand. The potential for branding is substantial – only 30% of all hotels in Europe are branded today, compared with 80% Business model - operations in the U.S. Fast growth can be achieved most effectively Within five years, Rezidor SAS Hospitality has sold four using established brands. properties, which is in line with RSH's five-year old strat- The SAS Group has conducted hotel operations since egy to conduct hotel rather than property management the 1960s, initially under its own brand. In 1994, SAS's operations. The business model is based on concluding hotel company, SAS International Hotels, set up a part- operating agreements where Rezidor SAS Hospitality nership with Radisson Hospitality Worldwide (a member undertakes full management responsibility with a certain of the Carlson Group) which gave the SAS Group exclu- guarantee level and a varying part of business risk. sive rights to develop Radisson's brand in Europe, the The streamlining of operations towards pure-play Middle East and North Africa over a 30-year period. From hotel management has meant that the number of SAS a base of 29 hotels, the goal was set to have agreements owned properties has gradually decreased, often in sale to operate 100 hotels under the Radisson SAS brand by and leaseback arrangements. At year-end 2001, the the end of 2000. This milestone was passed by 1998 and company owned 2 (2) hotel properties. Total capital tied the goal has successively been adjusted upwards. For up in properties during the year amounted to MSEK 591 several years Radisson SAS has been one of Europe's (916). In 2002, the intention is to sell the property in Oslo fastest growing full-service hotel chains. market conditions permitting. The strategy of not own- ing properties does not prevent Rezidor SAS Hospitality Several brands allow different concepts from taking temporary owner positions for business rea- For the hotel company the single brand has been a limit- sons, such as in Manchester Airport in 1998 and in a ing factor for both expansion and value creation. All hotel property at Stansted Airport at the end of 2001. properties do not suit the Radisson SAS concept. In September 2000, Malmaison Hotels was acquired in Continued growth partnership with the British property company Maryle- Growth is of major strategic importance. The main purpose bone Warwick Balfour (MWB). The SAS Group and MWB is to achieve a critical mass as regards brand awareness, each own 50% of the brand, while MWB owns the proper- geographic coverage and operating economies of scale. ties and Rezidor SAS Hospitality the management com- This applies primarily to Radisson SAS, which is a strong pany which operates the hotels. The intention is to brand in Europe and the Middle East. Growth continued during the year. At year-end the number of hotels amount- ed to 160 (146), of which 152 (139) under the Radisson Hotel development, 1996-2001 Number of hotels SAS brand and 8 (7) under Malmaison's brand. The num- 160 ber of rooms rose to approximately 35,000 (32,000). 140 During the year, five new hotels were added in Scandi- 120 navia, one in Finland and Germany, and five in the U.K./ 100 Ireland. The rapid rate of establishment in Poland contin- 80 ued with two new hotels and secured Poland as a new 60 home market. 40 New hotels were also added in Paris, Bordeaux, and in 20 Brussels (Malmaison), Spa and Hasselt in Belgium. Rezi- 0 dor SAS Hospitality's ambition is to be Europe's leading 1996 1997 1998 1999 2000 2001 hotel operator at airports. The establishment of units at Owned Leased Management License agreements agreements Stansted and Zurich airports are also part of this strate- Two hotel properties are now owned: one in Oslo and one under gy. At year-end 2001, 15 airport hotels were in operation construction at Stansted Airport. The property in Oslo is planned for sale in 2002. At year-end 2001 the total number of hotels was 160. or under contract. Rezidor SAS Annual Report 2001 – Rezidor SAS Hospitality 69 Hospitality expand with this new brand and concept throughout entire system (including hotels under management and Europe. license agreements). The Malmaison deal was important, and Rezidor SAS Employee satisfaction improved during the year to Hospitality is now established as a multi-brand operator. 79.2 (78.5) on a 100-point scale. The SAS Group as owner has also shown that the hotel company can operate hotels without the SAS name and Responsible business brand being part of operations. A strong program of activities relating to responsible The change of name to Rezidor SAS Hospitality makes business was implemented during the year. Radisson it possible to build a strong, independent company brand SAS's already established environmental involvement and also provides the SAS Group with better opportuni- was complemented with long-term objectives for the dif- ties to change ownership in the company when this is ferent aspects of sustainable development, such as considered suitable. working environment, safety aspects, human rights and ethical and cultural issues. Market development in 2001 In order to achieve these objectives, systematic work- 2001 was a difficult year for all travel-related business. ing methods were introduced with an ambitious policy The hotel industry worldwide was severely affected by the and related tangible targets linked to the company's economic downturn and in particular by the September internal and external stakeholders. Key ratios have been 11 effect. developed for all targets so that the hotels' performance Destinations with a large proportion of American can be followed up. The main purpose of this program is guests and hotels dependent on course and conference to create conditions for continual improvements at hotel activities were hardest hit by developments in 2001. On level, which will be ensured through measurable targets the other hand, hotels which mainly cater to European, and hotel-specific action plans. individual business and leisure travelers were scarcely Due to a hotel fire at Düsseldorf Airport in 2001, the affected (such as the Malmaison hotels). city of Düsseldorf tightened up its regulations regarding safety in the hotel industry. Radisson SAS has taken Marketing and customer satisfaction action to comply with the new regulations. A close and successful marketing cooperation was car- ried out during the year with the SAS Group and other Future prospects partners under the slogan "The World of Experiences." Rezidor SAS Hospitality plans to expand its brand collec- A new program to measure customer satisfaction was tion during the year with at least one new brand. In the introduced during the year. The repeat-purchase rate first place a 2-3 star brand will be added. remained at a high level of 88%. Despite a noticeable recovery in the market, develop- ment in the first quarter of 2002 is expected to be weak. Human resources The forecast for the latter part of the year is more posi- The average number of employees in the company tive, which means that profitability in 2002 is expected to decreased to 3,103 (3,131). This includes employees in be at the 2001 level. both owned and leased hotels. Approximately 12,000 www.rezidorsas.com (12,000) full-time equivalents were employed in the Total operating revenue1 and gross profit margin2 REVPAR, development 1996-20011 (MSEK) % (Revenue per available room) 12,000 40 650 10,000 35 600 8,000 30 550 6,000 25 500 4,000 20 450 2,000 15 400 0 1996 1997 1998 1999 2000 2001 1996 1997 1998 1999 2000 2001 Operating revenue Gross pofit margin REVPAR shows the average rate per available room and thus reflects 1 occupancy and revenue per room. REVPAR increased in 2001 from SEK Including hotels operated on a management basis and hotels with license agreements. 619 to SEK 638 due to exchange rate fluctuations. 2 1 Including hotels operated on a management basis. Including hotels operated on a management basis. 70 Annual Report 2001 – Rezidor SAS Hospitality Financial report Report by the Board of Directors Summary statement of income The SAS Group statement of income and balance sheet, including comments The SAS Group cash flow statement, including comments Comments and notes to the Report by the Board of Directors - Accounting and valuation principles Notes Parent Company SAS AB's statement of income and balance sheet with notes Proposed disposition of earnings Auditors' report Board of Directors and auditors Group Management 71 Report by the Board of Directors Corporate Identity number 556606-8499 The Board of Directors and the President of SAS AB hereby submit the annual report for SAS AB and the SAS Group for the 2001 fiscal year. Formal fiscal year for SAS AB is February 23 - December 31, 2001. Market development ties at the amounts at which they were stated in the The market for air traffic showed relatively strong devel- respective unit. opment in the first quarter of 2001. Subsequently, a Starting with the fourth quarter of 2001, the Group is gradually weaker economic trend and demand were not- divided into four business areas: ed in the spring and summer. In the wake of September • SAS Airline comprises SAS's passenger transport oper- 11 the airline industry entered its worst crisis ever. ations with its own aircraft and under its own brand. In 2001 as a whole, the SAS Group's traffic growth • Subsidiary & Affiliated Airlines comprises other airlines remained higher than that of the rest of the airline indus- within the Group. try. In the Swedish market, however, a continued sharp • Airline Related Businesses includes SAS Cargo, SMART decline in demand was noted due to the general econom- and SAS Trading – all with most of their sales to external ic downturn and the weak Swedish krona. customers. In the period September 11 through December 31, • Rezidor SAS Hospitality which is the SAS Group's hotel European airlines' international traffic fell 17.6% compared business. with the previous year. Traffic over the North Atlantic was most affected with a decline of 31%. SAS Airline, which is The SAS/Maersk affair the single most important airline in the Group, was also In 1999, SAS and Maersk started a commercial coopera- badly affected by the reduced demand, although not to tion which included code-sharing, ground and IT services the same extent as its competitors. SAS Airline's interna- and participation of Maersk Air in the SAS EuroBonus tional traffic declined by 9% and the company has thus program. This cooperation was based on an agreement captured market shares in the weak airline market. concluded in 1998. Some signs of recovery in total traffic were noted In June 2000, the EU Commission carried out unan- towards year-end. The recovery is slow, however, and nounced investigations at SAS in Stockholm and Copen- business air travel remains very weak. The development hagen as well as at Maersk Air and Maersk's owner in in the market is putting further pressure on adjusting Copenhagen. At the beginning of February 2001, the capacity to raise the cabin factor and emerge from the Commission announced that SAS and Maersk had crisis. All airlines are making intensive efforts to reduce infringed competition rules and that they intended to fine their costs and tens of thousands of employees have had the parties. In February 2001, SAS's Board assigned to leave their companies. SAS's management to draw up a Competition Law Com- 2001 was a difficult year for all travel-related opera- pliance Programme. As part of the ongoing legal process, tions. Like the airline industry, the hotel industry was SAS admitted in April that an infringement of the EU's severely affected by the economic downturn and by competition rules had taken place. This situation led events on September 11. SAS's Board to assign an external investigator to carry out an inquiry. The results of this inquiry were presented New Group structure to the Board in May 2001. SAS AB, a newly formed Swedish company which was On July 18, 2001, the EU Commission announced its registered on February 23, 2001, made an offer on May 8 decision. SAS's fines were set at MEUR 39.375 and Maer- to the shareholders in SAS Danmark A/S, SAS Norge ASA sk Air's at MEUR 13.125. SAS has appealed against the and SAS Sverige AB to exchange their shares for the amount of the fine, although not the infringement itself. same number of newly issued shares in SAS AB. In August 2001, the SAS Board decided to assign an The first day for listing and trading with shares in SAS external, independent commission to examine the Board's AB was July 6, 2001. role in the SAS/Maersk affair. The commission submitted SAS AB prepares consolidated accounts for the period its report on September 16, 2001. As a consequence of January 1 - December 31, 2001, on the basis that consol- the criticism leveled at the Board, SAS's Board decided to idation of the companies acquired through the exchange convene an extraordinary general meeting to elect a new of shares is carried out according to the principle for com- Board. panies under joint control. SAS also decided to make some personnel changes in The consolidated accounts for the SAS Group were the organization. In August 2001, The Board adopted the prepared through consolidation of all assets and liabili- Competition Law Compliance Programme drawn up by 72 Annual Report 2001 – Report by the Board of Directors SAS's management and this was implemented in the buildings via 20-year operating lease contracts and has organization in autumn 2001. an option subject to certain conditions to buy back all or Some additional inquiries relating to the matter of a parts of the property portfolio after ten years. The leasing special investigator in the SAS/Maersk affair were car- cost amounts to MSEK 209 in the first year. ried out on assignment from the Ministry of Industry and Trade by Johan Munck, Justice of the Supreme Court. His Joint venture British Midland, Lufthansa and SAS findings were submitted on November 5, 2001, and On November 9, 1999, British Midland, Lufthansa and reported at the extraordinary general meeting on SAS concluded a three-party joint venture agreement, November 6, 2001. the European Cooperation Agreement (ECA), where- A new Board of Directors was elected at the extraordi- upon the parties agreed to coordinate their existing and nary general meeting on November 6, 2001. A special future scheduled traffic within the EEA (European Eco- review of the SAS/Maersk affair proposed at the general nomic Area) to and from London and Manchester. The meeting did not receive the necessary support from agreement was approved by the EU Commission in shareholders. March 2001 with effect from January 1, 2000. The In February 2002, the Stockholm Stock Exchange's agreement runs for eight years until December 31, disciplinary board imposed a fine on SAS of approxi- 2007. The main purpose of this agreement was to "inte- mately MSEK 1.0 for insufficient information in spring grate each party's scheduled European air passenger 2001 in connection with the SAS/Maersk affair. transport services to and from London Heathrow and SAS's new Board, which took office on November 6, Manchester airport." 2001, has among other things against the background of The market showed negative development in 2001 the above inquiries, actions and decisions, evaluated the and routes within the U.K. and between the U.K. and the situation and not found reason to at the present time rest of Europe were affected by a weaker economy, foot- undertake additional inquiries in the SAS/Maersk affair. and-mouth disease and finally the events of September 11. The ECA agreement contains a profit and loss distri- Key acquisitions and divestments bution structure which means that the parties' overall In November 2001, SAS concluded an agreement to result on the routes covered by the agreement, is distrib- increase its holding in Spanair from 49% to directly and uted in relation to set targets based on previously report- indirectly own 74%. The purchase price amounted to a ed earnings trends. total of MEUR 112, of which MEUR 52 in cash and MEUR There is still considerable uncertainty regarding earn- 60 in conversion of loans. The agreement is under exam- ings development on the ECA routes and the parties are ination at the EU Commission. When access to these examining a number of measures designed to improve shares is provided in 2002, the company will be consoli- profitability. Despite this, a negative result is also expect- dated as a subsidiary in the SAS Group. ed in the current year which is taken into account in the In May 2001, SAS announced its intention to acquire SAS Group's full year forecast for 2002. In the fourth Braathens' airline operations, excluding Malmö Aviation, quarter of 2001, the ECA agreement had a negative earn- subject to approval from the Norwegian Competition ings impact of MSEK 215 for SAS Airline and MSEK –335 Authority. for the period January-December 2001. This approval was announced on October 23, 2001, and on December 20, 2001, SAS AB took over 98.48% of Changes in the Board and Management the shares. The remaining shares were acquired in Janu- Jørgen Lindegaard took up his position as the new Presi- ary 2002. The purchase price was NOK 27 per share, a dent and CEO after Jan Stenberg on May 8, 2001. total of MNOK 869. Braathens' balance sheet is consoli- At an extraordinary general meeting held on November dated in the Group at December 31, 2001, but is not 6, 2001, Egil Myklebust, Jacob Wallenberg, Berit Kjøll, included in the result for the year. Fritz H. Schur, Anitra Steen and Lars Rebien Sørensen As part of the review of tied-up capital and concentra- were elected as new members of the Board. The former tion on the core business, in December 2001 SAS sold employee representatives were re-elected by their respec- aircraft-related properties such as hangars, flight kitchens, tive employee associations. repair and storage buildings, as well as freight terminals Egil Myklebust was elected at the statutory meeting as at Arlanda (Stockholm), Landvetter (Gothenburg), Gar- Chairman of the Board and Jacob Wallenberg was elect- dermoen (Oslo), Flesland (Bergen) and Kastrup (Copen- ed as Vice Chairman. hagen). These buildings were acquired by Nordisk Rent- ing and GE Capital Real Estate and the purchase price Work of the Board of Directors totaled MSEK 3,020. The distribution between the coun- As a result of the establishment of SAS AB and the intro- tries is MSEK 1,400 in Sweden, MSEK 1,200 in Norway duction of a single SAS share, the company has become and MSEK 400 in Denmark. The capital gain amounted to the parent company in the SAS Group. This means, MSEK 805. At the same time SAS leased back all the among other things, that the Board is responsible for Annual Report 2001 – Report by the Board of Directors 73 groupwide matters as well as establishing objectives and procedure for the Board of Directors and the instruction strategies, decisions on budgets and business plans, for the President. preparation of the consolidated financial statements and The Board normally meets six times per year and other- interim reports as well as decisions on major acquisitions wise when required. In 2001, the Board had 21 meetings, and investments. seven of which were directly related to the introduction of The Board consists of nine members, of whom six are a single SAS share. elected by the Annual General Meeting and three by the A number of Board meetings exclusively handled the employee organizations in Denmark, Norway and Swe- SAS/Maersk affair, which led to the previous Board's den. The Board that was elected at the Extraordinary Gen- decision on September 16, 2001, to convene an extraor- eral Meeting on November 6, 2001, has decided that the dinary general meeting to elect a new Board. At the former so-called chairmanship, which consisted of the extraordinary general meeting on November 6, 2001, the chairman and the two vice chairmen, should be abolished. shareholders elected six new Board members. The Board has instead from among its numbers appointed An extra meeting was also held to handle matters con- a chairman and a vice chairman. The Board has not set up cerning the new ownership structure in Spanair and any special committees or bodies. SAS's chief legal coun- acquisition of shares in Braathens as well as the introduc- sel serves as Secretary to the Board. The work of the Board tion program for the new Board. Other special themes is led by the Chairman or, in the absence of the Chairman, handled by the Board in 2001 included the incorporation by the Vice Chairman. The President, who is also the Chief of SAS's freight operations, the tragic crash in Milan, the Executive Officer, and the two deputy CEOs attend the effects on SAS and the airline industry of the terrorist Board meetings in a reporting capacity. In addition, other attacks in New York, SAS's earnings improvement pro- senior executives in SAS's management only attend if gram, and the financing of SAS's aircraft investments. they have significant matters to report to the Board. The work of the Board follows an annual agenda with Environmental impact special themes and fixed decision points, such as Flight operations account for almost 90% of the SAS approval of the year-end report, interim reports and Group's total environmental impact. The significant envi- budget. The Board also reaches decisions on issues and ronmental impact in airline operations is caused by con- matters of principle or major financial significance. The sumption of non-renewable fuels, emissions of carbon work of the Board is otherwise governed by the rules of dioxides and nitrogen oxides, and noise. Globally, airline Summary Statement of Income – quarterly figures 1999 2000 2001 Oct.- Full year Jan.- Apr.- Jul.- Oct.- Full year Jan.- Apr.- Jul.- Oct.- Full year (MSEK) Dec. Jan.-Dec. Mar. Jun. Sep. Dec. Jan.-Dec. Mar. Jun. Sep. Dec. Jan.-Dec. Operating revenue 11,539 43,746 10,756 12,275 11,700 12,809 47,540 12,137 13,811 12,675 12,810 51,433 Payroll expenses –3,676 –14,829 –3,740 –3,793 –3,698 –3,701 –14,932 –4,083 –4,570 –4,314 –4,825 –17,792 Other operating expenses –6,765 –26,186 –6,924 –7,235 –6,936 –7,803 –28,898 –7,392 –8,583 –8,158 –8,765 –32 898 Earnings before depreciation, EBITDA 1,098 2,731 92 1,247 1,066 1,305 3,710 662 658 203 –780 743 Depreciation –546 –2,087 –470 –463 –510 –749 –2,192 –576 –565 –591 –711 –2,443 Share of income in affiliated companies –40 77 62 4 –18 –49 –1 35 36 –43 –98 –70 Income from the sale of shares in subsidiaries and affiliated companies –3 283 0 0 17 1,016 1,033 5 –31 1 1 –24 Income from the sale of aircraft and buildings 623 726 17 266 –21 228 490 –43 69 207 440 673 Operating income 1,132 1,730 –299 1,054 534 1,751 3,040 83 167 –223 –1,148 –1,121 Income from other shares and participations 196 417 0 11 0 4 15 1 0 0 0 1 Net financial items –76 –262 9 –10 –191 –34 –226 –44 13 10 1 –20 Income before tax 1,252 1,885 –290 1,055 343 1,721 2,829 40 180 –213 –1,147 –1,140 Taxes –422 –505 53 –264 –105 –383 –699 –27 –28 3 155 103 Minority shares 3 –1 6 –10 –1 10 5 0 –24 2 –5 –27 Income after tax 833 1,379 –231 781 237 1,348 2,135 13 128 –208 –997 –1,064 74 Annual Report 2001 – Report by the Board of Directors emissions affect the climate and contribute to the break- Parent Company SAS AB down of the ozone layer. The local environmental impact The Parent Company SAS AB, with its registered office in mainly comprises noise during takeoff and landing, as Stockholm, was registered on February 23, 2001. well as acidification and eutrophication of soil and water. Harald Norvik, Bo Berggren, Erik Sørensen, Björn The greatest potential for environmental improvement lies Eidem, Urban Jansson and Anders Eldrup were elected in continuous renewal of the aircraft fleet, which means as the Board of SAS AB at an extraordinary general meet- that SAS always chooses the best commercially available ing on April 19, 2001. A new Board was elected at an technology. Environmental aspects are a key element in extraordinary general meeting on November 6, 2001. SAS's choice of aircraft and engines. The significant envi- At December 31, 2001, SAS AB had 161,816,396 reg- ronmental impact of cabin, ground and hotel operations is istered shares at a par value of SEK 10 each. caused by energy and water consumption and by waste. Net income for the period from February 23 - December The flight operations are based on internationally 31, 2001, was MSEK 103. Shareholders' equity amounted type-approved aircraft where environmental approval is to MSEK 1,721 and total assets to MSEK 3,150. In an integral part of the Scandinavian registration system. December 2001, SAS AB acquired shares in Braathens Environmentally based national and local permits, rules for MSEK 1,105. and regulations provide a framework for aircraft use. The The President Jørgen Lindegaard is employed in SAS trend is towards stricter environmental frameworks con- AB. Payroll costs for him were charged to the SAS Con- ditions for the airline industry. SAS is not aware, however, sortium. of any changes to these conditions that could have signif- icant operational and financial consequences Dividend 2001 The only part of SAS's operations which requires a per- In the present circumstances, with negative earnings in mit under environmental legislation is ground operations operations and uncertainty regarding market develop- at Arlanda and Copenhagen airports. Of SAS's 256,000 ment in the airline industry, financial strength is of deci- sq.m. of space at Arlanda, operations requiring a permit sive importance. are conducted on 56,000 sq.m. The permit relates to The Board of Directors therefore proposes that no divi- SAS's maintenance bases and regulates emissions to air, dend be paid to SAS AB's shareholders for the 2001 fiscal chemicals and waste management as well as target and year. monthly mean values for effluent from the purification plant. The permit was interim until 2001 but was made Outlook for the full year 2002 permanent in 2001. Scandinavian Technical Services There is considerable uncertainty regarding market (STS) submits an annual environmental report to the development and demand in the airline industry following county administrative board for the County of Stockholm. the crisis situation after September 11, 2001. Above all, SAS also has operations requiring a permit at Copen- the weak demand in the business travel segment, which hagen Airport. Of SAS's 210,000 sq.m. of space at Copen- has affected SAS Airline in particular, still shows no signs hagen Airport, operations requiring a permit are con- of improvement compared with the level prevailing since ducted at 17,472 sq.m. SAS has applied for an environ- the end of the third quarter last year. mental permit for an additional 36,530 sq.m. and is Considerable overcapacity exists within European civil awaiting a decision from the environmental authorities. aviation despite capacity cutbacks implemented by most The permit relates to regulation of environmental impact airlines. This causes price pressure which brings further mainly from maintenance bases and hangars. uncertainty as regards revenue development. Neither of the two environmental permits mentioned SAS's assessment is that the weak demand will contin- above is due for renewal in the coming fiscal year and ue in the first half of 2002 and that there will be some during the year SAS did not receive any injunctions under improvement in the second half of the year. the Environmental Code from the regulatory authorities. Towards the end of 2001 a number of action programs SAS has no operations requiring a permit in Norway. were initiated including programs to enhance efficiency During the year SAS did not cause any notifiable pollu- and productivity as well as capacity cutbacks. These tant emissions or incidents with significant financial or measures are expected to be completed with the intend- environmental consequences. The Group has not been ed impact on earnings in 2002. involved in any environment-related disputes or com- In view of the present situation in the market and SAS plaints and has no environment-related debts. Airline's precarious situation as described above, the For several years SAS has been measuring its relative SAS Group's income before tax, excluding capital gains, is environmental impact using an environmental index. expected to be negative for the full year 2002 but better Since the base year 1996, the index has improved by 20 than in 2001. Cash flow for the full year 2002 is expected points. SAS's objective is a relative mean improvement of to be positive. 3 points each year until 2005. Annual Report 2001 – Report by the Board of Directors 75 The SAS Group statement of income (Note 1) 2000 MSEK Note 2001 Pro forma Operating revenue 2 51,433 47,540 Payroll expenses 3 –17,792 –14,932 Other operating expenses 4 –32,898 –28,898 Earnings before depreciation, EBITDA 743 3,710 Depreciation 5 –2,443 –2,192 Share of income in affiliated companies 6 –70 –1 Income from the sale of shares in subsidiaries and affiliated companies –24 1,033 Income from the sale of aircraft and buildings 7 673 490 Operating income –1,121 3,040 Income from other shares and participations 1 15 Interest income and similar income items 8 949 503 Interest expenses and similar income items 9 –969 –729 Income before tax –1,140 2,829 Tax on income for the year 10 103 –699 Minority shares –27 5 Net income for the year –1,064 2,135 Earnings per share (SEK)1 –6.58 12.98 1 Earnings per share is calculated on 161,816,396 shares for 2001 and on 164,500,000 shares for 2000. Comments on the statement of income The SAS Group's operating revenue increased by MSEK to the dispute between SAS and the Civil Aviation Admin- 3,893, or 8.2%, from MSEK 47,540 to MSEK 51,433. istration regarding Arlanda Terminal 2 in which the Göta MSEK 937 of this increase was higher passenger rev- Court of Appeal ruled in SAS's favor in April 2001. enue, lower other income MSEK –295 and MSEK 3,251 The EU Commission's fine of SAS for unfair coopera- currency effects. SAS's passenger traffic measured in tion with Maersk Air amounted to MEUR 39.375 and was RPK, revenue passenger kilometers, increased by 1.4% charged against earnings in an amount of MSEK 378. compared with 2000. Unit revenue, yield, increased by Leasing costs for aircraft rose by MSEK 527 as a result 0.7% adjusted for currency effects. of sale and leaseback transactions. Payroll expenses increased by MSEK 2,860, or 19.2%, Costs related to the accident at Linate airport in October and amounted to MSEK 17,792 (14,932). The number of 2001 amounted to MSEK 124. Compensation from insur- employees in the SAS Group increased by 3.9% and, ance companies of MSEK 235 is included in other income. adjusted for currency effects, payroll expenses were As a result of the events on September 11, SAS was 12.3% higher. charged in 2001 with MSEK 140 higher insurance costs The Group's other operating expenses increased by compared with 2000. From September 25, 2001, it was MSEK 4,000 or 13.8% to MSEK 32,898. Excluding cur- not longer possible to obtain insurance in commercial rency effects, the increase was 5.7%. This includes, as a markets against third party damage on the ground as a cost decrease, reversal of a MSEK 266 provision relating consequence of acts of war and terrorism causing dam- 76 Annual Report 2001 – The SAS Group statement of income age over MUSD 50. This meant that the SAS Group, in Currency effects on the SAS Group's income common with the majority of the world's airlines, was Operating revenue as well as operating expenses and forced to take out guarantees with its respective govern- financial items are affected significantly by exchange ments at guarantee charges considerably in excess of rate fluctuations. Only approximately 32% of operating the market prices that applied prior to September 11. In revenue and 28% of operating expenses are denominat- the absence of state guarantees, premium costs for war ed in Swedish kronor. and terrorism cover would increase by an additional The aggregate effect of changed exchange rates on amount of approximately MUSD 20 on an annual basis. the SAS Group's operating income for 2001 compared Earnings before depreciation, EBITDA, amounted to with 2000 was MSEK –117 (203). This is mainly a conse- MSEK 743 (3,710). The gross profit margin fell from 7.8% quence of the weak Swedish krona in relation to the U.S. to 1.4%. dollar and euro. The difference between the years in the Depreciation amounted to MSEK 2,443 (2,192), an effect of exchange rate differences on the net financial increase of MSEK 251 mainly due to investments in aircraft. debt was MSEK 317 (54). Share of income in affiliated companies amounted to The total effect on income before tax was therefore MSEK –70 (–1). Income for the year includes reversal of a MSEK 200 (257). stock reserve of MSEK 80, whereby affiliated companies' earnings decreased from MSEK –1 to MSEK –150. This MSEK 2001 2000 decline in earnings mostly occurred in Spanair where the Operating revenue 3,251 231 SAS Group's share of income was MSEK –153 (7). Goodwill Operating expenses including amortization is included in a total amount of MSEK 29 (32). translation of working capital –3,368 –28 Income from the sale of shares in subsidiaries and affil- Operating income –117 203 iated companies, MSEK –24 (1,033), comprises an Financial items 317 54 adjustment of the previous year's capital gain relating to Income before tax 200 257 British Midland by MSEK –31 and a capital gain from the sale of shares in FM Partner AB and Ego. In the previous year 20% of the shares in British Midland were sold with a reported capital gain of MSEK 1,031. The Group's capital gains from the sale of aircraft and buildings amounted to MSEK 673 (490) during the peri- od. This includes the sale of aircraft through sale and leaseback of one Boeing 767, nine Boeing 737s, three deHavilland Q400s, one Airbus A340 and the sale of one Fokker F28 and one Dash 8 with MSEK 488. After deduc- tion for phasing in and phasing out costs, which due to phasing out of the Douglas DC9s in particular and phas- ing in of the new Airbus fleet, amounted to MSEK 684, income from the sale of aircraft is reported at MSEK –197. Airport buildings were sold in December for MSEK 3,020, which provided a capital gain of MSEK 805. The capital gain from the sale of a hotel property in Manches- ter and adjustment of an earlier gain on the sale of a prop- erty in Düsseldorf amounted to MSEK 63 net. Six Boeing 737s, six deHavilland Q400s, six Fokker F50s and one Boeing 767 were sold in the previous year. The Group's net financial items amounted to MSEK –20 (–226). Net interest was MSEK –300 (–209). The currency effect was MSEK 332 (15). The weak develop- ment of the Swedish krona affected the Group's currency result by MSEK –160. The part of the capital gain from sale and leaseback of aircraft which arose due to the high rate for the U.S. dollar had a positive effect on net finan- cial items of MSEK 492. Income before tax amounted to MSEK –1,140 (2,829) MSEK. Of the Group's tax, MSEK 264 (–427) comprised change in deferred tax. Annual Report 2001 – Comments on the statement of income 77 The SAS Group balance sheet (Note 1) ASSETS SHAREHOLDERS' EQUITY AND LIABILITIES 2000 2000 MSEK Note 2001 Pro forma MSEK Note 2001 Pro forma Fixed assets Shareholders' equity 22 Intangible fixed assets 11 1,515 692 Restricted equity Share capital 1,618 1,645 Tangible fixed assets 12 Restricted reserves 6,588 6,565 Land and buildings 2,714 5,053 Unrestricted equity Aircraft 19,678 14,259 Unrestricted reserves 8,402 7,175 Spare engines and spare parts 2,398 1,727 Net income for the year –1,064 2,135 Workshop and aircraft Total shareholders' equity 15,544 17,520 servicing equipment 359 292 Other equipment and vehicles 1,962 1,794 Minority interests 22 263 131 Construction in progress 165 118 Prepayments for tangible Provisions fixed assets 13 4,110 3,575 Pensions and similar commitments 45 83 31,386 26,818 Deferred tax liability 10 3,856 3,961 Other provisions 23 1,384 719 Financial fixed assets 14 5,285 4,763 Equity in affiliated companies 15 1,128 977 Long-term liabilities 24 Long-term receivables from affiliated companies 16 950 339 Subordinated debenture loan 25 920 840 Shares and participations 17 359 186 Bond issues 26 5,539 0 Pension funds, net 18 5,172 3,578 Other loans 27 12,479 8,721 Deferred tax receivable 10 544 68 Long-term liabilities to affiliated companies 28 60 42 Other long-term receivables 1,353 764 Other liabilities 286 529 9,506 5,912 19,284 10,132 Total fixed assets 42,407 33,422 Current liabilities Current assets Current portion of long-term loans 2,463 2,119 Expendable spare parts and Short-tem loans 30 4,603 2,757 inventories 19 1,521 1,288 Prepayments from customers 79 58 Prepayments to suppliers 16 6 Accounts payable 2,621 2,736 1,537 1,294 Liabilities to affiliated companies 36 9 Tax payable 236 208 Current receivables Unearned transportation revenue 31 2,837 2,115 Accounts receivable 3,727 3,243 Other liabilities 2,325 1,482 Receivables from affiliated Accrued expenses and companies 138 83 prepaid income 7,186 5,395 Other receivables 1,618 1,167 22,386 16,879 Prepaid expenses and TOTAL SHAREHOLDERS' accrued income 20 1,673 1,237 EQUITY AND LIABILITIES 62,762 49,425 7,156 5,730 Equity per share (SEK) 1 96.06 106.50 Short-term investments 21 10,382 8,144 Cash and bank balances 1,280 835 Pledged assets 32 2,382 964 Contingent liabilities 33 1,617 878 Total current assets 20,355 16,003 Leasing commitments 34 TOTAL ASSETS 62,762 49,425 1 Calculated on 161,816,396 shares for 2001 and on 164,500,000 shares for 2000. 78 Annual Report 2001 – The SAS Group balance sheet Comments on the balance sheet Assets Shareholders' equity The SAS Group's total assets increased by 27% in 2001 Shareholders' equity decreased by MSEK 1,976 to MSEK from MSEK 49,425 to MSEK 62,762. 15,544 (17,520). In addition to income for the year after The consolidation of Braathens increased assets by tax, the change comprised dividends, translation differ- MSEK 4,772. The MSEK 823 increase in intangible assets ences in foreign subsidiaries and affiliated companies, stems for acquired goodwill of MSEK 535, of which MSEK and changes in the Group's composition. At year-end the 524 from Braathens, MSEK 417 in IT development costs equity/assets ratio was 25% (35%) and return on equity paid during the year, and depreciation, etc., during the amounted to –6% (13%). year of MSEK 129. Land and buildings decreased by MSEK 2,339 mainly Liabilities due to the sale of airport properties in Scandinavia and a MSEK 26,124 (14,563) of total liabilities were interest- hotel property in Manchester. bearing. This increase is attributable to new borrowing The book value of aircraft increased by MSEK 5,419. and interest-bearing liabilities in acquired companies. This change comprises an increase due to investment in In the first quarter of 2001 a MUSD 500 Euro Com- Boeing 737s, Airbus A340s and Airbus A321s including mercial Paper Program was established. earlier prepayments with a total of MSEK 8,461. In the period May-June, bonds were issued for approxi- Deductible items are depreciation for the year of MSEK mately MEUR 600 within the framework of a MEUR 1,019 and residual value of sold aircraft, etc., MSEK 4,135. 1,000 Euro Medium Term Note Program. The book value of aircraft in Braathens was added with A general agreement was concluded in the latter part MSEK 2,112. of 2001 for a total of MUSD 1,000 with three banks and Long-term prepayments to suppliers of flight equip- three export financing institutes (ECA) in the U.K., France ment increased during the year by MSEK 535. Advances and Germany, of which approximately MUSD 305 was to Boeing, Bombardier and Airbus were utilized in an utilized during the year. amount of MSEK 4,199 in connection with aircraft deliver- The interest-bearing net debt amounted to MSEK ies during the year. MSEK 132 was utilized for other deliv- 7,652 (794) at December 31, 2001. The SAS Group's eries. Prepayments of MSEK 4,001 were made for future average net debt during the year was MSEK 4,178 deliveries of Airbus A321/A330/A340s. Capitalized (1,434). The debt/equity ratio at December 31, 2001, financial expenses and translation differences were was 0.48 (0.04). added with MSEK 219 and MSEK 646 respectively. Provision for marginal costs associated with the provi- Equity shares in affiliated companies increased by sion of free travel in exchange for redeemed EuroBonus MSEK 151 to MSEK 1,128. Investments totaling MSEK points amounted to MSEK 757 (594) at December 31, 131 were made during the year. Shares of income after 2001. tax for the year were negative at MSEK 21. In addition, Total capital employed amounted to MSEK 41,931 equity shares increased by MSEK 41 due to exchange (32,214) at year-end. Average capital employed during rate fluctuations, etc. the year was MSEK 37,337 (29,206). Return on capital For all defined benefit pension plans the pension com- employed was –1% (12%). mitments are calculated and all funded assets are taken into account. At December 31, 2001, net pension funds amounted to MSEK 5,172 (3,578) (see further Note 18). At year-end short-term liquid assets amounted to MSEK 11,662 (8,979) or 18.6% (18.2%) of total assets. Annual Report 2001 – Comments on the balance sheet 79 The SAS Group cash flow statement 2000 MSEK Note 2001 Pro forma THE YEAR'S OPERATIONS Income before tax –1,140 2,829 Depreciation 2,443 2,192 Income from the sale of fixed assets 35 –1,826 –1,756 Adjustment for items not included in cash flow, etc. –94 –167 Paid tax –200 –190 Cash flow from operations –817 2,908 Change in: Expendable spare parts and inventories –125 –227 Operating receivables –1,058 455 Operating liabilities 1,650 813 Change in working capital 467 1,041 Net financing from operations –350 3,949 INVESTMENTS Aircraft –4,262 –5,684 Spare parts –879 –504 Buildings, equipment and other facilities –916 –687 Shares and participations, goodwill, etc. –792 –744 Prepayments for flight equipment –4,001 –2,267 Acquisition of subsidiary 36 –826 – Total investments –11,676 –9,886 Sale of fixed assets 8,738 5,539 Translation differences, etc. –356 20 Net investments –3,294 –4,327 Financing deficit –3,644 –378 Dividend –754 –666 EXTERNAL FINANCING Borrowing, amortization and early redemption including translation differences, net 8,963 2,952 Other financial receivables/liabilities, net –1,987 –1,426 Change in minority interest 105 2 External financing, net 7,081 1,528 CHANGE IN LIQUID ASSETS according to balance sheet 2,683 484 Liquid assets, January 1 8,979 8,495 Liquid assets, December 31 11,662 8,979 80 Annual Report 2001 – The SAS Group cash flow statement Comments on the cash flow statement The SAS Group's cash flow before changes in working cap- Sale of fixed assets generated MSEK 8,738 (5,539), of ital and investments amounted to MSEK –817 (2,908). which proceeds from the sale of aircraft amounted to Working capital decreased by MSEK 467 (1,041). MSEK 5,168 (3,086). Sale of properties provided MSEK Total investments including prepayments to aircraft sup- 3,540 (891), of which MSEK 3,020 comprised airport- pliers amounted to MSEK 11,676 (9,886). This includes related buildings in Denmark, Norway and Sweden and delivery payments of MSEK 4,262 for four Airbus A340s, MSEK 532 Radisson SAS Hotel Manchester Airport. In three Airbus A321s, four Boeing 737s and four deHavil- addition, shares and participations were sold for MSEK land Q400s as well as prepayments to aircraft suppliers 30 (1,562). of MSEK 4,001. Cash flow after net investments thus amounted to Investments in shares and participations were made in MSEK –3,644 (–378). After dividend to shareholders of Expo Investment Partnership which owns shares in Air MSEK 754 (666), the financing deficit was MSEK 4,398 Canada and in the affiliated company airBaltic MSEK 266. (1,044). MSEK 458 was invested in intangible assets during the Financial liabilities rose by MSEK 8,963 in 2001, which year, excluding goodwill relating to Braathens. mainly comprised a net of just over MSEK 11,100 in new Acquisition of subsidiary refers to the acquisition of borrowing as well as amortization and redemption of loans Braathens in December. The purchase price amounted for MSEK 2,100. Other financial assets increased by MSEK to MSEK 1,105 which after deduction for Braathens' liq- 1,987, mainly due to an increase in net pension assets. uid assets of MSEK 279, affected the Group's cash flow Overall, the SAS Group's liquid assets increased by by MSEK 826. MSEK 2,683. The Group's business areas Subsidiary & Airline Related Rezidor SAS SAS Airline Affiliated Airlines Businesses Hospitality Elimination The SAS Group Statement of income 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 External sales 39,616 38,612 3,103 2,547 5,322 3,363 3,392 3,017 –503 50,930 47,539 Sales between business areas 1,550 621 20 21 2,826 2,425 118 105 –4,011 –3,171 503 1 Total operating revenue 41,166 39,233 3,123 2,568 8,148 5,788 3,510 3,122 –4,514 –3,171 51,433 47,540 Payroll expenses –13,540 –11,647 –889 –755 –2,032 –1,401 –1,331 –1,129 –17,792 –14,932 Other expenses –28,056 –25,057 –1,917 –1,556 –5,514 –3,868 –1,905 –1,597 4,494 3,180 –32,898 –28,898 Earnings before depreciation, EBITDA –430 2,529 317 257 602 519 274 396 –20 9 743 3,710 Depreciation –1,785 –1,638 –181 –134 –334 –272 –143 –148 –2,443 –2,192 Share of income in affiliated companies 66 50 –58 –11 –119 –85 36 45 5 –70 –1 Capital gains 609 1,212 –29 38 8 21 63 267 –1 650 1,538 Net financial items 41 –202 –42 –44 3 –3 –22 23 –20 –226 Minority shares –21 –15 –6 20 –27 5 Tax 219 –411 12 –31 –56 –83 –72 –174 103 –699 Income after tax –1,280 1,540 –2 60 98 117 136 409 –16 9 –1,064 2,135 Other disclosures Assets 54,826 45,851 7,057 1,529 4,232 2,740 2,533 2,572 –7,014 –4,244 61,634 48,448 Equity shares –141 –225 1,018 895 37 145 214 162 1,128 977 Total assets 54,685 45,626 8,075 2,424 4,269 2,885 2,747 2,734 –7,014 –4,244 62,762 49,425 Total liabilities 40,788 29,573 5,948 1,148 2,775 1,795 1,652 1,779 –3,945 –2,390 47,218 31,905 Investments for the year 10,227 9,093 429 129 498 381 220 308 11,374 9,911 Annual Report 2001 – Comments on the cash flow statement 81 Comments and notes to the Report by the Board of Directors Accounting and valuation principles General Minority interests in non-wholly owned subsidiaries The SAS Group's financial statements are prepared in are calculated on the basis of the subsidiaries' accounts accordance with generally accepted accounting princi- and stated in the consolidated balance sheet as a sepa- ples in Sweden which are based on the Annual Accounts rate item between shareholders' equity and liabilities. Act and recommendations from the Swedish Financial Minority share of income after tax is stated in the state- Accounting Standards Council. ment of income. The consolidated accounts through 2000 were in all All intra-Group receivables and liabilities, intra-Group essential respects prepared in accordance with Interna- sales and intra-Group profits are eliminated entirely. tional Accounting Standards (IAS). Since there was no The book value of shares in affiliated companies is difference in the Group's earnings and financial position reported in accordance with the equity method. This between application of IAS and generally accepted means that the SAS Group's share of the affiliated com- accounting principles in Sweden, adaptation to general- panies' equity comprises its share of shareholders' equi- ly accepted accounting principles in Sweden did not ty, taking into account deferred tax according to the tax necessitate recalculation of the previous year. Effects of rates in the countries concerned and any residual surplus new Group Structure, see Note 1. or deficit values. The Group's earnings and financial position upon The SAS Group's share of affiliated companies' income application of International Accounting Standards (IAS) before tax, adjusted for any depreciation or dissolution of recommendations, is stated in Note 39. acquired surplus or deficit values, is reported in the SAS Group's statement of income as shares of income. Consolidated accounts Intra-Group profits are eliminated based on the The SAS Group's accounts comprise the Parent Compa- Group's participation in the affiliated company. ny SAS AB and all companies in which SAS directly or indirectly owns more than 50% of the voting rights or has Translation of financial statements of a controlling influence. foreign subsidiaries The consolidated accounts for the new SAS Group are The financial statements of foreign subsidiaries are trans- prepared through a consolidation of all assets and liabili- lated into Swedish kronor using the current method. This ties at the values at which they are stated in the respec- entails all subsidiaries' assets and liabilities being trans- tive unit. lated at the closing rate, while all income statement items Revenues and expenses in companies acquired or are translated at the average rate of exchange for the divested during the year are included in the SAS Group's year. Translation differences are posted directly to the statement of income only with values relating to the SAS Group's shareholders' equity. ownership period. Holdings in affiliated companies where the SAS Group's Receivables and liabilities in foreign currency ownership is at least 20% and no more than 50% are Current and long-term receivables and liabilities in cur- reported according to the equity method. rencies other than the reporting currency (SEK) are stat- ed in the balance sheet translated at closing rates. Both Principles of consolidation realized and unrealized exchange gains and losses on Consolidation of SAS Danmark A/S, SAS Norge AS and receivables and liabilities are reported in the statement of SAS Sverige AB is carried out according to the principle income. In order to reduce risks and hedge currency risks for companies under joint control. In other respects the relating to aircraft investments in foreign currency, some consolidated financial statements are prepared accord- financing is carried out in a corresponding currency to the ing to the purchase method, whereby subsidiaries' investment, where residual value guarantees exist from assets and liabilities are reported at fair value according suppliers. This means that assets and liabilities are stated to an acquisition analysis. If the acquisition value of at the exchange rate on the acquisition date. shares in a subsidiary exceeds the calculated fair value of the company's net assets according to the acquisition analysis, the difference is reported as consolidated good- will. Accordingly, the SAS Group's balance sheet includes equity in acquired companies only to the extent it has arisen after the date of acquisition. 82 Annual Report 2001 – Accounting and valuation principles Exchange rates Goodwill: Goodwill which arises upon consolidation Closing rate Average rate consists of a value which at acquisition of operations 2001 2000 2001 2000 exceeds the book value of the assets acquired and the Denmark DKK 100 126.65 118.64 124.15 113.32 liabilities taken over. Goodwill is reported as an intangible Norway NOK 100 118.35 107.16 114.99 104.11 asset. Goodwill is depreciated using a straight-line method USA USD 10.67 9.50 10.33 9.16 U.K. GBP 15.48 14.20 14.87 13.86 over the estimated useful economic life of the asset. Switzerland CHF 100 636.00 580.42 612.80 542.50 Investments in other airlines are regarded as strategic in Japan JPY 100 8.13 8.28 8.50 8.50 nature and are therefore depreciated over a period of 20 EMU countries EUR 9.42 8.85 9.25 8.44 years. The estimated useful economic life for goodwill is reviewed at the end of each fiscal year. In cases where the Financial instruments estimated useful economic life differs significantly from Short-term investments are valued at the lower of acqui- earlier assessments, the depreciation period is changed sition value and fair value. SAS uses various derivative accordingly. instruments (forward exchange contracts, interest rate Goodwill which arises from acquisition of subsidiaries and currency swap contracts) to minimize and control is stated separately in the balance sheet. Goodwill amor- the company's currency and interest rate exposure tization is included in the item depreciation in the state- against fluctuations in exchange rates and interest rate ment of income. levels. Forward exchange contracts and currency swaps Goodwill which arises from acquisition of an affiliated are valued at exchange rates on the closing date. Realized company is included in the reported value of the affiliated and unrealized exchange gains or losses which arise are company. reported in the statement of income. Forward premiums If a business to which a goodwill item is attributable is are stated under net interest and allocated over the con- sold, the goodwill item remaining at divestment is includ- tract period. Outstanding currency options are market ed in the result from the divestment. valued on the closing date. Realized and unrealized Systems development costs: Development costs which exchange gains and exchange losses are reported in the do not meet the criteria specified above are expensed in statement of income. Option premiums are allocated the period they arise. over the contract period. Costs for development of computer systems are Forward exchange contracts and options which are reported as an asset provided that they meet the criteria taken out to secure future commercial flows and invest- specified above. ments are subjected to hedge accounting and reported Capitalized development costs are depreciated on a at acquisition value. The earnings impact is reported on straight-line basis over the estimated useful economic the maturity date of the respective contract. life of the asset. The useful economic life amounts to a The net earnings effect of interest income and interest maximum of 5 years. Depreciation of capitalized develop- expenses from interest rate swaps is posted to the state- ment costs is included in the item depreciation in the ment of income as incurred. statement of income. See also Note 29. Tangible fixed assets Expendable spare parts and inventories Tangible fixed assets are reported at historic acquisition Expendable spare parts and inventories are stated at the value less accumulated depreciation and possible write- lower of acquisition value and net sales value. Some spare downs. Depreciation is straight-line over the estimated parts related to aircraft are valued according to the lower useful economic life of the assets. of cost or market value principle collectively with the air- Interest expenses on prepayments for aircraft not yet craft concerned. Appropriate deduction is made for delivered are capitalized. If a decision is made to post- obsolescence. pone deliveries of aircraft for which prepayments have been made, capitalization of interest expenses ceases. Intangible assets On commissioning of the aircraft, depreciation of the cap- Intangible assets comprise goodwill, capitalized costs for italized interest expenses begins, in accordance with the systems development and other intangible assets. main principle for aircraft. Intangible assets are stated in the balance sheet when: Costs for routine aircraft and engine maintenance as • an identifiable, non-monetary asset exists well as repair costs are expensed on an ongoing basis. • it is probable that the future financial advantages that Extensive modifications and improvements to fixed can be attributed to the asset will accrue to the com- assets are capitalized and written off together with the pany and asset to which the work is related, over its remaining use- • the acquisition value of the asset can be calculated in ful economic life. a reliable manner. Investments in own and leased premises are amor- tized over their estimated useful economic lives, but not Annual Report 2001 – Accounting and valuation principles 83 over a period exceeding the leasing period for leased assets in order to determine the extent to which there is a premises. value impairment for these assets. This assessment is Income from the sale or disposal of a tangible fixed made by calculating the asset in question's recoverable asset is calculated as the difference between sales value amount in order to establish the size of any value impair- and book value. The gain or loss which arises is reported ment. in the statement of income. The recoverable amount comprises the higher of the In conjunction with major replacements of the aircraft value in use of the asset and its net sales value. SAS uses fleet when one aircraft type is replaced by another, addi- the net sales value of the asset at the end of each report- tional costs arise directly related to such replacement. ing period as the recoverable amount. The additional costs for phasing in new aircraft types For the Group's aircraft fleet and related spare equip- arise in the form of training for crews and technical per- ment and spare parts, SAS mainly calculates the recover- sonnel. SAS is also charged with additional costs for able amount by estimating the market value at the end of phasing out aircraft which are to be delivered back to their each reporting period. Valuations specify the net sales owners or sold, for retention of crews for aircraft types value per aircraft type, among other things taking the air- being phased out and written-down surplus equipment. craft's age into account. These additional costs reduce the capital gain on the sale If the net sales value of the aircraft fleet is assessed as of aircraft. lower than the reported value a write-down is made. Depreciation is based on the following estimated peri- Write-downs are reported as an expense in the state- ods of useful economic life: ment of income. At the end of each reporting period an assessment is Asset class Depreciation also made of the extent to which an earlier write-down, Aircraft 20* total or partial, is no longer motivated. This assessment is Spare engines and spare parts 20* also normally based on a comparison between market Workshop and aircraft servicing equipment 5 Other equipment and vehicles 3-5 value and the reported value. A reversal of a write-down is Buildings 5-50 reported in the statement of income and thus reduces depreciation and write-downs for the period. * Estimated residual value after a useful economic life of 20 years is 10%. Through 1998 the estimated useful economic life was 15 years with an estimated residual value of 10%. Financial fixed assets Financial fixed assets include equity shares in affiliated Leasing - Finance and Operating companies. Participations in affiliated companies are As a lessee, SAS has entered into finance and operating reported in the consolidated accounts by applying the leasing contracts. Leasing contracts where SAS in princi- equity method. Additional information on treatment of ple takes over all risks and benefits of the asset are affiliated companies is provided in the section for princi- reported as finance lease contracts. At the beginning of ples for consolidated accounts and consolidation. the leasing period finance lease contracts are reported at fair value. Assets held under finance leases are taken up Provisions, contingent liabilities and in the balance sheet as a fixed asset and the future com- contingent assets mitment to the lessor as a liability. Assessment of leased Provisions are reported when SAS identifies legal or assets' useful economic life corresponds to the princi- informal commitments as a result of historic events, ples SAS applies to acquired assets. where the outcome is probable and where the financial Lease contracts where in principle all risks and bene- resources required to settle these commitments can be fits of the asset remain with the lessor, are reported as estimated with reasonable certainty. operating lease contracts. The leasing cost for operating lease contracts is expensed on an ongoing basis during Pension commitments the contract period. SAS's pension commitments are mainly secured through For aircraft leased under operating leases, the contract various pension plans. These vary considerably due to states that when the aircraft is returned it must be in a different legislation and agreements on occupational certain specified condition. In order to meet this commit- pension systems in the individual countries. ment, SAS carries out maintenance on these aircraft, For pension plans where SAS has accepted responsi- both regularly and at the expiry of the leasing period. bility for defined contribution solutions, the obligation to These costs are expensed on an ongoing basis when the the employees ceases when the contractual premiums maintenance is carried out. have been paid. For other pension plans where defined benefit pen- Write-downs sions have been agreed, the commitments do not cease At the end of every reporting period an assessment is until the contractual pensions have been paid. SAS cal- made of the reported value for tangible and intangible culates its pension commitments for the defined benefit 84 Annual Report 2001 – Accounting and valuation principles plans. Calculations of commitments are based on esti- Borrowing costs mated future final salary. An estimate of accumulated Borrowing costs which arise in operations are expensed funded assets is made at the same time. in the period in which they are incurred. Borrowing costs Pension costs for the year comprise the present value for prepayments attributable to aircraft not yet delivered of pension earnings for the year, plus interest on the obli- are described in the section "Tangible fixed assets." gation at the beginning of the year, less return on funded assets. Amortization of actuarial gains and losses and Tax plan amendments is added to this total for certain pension Actual tax for the period is based on earnings for the peri- plans. Such computation differences are amortized using od adjusted for non-tax deductible costs and revenues two different methods. Plan amendments are amortized liable to tax. The actual tax is calculated on the basis of tax over the average remaining working lives of employees rates applying on the closing date. participating in the pension plan. SAS also uses an alter- Deferred tax is reported according to the balance native method for allocating deviations between anticipat- sheet method whereby temporary differences, differ- ed and actual results for calculated pension obligations ences between the reported and fiscal values of assets, and funded assets. Cumulative actuarial gains and losses result in a deferred tax receivable or tax liability. A deferred of up to 10% of the greater of pension obligations and tax liability is normally reported for all temporary differ- pension assets are exempted. When the cumulative actu- ences liable to tax while a deferred tax receivable is report- arial gains and losses exceed this 10% limit, amortization ed to the extent it is probable that a taxable surplus will be starts of the excess amount over 5 years. created against which the deductible temporary differ- In 1999, an allocation in the form of so-called client ences can be utilized. company pension funds in the Alecta pensionsförsäkring A deferred tax liability is reported for all taxable tempo- (formerly Försäkringsbolaget SPP) in Sweden of MSEK rary differences attributable to investments in subsidiaries 3,063 was identified for the SAS Group. This allocation and affiliated companies except in cases where the Group did not in itself affect the SAS Group's income for 2001 can control the timing of reversal of the temporary differ- since SAS has reported pension commitments including ences and it is probable that such reversal will not take SAS's participation in Alecta since 1996. place within the foreseeable future. Deferred tax is calculated based on the tax rates which Revenue recognition are expected to apply in the period the tax is realized. Passenger revenue: Ticket sales are reported as traffic Deferred tax is reported in the statement of income. revenue when the air transport has been carried out. A deferred tax receivable and deferred tax liability are The value of tickets sold and still valid but not used on reported net if the items pertain to the same tax authority. the balance sheet date is reported as unearned trans- portation revenue. This item is reduced either when SAS Segmental reporting or another airline completes the transport or when the Information is provided for business areas and geo- passenger requests a refund. graphic markets. This information is based on the SAS A portion of unearned transportation revenue covers Group's accounting principles and the Group's internal tickets sold that are expected to remain unutilized. An reporting to company management. estimate of unutilized tickets' anticipated share of the Business area assets comprise all assets used directly unearned transportation liability is produced annually. in the business area's operations. Equity shares in affiliat- This reserve is reported as revenue the following year in ed companies, however, are presented separately. Busi- accordance with established principles. ness area liabilities and provisions comprise all commit- Freight revenue: SAS Cargo's transport services are rec- ments which are directly attributable to the business ognized as revenue when the air transport is completed. area's operations. Other revenue: Sales of hotel accommodation and con- ferences are recognized as revenue when completed. Sales of goods and other services are recognized as revenue when the goods are delivered or the service carried out. Loyalty programs The SAS Group makes ongoing provisions as EuroBonus points are earned for the marginal costs associated with the provision of free travel in exchange for redemption of the points earned by members. Annual Report 2001 – Accounting and valuation principles 85 Notes Expressed in millions of Swedish kronor (MSEK) unless other stated. Note 1 – Effects of new Group structure Note 3 – Payroll expenses Until year-end 2000 consolidated accounts were reported for the former SAS Average number of employees Group. SAS AB's consolidated accounts (the SAS Group's accounts) only The average number of employees in 2001 within the SAS Group's differ- differ on a few points of any significance from those of the former SAS Group. ent business areas was 31,035 (30,943), of whom 22,364 (23,777) were employed at SAS Airline, 1,530 (1,495) at Subsidiary & Affiliated Airlines, Effects on balance sheet at December 31, 2001 4,038 (2,540) in Airline Related Businesses and 3,103 (3,131) at Rezidor Asset items and total assets are only changed marginally compared with SAS Hospitality. the former SAS Group's accounting. A breakdown of the average number of employees by country is provid- More significant changes occur on the liabilities side. ed in the table below. • The deferred taxes of SAS Danmark A/S, SAS Norge AS and SAS The average number of employees in Denmark was 10,098 (9,027), in Sverige AB increase the Group's deferred taxes by MSEK 3,252 to Norway 8,857 (9,372), and in Sweden 9,310 (10,006). MSEK 3,856. These taxes emanate, however, from the SAS Consor- tium's operations and do not represent any new burden for operations. 2001 2000 • The former SAS Group's debts to SAS Danmark A/S, SAS Norge AS Men Women Men Women and SAS Sverige AB will only be an internal item in the new Group. The Denmark 6,512 3,587 5,855 3,172 new Group's, including the parent company SAS AB, external liabilities Norway 5,119 3,738 5,393 3,979 will thus be MSEK 1,677 lower than for the former SAS Group. Sweden 5,110 4,200 5,524 4,482 • The net effect of these and other marginal changes in the balance sheet U.K. 210 339 261 387 mean that the new Group's reported shareholders' equity will be MSEK Germany 168 188 200 190 2,036 lower than for the former SAS Group. The main explanation is that France 45 87 29 68 the former SAS Group only paid out to SAS Danmark A/S, SAS Norge Japan 27 19 23 49 AS and SAS Sverige AB as much as was needed for them to pay a divi- Finland 114 191 122 211 dend and actual tax (and the company's minor running costs). In princi- Belgium 241 349 234 333 ple, the former SAS Group's shareholders' equity could be regarded as USA 153 94 40 36 also including operations in the SAS Consortium's deferred tax liabilities. Other countries 198 346 136 219 Effects on the statement of income for January-December 2001 Total 17,897 13,138 17,817 13,126 • Revenue are not affected while operating expenses are increased by Total men and women 31,035 30,943 administration costs for SAS Danmark A/S, SAS Norge AS and SAS Sverige AB of MSEK 11. Salaries, remuneration and social security expenses • Net financial items are improved by MSEK 64 by the new Group's The SAS Group's total payroll expenses amounted to MSEK 17,140 external liabilities being MSEK 1,677 lower than for the old SAS Group. (13,894), of which social security expenses comprised MSEK 2,411 • After taking tax into account the effect is that reported income after tax (1,904) and pensions MSEK 604 (137). is MSEK 293 higher for the Group than for the former SAS Group. All comparative figures have been recomputed in accordance with the 2001 2000 new Group structure. Salaries Social security Salaries Social security and other (of which and other (of which MSEK remuneration pension costs) remuneration pension costs) Note 2 – Operating revenue SAS AB 2 0 (–) – – (–) 2001 2000 SAS Consortium 10,368 2,024 (303) 9 ,078 1,451 (–85) Traffic revenue: Other subsidiaries 3,755 991 (301) 2,775 590 (222) Passenger revenue 36,582 33,390 SAS Group total 14,125 3,015 (604) * 11,853 2,041 (137) Freight 2,176 2,251 Mail 317 307 * Of the Group's pension costs, MSEK 6 (4) pertain to the group Board and Other traffic revenue 831 1,263 President. Other operating revenue: A breakdown of salaries and other remuneration between Board mem- Sales of goods 2,275 2,148 bers, presidents and vice presidents and other employees is provided in Computer services 2,242 2,051 the table below. Rooms revenue 1,591 1,484 Food and beverage revenue 1,163 1,053 2001 2000 Administration systems services 1,043 775 Board,president Board,president Ground services 1,005 945 and vice president and vice president Distribution systems services 888 825 (of which (of which Technical maintenance 835 735 variable Other variable Other MSEK component) employees component) employees Flight simulator training 627 606 Terminal and forwarding services 518 370 SAS AB 2 (0) * – – – Other operating revenue 3,351 2,417 SAS Consortium 27 (5) 10,341 17 (1) 9,061 Group eliminations –4,011 –3,080 SAS Commuter Consortium 2 (0) 524 2 (0) 424 Air Botnia 1 (0) 114 1 (0) 85 SAS total 51,433 47,540 Widerøe's flyvelselskap 2 (0) 656 3 (0) 572 Rezidor SAS Hospitality 11 (3) 983 9 (2) 791 Passenger revenue by geographic area SAS Cargo Group 1 (0) 428 – – 2001 2000 Scandinavian IT Group 0 (0) 717 0 (0) 619 Intercontinental 5,312 4,876 SMART 3 (1) 108 5 (0) 111 Europe 15,014 13,692 SAS Flight Academy 2 (0) 86 2 (0) 75 Intra-Scandinavian 5,502 4,771 SAS Flight Support 1 (0) 26 1 (0) 22 Domestic 10,754 10,051 Other subsidiaries 7 (0) 83 7 (0) 46 Total 36,582 33,390 SAS Group total 59 (9) 14,066 47 (3) 11,806 * Board fees for the period July 1- December 31 amounting to SEK 1,731,000. 86 Annual Report 2001 – The SAS Group's notes Note 3, continued Note 5 – Depreciation Remuneration to senior executives 2001 2000 In 2001, remuneration of SEK 1,731,000 was paid to members of SAS AB's Board of Directors, of which SEK 248,000 to the Chairman of the Goodwill 20 8 Board, SEK 274,000 to the Vice Chairmen, SEK 531,000 to other Board Other intangible assets 128 197 members, and SEK 490,000 to employee representatives. In addition, a Aircraft 1,019 870 total of SEK 188,000 was paid to deputy employee representatives. These Spare engines and spare parts 281 154 total fees are in accordance with the Annual General Meeting's decision. In Workshop and aircraft servicing equipment 116 96 addition, SEK 1,762,000 was paid to members and deputy members of Other equipment and vehicles 607 579 the SAS Consortium's Board in 2001. Work in progress 1 0 During 2001, no member of the Board was employed in the SAS Group, Buildings and fittings 270 287 with the exception of the employee representatives and their deputies. Land improvements 1 1 Salary and the value of benefits paid in 2001 to SAS AB's President, who Total 2,443 2,192 also serves as chief executive officer, totaled SEK 4,887,000 for the peri- od April-December. The maximum variable component for the president is Note 6 – Share of income in affiliated companies1 50% of fixed salary. 2001 2000 Salary and the value of benefits paid in 2001 to the former president and CEO amounted for the period January-July to SEK 6,132,000, of British Midland PLC2 49 29 which SEK 2,240,000 was the variable component for 2000. Polygon Group Ltd3 –111 –87 SAS's other managers' contracts are based on salary being paid in a fixed Cimber Air A/S –14 –13 amount, a variable component and an earnings-related bonus. Since SAS Spanair S.A.4 –153 7 posted a loss for 2001, no earnings-related bonus will be paid to managers Skyways Holding AB –20 –2 or employees for that year. The variable component is based on contracted Grønlandsfly A/S 0 –12 targets drawn up between the employee and his or her manager. The targets airBaltic Corporation A/S –1 –9 measured are usually linked to SAS's financial results, customer targets and Aerolinas Baleares S.A. 6 – employee targets. If earnings are negative or the target is not reached, no Airnet I/S 0 2 bonus is paid on this component. For targets apart from SAS's financial Newco Airport Services S.A –5 – results, target achievement is measured and a payment of the variable com- Tradevision AB –10 – ponent is made in relation to achieved targets. The total variable salary com- Commercial Aviation Leasing Ltd. 26 10 ponent, including financial results targets, varies between 7.2%-32%, with Reversal of intra-group profit for 100% target achievement, of the fixed annual salary. Payments of variable Commercial Aviation Leasing Ltd. 40 40 salary components in 2002 are expected to account for 0.15% of SAS's total Casino Copenhagen K/S 24 20 payroll expenses. ZAO St. Petersburg –4 – The President's retirement age is 62. The pension is a defined contribu- SNR Amsterdam Hotel CV 16 16 tion pension and based on the total interest-bearing capital paid during the Reversal of stock reserve 5 80 – period. The premium comprises 20% of annual fixed basic salary on each Others 7 –2 occasion. Other senior executives at SAS are entitled to a pension at the age Total6 –70 –1 of 60 and earn on a straight-line basis up to retirement age. The pension 1 Share of income in affiliated companies is reported before taxes. level for a Swedish employee in SAS's senior management, with fully 2 Share of income includes goodwill amortization by MSEK 15 (24) and earned entitlement amounts to 70% of pensionable salary up to 30 base amounts (SEK 1,107,000) and 35% of pensionable salary in excess of that adjustment of last year's income figure by MSEK 5 (34). amount. Pensionable salary refers to annual fixed basic salary with the addi- 3 Share of income includes adjustment of last year's income figure by MSEK tion of the average variable component paid in the last three years. Alterna- –40 (–49). tively, a defined contribution pension plan is provided. The same basic pen- 4 Based on annual financial statements as per October 31, 2001. sion system structure applies to Danish and Norwegian senior SAS execu- 5 The stock reserve, which was of a general nature, was reversed during tives, adjusted to Danish and Norwegian conditions, respectively. the year. Severance pay is payable to the President and other SAS senior execu- 6 Includes goodwill amortization totaling MSEK 29 (32). tives in the event employment is terminated by SAS for reasons other than In some cases, SAS's share of income in affiliated companies is based on breach of contract or neglect of duty. The amount corresponds to two preliminary unaudited accounts from the companies. annual salaries and up to 50% is reduced by the remuneration received from a new employer during the same period. Note 7 – Income from the sale of aircraft and buildings Severance pay in the event employment is terminated by a senior executive 2001 2000 may be paid in the event of changed ownership structure leading to organiza- tional changes and therefore changed responsibilities and authority under the Airbus A340 –83 – same conditions as in termination of employment by SAS as specified above. Boeing 767 38 190 Neither the President nor other senior executives are entitled to fees for Douglas MD80 – –19 directorships in the SAS Group or in companies in which SAS has owner- SAAB 340 – 27 ship interests or with which SAS cooperates. Boeing 737 519 121 Over and above salaries and remuneration described above, no transac- Fokker F50 – 16 tions with related parties have occurred. Fokker F28 15 27 deHavilland Q400 –20 51 Note 4 – Other operating expenses deHavilland Dash 8 18 11 2001 2000 Phasing in costs, new aircraft types –469 –127 Leasing cost 2,425 1,898 Phasing out costs in connection Selling expenses 2,457 2,443 with sale of aircraft –215 –91 Jet fuel 4,254 3,959 Hotel properties 63 286 Government user fees 4,203 3,740 Other properties 807 –2 Catering costs 1,735 1,791 Total 673 490 Handling costs 2,228 1,926 Technical aircraft maintenance 2,733 2,285 Note 8 – Interest income and similar income items Data and telecommunication costs 2,646 2,182 2001 2000 Cost of sold goods, incl. concession fees 1,727 1,669 Other operating expenses, SAS Trading 240 153 Interest income 597 476 Other operating expenses, REZSAS 1,871 1,568 Exchange rate differences, net 332 15 Other 6,379 5,284 Other financial income 20 12 Total 32,898 28,898 Total 949 503 Annual Report 2001 – The SAS Group's notes 87 Note 9 – Interest expenses and similar income items Note 10, continued Deferred tax liability/tax receivable 2001 2000 MSEK 2001 2000 Interest expenses 897 685 Deferred tax liability 3,856 3,961 Other financial expenses 72 44 Deferred tax receivable –544 –68 Total 969 729 Deferred tax liability, net 3,312 3,893 The below tables show the Group's most significant deferred tax liabilities and tax receivables according to category and how these liabilities and receivables changed in 2001. Note 10 – Tax 2001 2000 The following components are included in the Group's tax expense Deferred tax liability in the balance sheet: Fixed asset 2,881 2,781 MSEK 2001 2000 Provisions 238 58 Actual tax –210 –271 Tax allocation reserve 216 378 Deferred tax 264 –427 Other temporary differences 688 744 Tax attributable to the Parent Company Fiscal loss carryforward –167 – and its subsidiaries 54 –698 3,856 3,961 Tax attributable to participations in affiliated companies 49 –1 Deferred tax receivable in the balance sheet: Total 103 –699 Fiscal loss carryforward 836 50 Provisions/receivables 210 18 Actual tax is calculated based on the tax rate in each country. Deferred tax Other temporary differences –502 – is calculated at the tax rate expected to apply when the tax is realized. 544 68 The tax expense for the fiscal year can be reconciled against income before tax as follows: Deferred tax liability, net 3,312 3,893 Reconciliation of deferred tax liability, net: (%) (%) Opening balance 3,893 3,409 MSEK 2001 2001 2000 2000 Net tax receivable in acquired companies –263 – Income before tax –1,140 2,829 Change according to the statement of income –264 427 Exchange differences, etc. –54 57 Tax according to weighted tax rate in Denmark, Norway and Deferred tax liability, net, closing balance 3,312 3,893 Sweden (29.1%) 332 –29.1 –823 29.1 Tax effect of non-deductible costs –192 16.8 –26 0.9 On the closing date the Group had unutilized loss carryforwards amount- Tax effect of revenues ing to MSEK 3,862 (454).Based on these loss carryforwards, the Group not liable to tax 22 –1.9 76 –2.7 reports a deferred tax receivable of MSEK 1,003 (50). For the remaining Taxes attributable to previous year –57 5.0 loss carryforward, MSEK 312 (288) no deferred tax receivable is reported Reduction of opening balance for deferred tax liability due to due to uncertainty as regards future profit earnings. Of the loss carryfor- changed tax rate 77 –2.7 wards, MSEK 3,831 has a due date in 2011 or earlier. There are no due Effect due to other tax rates dates for the remaining loss carryforwards. in countries outside Denmark, No provision has been made for deferred tax on temporary differences Norway and Sweden –2 0.2 –3 0.1 related to non-distributed profits in subsidiary and affiliated companies, since Tax income/expense and effective these profits will not be distributed within the foreseeable future, alternatively tax rate for the fiscal year 103 –9.0 –699 24.7 a distribution can be made without the profits being subject to tax. Not 11 – Intagible fixed assets Total intangible Goodwill Other assets fixed assets 2001 2000 2001 2000 2001 2000 Opening acquisition value 453 422 714 508 1,167 930 Investments 535 31 447 244 982 275 Company acquisition 1 – – 31 – 31 – Sales/disposals – –18 –10 –27 –10 –45 Reclassifications –5 18 –28 –12 –33 6 Exchange rate differences – – 2 1 2 1 Closing accumulated acquisition value 983 453 1,156 714 2,139 1,167 Opening depreciation –257 –257 –218 –23 –475 –280 Depreciation for the year –20 –8 –128 –197 –148 –205 Company acquisitions 1 – – –10 – –10 – Sales/disposals – 8 7 2 7 10 Reclassifications – – 16 – 16 – Exchange rate differences – – – – – – Closing accumulated depreciation –277 –257 –333 –218 –610 –475 Opening write-down – – – – – – Company acquisitons 1 – – –14 – –14 – Closing write-down – – –14 – –14 – Closing planned residual value 706 196 809 496 1,515 692 1 Change for the year due to company acquisitions pertains to the Group's purchase of Braathens. 88 Annual Report 2001 – The SAS Group's notes Note 11, continued Breakdown of planned residual value: 2001 2000 Goodwill 706 196 Capitalized systems development costs 757 442 Development projects 43 18 Start-up costs for new hotels 0 19 Leases, etc. 9 17 Total residual value 1,515 692 Note 12 – Tangible fixed assets Spare engines Workshop & servicing Land and buildings Aircraft 1 and spare parts equipment for aircraft 2001 2000 2001 2000 2001 2000 2001 2000 Opening acquisition value 6,873 7,864 20,145 15,977 2,718 2,364 932 840 Investments 73 16 4,262 5,684 879 504 130 100 Company acquisitions3 233 – 2,389 – 347 – 256 – Capitalized interest – – – – – – – – Sales/disposals –2,784 –1,384 –4,666 –3,137 –184 –151 –48 –12 Reclassifications 122 356 4,199 1,605 34 – –8 4 Exchange rate differences 101 21 136 16 20 1 – – Closing accumulated acquisition value 4,618 6,873 26,465 20,145 3,814 2,718 1,262 932 Opening depreciation –1,820 –1,898 –5,886 –5,186 –991 –905 –640 –548 Depreciation for the year –271 –288 –1,019 –870 –281 –154 –116 –96 Company acquisitions3 –153 – –208 – –240 – –195 – Sales/disposals 442 381 430 600 111 69 42 10 Reclassifications –40 –2 36 –421 –4 – 6 –6 Exchange rate differences –62 –13 –71 –9 –11 –1 – – Closing accumulated depreciation –1,904 –1,820 –6,718 –5,886 –1,416 –991 –903 –640 Opening write-down – – – – – – – – Company acquisitions3 – – –69 – – – – – Closing write-down – – –69 – – – – – Closing planned residual value 2,714 5,053 19,678 2 14,259 2,398 1,727 359 292 Other Construction Prepayments Total tangible equipment and vehicles in progress fixed assets fixed assets 2001 2000 2001 2000 2001 2000 2001 2000 Opening acquisition value 5,467 5,528 118 298 3,575 2,563 39,828 35,434 Investments 399 329 314 242 4,001 2,267 10,058 9,142 Company acquisitions3 1,079 – – – – – 4,304 – Capitalized interest4 – – – – 219 195 219 195 Sales/disposals –537 –458 –16 – – – –8,235 –5,142 Reclassifications 308 20 –246 –422 –4,331 –1,527 78 36 Exchange rate differences 125 48 –4 0 646 77 1,024 163 Closing accumulated acquisition value 6,841 5,467 166 118 4,110 3,575 47,276 39,828 Opening depreciation –3,673 –3,426 – – – –9 –13,010 –11,972 Depreciation for the year –607 –579 –1 – – – –2,295 –1,987 Company acquisitions3 –791 – – – – – –1,587 – Sales/disposals 349 363 – – – – 1,374 1,423 Reclassifications –41 7 – – – 9 –43 –413 Exchange rate differences –116 –38 – – – – –260 –61 Closing accumulated depreciation –4,879 –3,673 –1 – – 0 –15,821 –13,010 Opening write-down – – – – – – – – Company acquisitions3 – – – – – – –69 – Closing write-down – – – – – – –69 – Closing planned residual value 1,962 1,794 165 118 4,110 3,575 31,386 26,818 1 The insured value of aircraft on December 31, 2001, amounted to MSEK 68,058. This includes the insured value of leased (operating leases) aircraft in the amount of MSEK 39,591. 2 On the closing date, December 31, 2001, estimated market value, excluding options, in Swedish kronor exceeded the book value by MSEK 1,907 (5,013). 3 Change for the year due to company acquisitions pertains to the Group's purchase of Braathens. 4 Capitalized interest has been carried out at an average interest rate of 5.3% (6.1%). Annual Report 2001 – The SAS Group's notes 89 Note 12, continued Future leasing fees and their present values for finance leasing contracts Of previous years' aircraft acquisitions, 6 Douglas MD-90s, 5 Douglas MD- applying on closing date in 2001 and 2000. 80s, 1 Boeing 767, and 1 Fokker F28 were acquired, formally via finance lease contracts, with original terms of 10-17 years. In 2001, 3 Airbus A321s MSEK 2001 2000 and 2 Airbus A340s were acquired via finance lease with terms of 10 years. Present value Present value For 3 of Douglas MD-80s and 1 Fokker F28, SAS has agreed with the Future of future Future of future banks that on SAS's behalf they will pay all accruing leasing fees and an Due date: leasing fees leasing fees leasing fees leasing fees agreed residual value at the expiry of each leasing period. SAS has irrevo- Within 1 year 992 979 1,532 1,499 cably reimbursed the banks in an amount corresponding to full settlement 1–5 years 3,043 2,710 1,440 1,264 for these payments. The total nominal value of the banks' payment com- Over 5 years 3,141 1,941 831 744 mitment on behalf of SAS on December 31, 2001, was MSEK 247 (322). With regard to other leased aircraft, the terms of the leasing contracts Total 7,176 5,630 3,803 3,507 (particularly pertaining to SAS's call options during the contract period and at the expiry of the leasing contract, as well as the economic risk SAS Contractual purchase commitments has regarding the value of the aircraft) are such that the agreements, from On the closing date the Group had the following commitments relating to SAS's point of view, are comparable to a purchase. future acquisition of tangible fixed assets: The 18 (24) finance leased aircraft are reported in the balance sheet in MSEK 2002 2003 2004> the amount of MSEK 5,225 (2,713). Aircraft 7,027 2,505 1,398 SAS's aircraft holdings can be specified as follows: Hotel property 444 2001 2000 Total 7,027 2,949 1,398 Owned 14,453 11,546 Tax assessment values Finance leased (prepaid) 158 166 Buildings 2001 2000 Other finance leased 5,067 2,547 Frösundavik, part of Haga 2:8 686 597 Book value 19,678 14,259 Sverigehuset, part of Arlanda 2:1 26 23 Night Stop, part of Arlanda 2:1 9 8 Finance leasing SAS has finance leasing contracts for aircraft with remaining terms of up to Total 721 628 10 years. Total leasing fees paid amounted to MSEK 1,631 (936) for 2001 and 2000 respectively. Interest expenses amounted to MSEK 148 (178) for 2001 and 2000. Depreciation amounted to MSEK 190 (216) for 2001 Note 13 – Prepayments relating to tangible fixed assets and 2000. Leasing to a third party does not occur. 2001 2000 Book values of finance lease assets on the closing date: Airbus 2,947 2,307 MSEK 2001 2000 Boeing 700 475 Acquisition value, aircraft 6,380 4,481 Bombardier 424 705 Less accumulated depreciation, aircraft –1,155 –1,768 Other 39 88 Reported value finance leasing contracts, aircraft 5,225 2,713 Total 4,110 3,575 Note 14 – Financial fixed assets Equity Long-term receiv- affiliated ables from affili- Shares and Pension Other long-term Total financial companies ated companies participations funds, net receivables fixed assets 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 Opening acquisition value 977 818 339 360 261 156 3,578 2,498 1,257 1,082 6,412 4,914 Contributions 131 390 635 – 203 104 1,537 1,080 240 401 2,655 1,975 Company acquisitions1 – – – – – – 57 – 839 – 987 – Share of income –21 –2 – – – – – – – – –21 –2 Sales –15 –249 – – –8 –1 – – – – –23 –250 Amortization – – –7 –56 – – – – –52 –166 –59 –222 Dividend –35 –5 – – – – – – – – –35 –5 Reclassifications – – –34 –7 –28 –3 – – –2 –67 –64 –77 Exchange rate differences 96 52 17 42 11 5 – – 50 7 174 106 Other –5 –27 – – – – – – – – –5 –27 Closing accumulated acquisition value 1,128 977 950 339 439 261 5,172 3,578 2,332 1,257 10,021 6,412 Opening depreciation – – – – –73 –71 – – – – –73 –71 Exchange rate differences – – – – –5 –2 – – – – –5 –2 Closing accumulated depreciation – – – – –78 –73 – – – – –78 –73 Opening write-down – – – – –2 –3 – – –425 –365 –427 –368 Write-down for the year – – – – – – – – –4 –60 –4 –60 Reversed write-down – – – – – – – – – 2 – 2 Reclassifications – – – – – 1 – – – – – 1 Exchange rate differences – – – – – – – – –6 –2 –6 –2 Closing write-down – – – – –2 –2 – – –435 –425 –437 –427 Closing residual value 1,128 977 950 339 359 186 5,172 3,578 1,897 832 9,506 5,912 1 Change for the year due to company acquisitions pertains to the Group's purchase of Braathens. 90 Annual Report 2001 – The SAS Group's notes Note 15 – Share of equity in affiliated companies SAS Group's holding Share of equity Reg. no. Domicile share of equity, % 2001 2000 British Midland PLC 2107441 Derby, U.K. 20.0 311 249 Cimber Air A/S 409619 Sönderborg, Denmark 26.0 114 116 Spanair S.A. EA07225154 Palma de Mallorca, Spain 49.0 208 292 Skyways Holding AB 556021–5872 Stockholm, Sweden 25.0 95 111 Grønlandsfly A/S 30672 Nook, Greenland 37.5 68 59 airBaltic Corporation A/S 324575 Riga, Latvia 47.2 84 –4 Aerolinas Baleares S.A. A07988728 Palma de Mallorca, Spain 25.0 10 Newco Airport Services S.A A–82086646 Madrid, Spain 45.0 125 122 Commercial Aviation Leasing Ltd IE6328550R Dublin, Ireland 49.0 174 138 Elimination of intra-group profit for Commercial Aviation Leasing Ltd –317 –357 Tradevision AB 556590–9024 Stockholm, Sweden 30.0 9 15 Polygon Group Ltd 33173 St.Peters Port, Guernsey 30.8 28 131 Airnet I/S 17895532 Copenhagen, Denmark – – 14 Casino Copenhagen K/S 15751274 Copenhagen, Denmark 50.0 42 34 SNR Amsterdam Hotel CV 34114651 Amsterdam, Netherlands 50.0 24 23 Malmaison WB SAS Hotels A/S 4024442 London, U.K. 50.0 89 86 SAS Royal Viking Hotel 556068–3871 Stockholm, Sweden 50.0 15 10 TTB Leisure Luxury Hotels 99088707 Cape Town, South Africa 50.0 6 8 ZAO St Petersburg 76679 St. Petersburg, Russia 24.8 37 – Other 6 10 Stock reserve – –80 Total 1,128 977 Share of equity in affiliated companies is reported by the owner company through application of the equity method. Consolidated shareholders' equity on the closing date, December 31, 2001, amounted to MSEK 15,544. If share of equity in affiliated companies had been reported according to the acquisition cost method, consolidated shareholders' equity would have amounted to MSEK 15,855. Equity shares in affiliated companies includes acquired surplus value of MSEK 58 (27) in British Midland PLC, MSEK 72 (72) in Cimber Air, MSEK 73 (78) in Skyways Holding AB, MSEK 90 (–) in airBaltic Corporation A/S and MSEK 119 (–) in Newco Airport Services S.A. Note 16 – Long-term receivables from affiliated companies Note 18 – Pension funds, net 2001 2000 2001 2000 airBaltic Corporation A/S 48 32 Pension funds, net, overfunded plans 6,250 4,582 Commercial Aviation Leasing Ltd 336 307 Pension funds, net, underfunded plans –1,078 –1,004 Spanair S.A. 566 – Total 5,172 3,578 Total 950 339 When calculating SAS's pension commitments, the year's pension earnings and returns, the following long-term economic assumptions apply to the SAS Group which represent a weighted average: Discount rate 6.8% Note 17 – Shares and participations Long-term rate of return 8.8% Inflation rate 3.0% MSEK Future salary adjustments 3.0% Number of Par value Book Future adjustments of current pensions 3.0% shares/participations % 1,000s value Expo Investment In the financial statements, the commitments in the SAS Group are included Partnership 10,000 12.2 DKK 100,000 191.2 as specified in the table below. The item "unrecognized amounts" includes Copenhagen International deviations from estimates, actuarial gains and losses and plan amendments. Hotels K/S, Copenhagen 1,343 11.3 DKK 134,000 66.3 These are allocated according to two methods. Plan amendments are spread International Computer over the average remaining working lives of employees participating in the Service and Advice for plan. Deviations from estimates are amortized over five years when they Travel, Antwerpen 8,166 10 BEF 8 30.0 exceed 10% of the greater of pension obligations or pension assets. Feri Otelcilik Ve Turizm Most pension plans in Scandinavia are defined benefit. Most pension AS, Istanbul 270,000 10 USD 2,700 21.7 plans are secured through insurance companies. The collective pension Aeroxchange Ltd, Dallas 18,868 9.4 USD 0 28.8 plans for salaried employees in Sweden and for employees in Norway are RDS Hotellis AS, Tallinn 570 14.1 EEK 570 17.9 secured through defined benefit pension plans with insurance companies. SITA Foundation, Amsterdam 520,101 0.3 1.0 In Sweden, pension plans are mainly secured with Alecta. For employees in European Aviation Denmark, SAS mainly has defined contribution solutions. College SA, Matacan 14,426 15 EUR 144 0.9 The normal retirement age for SAS flight personnel is 60. According to agree- Vimich Hotel Kg, ments with SAS pilots in Denmark, Norway and Sweden, and with cabin crew in Hamburg 1 5 DEM 0 0.7 Sweden and Norway, voluntary early retirement with pension is allowed from Arlanda Flygbränsle- the age of 55 at the earliest. SAS has also undertaken to pay a pension up to nor- hantering AB, mal retirement age, 60, to pilots who have lost their licenses. The retirement age Stockholm 720 16.8 SEK 720 0.7 for cabin crew employed in Sweden is insured at 65, but once they reach the age Others 0.2 of 50, the retirement age is reduced to 60. The estimated present value of all Total shares and participations 359.4 these obligations is included in SAS's calculated total pension commitment. Annual Report 2001 – The SAS Group's notes 91 Note 18, continued Note 18, continued Defined benefit pension plans In some pension plans the real return has been lower that SAS's esti- 2001 2000 mated long-term return of 8.8% which is reflected in the item unrecog- Pensions earned during the year –842 –593 nized deviations from estimates. The actual return on managed assets Return on pension provisions –1,249 –1,134 in 2000 was 6.5%. Information on actual return for 2001 is not yet avail- Return on funded assets for the year 2,155 2,028 able. The year's amortization of deviations from Pension assets, net, including pension commitments, assets under estimates and plan amendments. 49 293 management and unrecognized plan amendments and deviations from Impact on income for the year, net, estimates for the defined benefit pension plans developed as follows: pertaining to defined benefit pension plans 113 594 2001 2000 Several of SAS's pension plans are overfunded. This contributes to return Opening balance 3,578 2,498 on funded assets for the year exceeding the costs for pensions earned cal- Earnings impact for the year 113 594 culated according to existing parameters. Paid-in premium 1,497 1,100 The cost for defined contribution pension plans amounted to MSEK 717 Utilization/payment of client (731). company funds in Alecta –229 –649 2001 2000 Change in deviations from Status at December 31 estimates and pension plans 96 32 Funded assets 27,268 24,111 Pension assets. net, in acquired companies 57 – Pension commitments –21,941 –18,288 Currency effect 60 3 Difference between funded assets and Closing balance 5,172 3,578 commitments 5,327 5,823 Unrecognized plan amendments, and Of total pension commitments, MSEK 21,941 (18,288), MSEK 20,498 deviations from estimates including real return –155 –2,245 (16,702) were funded and MSEK 1,443 (1,586) unfunded. Book assets 5,172 3,578 Note 19 – Expendable spare parts and inventories Note 20 – Prepaid expenses and accrued income 2001 2000 This includes MEUR 52, or MSEK 490, paid to a blocked account relating Expendable spare parts, flight equipment 1,091 861 to acquisition of additional shares in Spanair. Expendable spare parts, other 163 206 Inventories 267 221 Total 1,521 1,288 Note 21 – Short-term investments On December 31, 2001, short-term investments consisted for the most Valued at acquisition cost 1,486 1,272 part of deposits and investments in government securities. Short-term Valued at net sales value 35 16 investments also include MSEK 299 (184) in blocked deposits in a tax Total 1,521 1,288 deduction account in Norway. Note 22 – Shareholders' equity Accumulated Accumulated Share Equity Other exchange rate exchange rate Share premium method restricted differences Unrestricted differences Total MSEK capital reserve reserve reserves restricted res. equity unrestricted res. Equity Pro forma, January 1, 2001 1,645 488 165 5,712 200 9,312 –2 17,520 Share conversion* –27 – – –271 – – – –298 Exchange rate difference – – – –6 593 –959 512 140 Dividend – – – – – –754 – –754 Transfer restricted/unrestricted equity – – 28 –321 – 293 – – Net income for the year – – – – – –1,064 – –1,064 Closing balance, December 31, 2001 1,618 488 193 5,114 793 6,828 510 15,544 * Of the total shares outstanding in SAS Danmark A/S, SAS Norge AS and SAS Sverige AB, 164,500,000, only 161,816,396 were exchanged for newly issued shares in SAS AB. MSEK 253 was paid for compulsory redemption. In addition, MSEK 45 was paid in connection with the issue prospectus, etc. This had a negative impact on consolidated shareholders' equity totaling MSEK 298. Minority interests MSEK Opening balance, January 1, 2001 131 Minority shares in net income for the year 27 Acquired companies 91 Currency effects 14 Closing balance, December 31, 2001 263 Note 23 – Other provisions MSEK Restructuring Loyalty program Other provisions Total Opening balance, January 1, 2001 75 609 35 719 Provisions/utilized provisions,net 16 158 4 178 Acquired companies 278 138 58 474 Currency effects 9 4 13 Closing balance, December 31, 2001 378 905 101 1,384 92 Annual Report 2001 – The SAS Group's notes Note 24 – Maturity of long-term liabilities Note 29 – Financial derivatives Long-term liabilities that fall due more than five years after the balance The SAS Group uses derivative instruments as part of its management of sheet date. exposure and risks, as outlined in the section on financial risk manage- ment (page 24-25). The earnings impact attributable to currency and 2001 2000 interest rate derivatives is realized on an ongoing basis during the year and Subordinated debenture loans 920 840 the change in value of these contracts is taken into account in the result. Bond issues 5,539 – For forward exchange contracts and options used to hedge future com- Other loans 7,802 4,596 mercial flows and investments, the earnings impact is reported on the Other liabilities 21 30 contract's maturity date. Outstanding volume and its remaining market value at December 31, 2001, is shown in the table below. A closure of all Total 14,282 5,466 outstanding derivative instruments at market rates per December 31, 2001, would provide a positive earnings impact of MSEK 6 and a positive cash flow of MSEK 193. Note 25 – Subordinated debenture loans Nominal Market- A subordinated debenture loan of 200 million Swiss francs was issued dur- Outstanding financial derivatives value MSEK value MSEK ing the 1985/86 fiscal year. There is no set maturity date for this loan. SAS Currency swap contracts 1,562 –50 has an exclusive right to call in this loan every fifth year. The interest rate is Forward exchange contracts 23,730 –100 fixed for 10-year periods and amounts to 3.625% per annum from 1996. Interest rate swaps and other In previous years, SAS has repurchased bonds for a nominal value of 55.3 interest rate derivatives 29,192 +343 million Swiss francs, after which the loan amounts to 144.7 million Swiss francs. Note 30 – Short-term loans Overdraft facilities amount to MSEK 369 (436), of which MSEK 211 (87) has been utilized. Note 26 – Bond issues SAS's bond issues amounted to MSEK 5,539 (541), of which the current Note 31 – Unearned transportation revenue, net portion is MSEK 0 (541). Specification of individual loans: Unearned transportation revenue consists of tickets sold and still valid but Outstanding unused, see Accounting and Valuation Principles, page 85. debt in MSEK The estimated reserve in the unearned transportation revenue liability Issued amount Interest rate Maturity Dec. 2001 on December 31, 2001, amounted to MSEK 494 (434). 1,000 MJPY 1.000% 01/07 81 1,000 MJPY 1.120% 01/07 81 Note 32 – Assets pledged 5,500 MJPY 1.305% 01/08 447 750 MCZK 5.220% 01/08 220 2001 2000 500 MEUR 6.000% 01/08 4,710 Related to long-term liabilities to credit institutions: Total 5,539 Real estate mortgages 260 235 Less amortization in 2002 0 Aircraft mortgages 2,050 691 Chattel mortgages – 2 Total 5,539 Receivables – 8 Shares in subsidiaries 0 0 The above loans are to some extent switched to other currencies and other fixed-interest periods through currency and interest-rate swap contracts Related to deposits: and forward exchange contracts. The currency exposure of the debt has Blocked bank accounts 72 28 therefore changed, see section on financial risk management (page 24- Total 2,382 964 25). Note 33 – Contingent liabilities 2001 2000 Note 27 – Other loans Swap transactions 198 205 2001 2000 Contingent liabilities, other 1,419 673 Finance leases 5,302 3,891 Total 1,617 878 Other loans 9,640 6,949 Total prior to amortization 14,942 10,840 Contingent liabilities include a gross amount of MSEK 198 (205) attributa- ble to swap transactions. SAS enters into currency and interest rate con- Less amortization 2002 and 2001 –2,463 –2,119 tracts on an ongoing basis. The values shown here are attributable to loans Other loans according to the balance sheet 12,479 8,721 after swap transactions whose book value on the balance sheet date was lower than the value of the original loans and the accrued value of currency Of the above loans in foreign currency MSEK 3,994 (520) is reported at the and interest rate contracts. exchange rate on the acquisition date. Under the management agreements for 29 hotels, Rezidor SAS Hospi- tality A/S guarantees a minimum annual cash flow until 2006-2024. For several of the agreements, the guarantee is limited to a maximum sum over the contract period, and in certain cases also to a maximum amount Note 28 – Long-term liabilities to affiliated companies per annum. Guarantee payments of MSEK 46 were remitted in 2001. Other contingent liabilities include MSEK 443 (–) relating to guarantees 2001 2000 for aircraft leasing in Air Botnia. Casino Denmark A/S 51 42 Additionally, due to its size the SAS Group is involved in disputes, some airBaltic Corporation A/S 9 – of which will be settled in court. In cases where a probable and quantifiable Total 60 42 risk of loss is judged to exist, provisions are made on an ongoing basis. Annual Report 2001 – The SAS Group's notes 93 Note 34 – Leasing commitments The different business areas in the SAS Group have entered into the following leasing commitments, with specification of the total annual rent for: 2002 2003 2004 2005 2006 2007> Aircraft 2,278 1,931 1,577 1,378 1,239 2,510 Hotel properties 736 873 576 859 822 10,681 Other properties 845 832 790 776 771 9,166 Machinery and equipment 33 32 30 14 12 2 Total (MSEK) 3,892 3,668 2,973 3,027 2,844 22,359 The lease contracts run for between one and seventy-one years, and indi- Aviation Administration on the other hand concluded an agreement in vidual assets with an annual leasing cost in excess of MSEK 0.5 have been March 1988 regarding full compensation to the Civil Aviation Administra- included. Total leasing fees in 2001 for operating leases amounted to tion in conjunction with the construction of Terminal 2 at Arlanda. The pre- MSEK 3,609 (2,943). No leasing assets were leased to a third party. conditions for this agreement were changed by the deregulation of domes- The above table includes the following major items: tic aviation on June 30, 1992. An agreement in principle between SAS and The sale and leaseback agreement involving 30 Douglas MD-80 aircraft the Civil Aviation Administration was reached on November 25, 1992, concluded with GECAS in December 1999 is expected to yield an annual under which SAS will pay a fixed charge to the Civil Aviation Administration leasing cost of approximately MSEK 352.The agreement runs through during the period 1993-2005, in addition to a variable charge per passen- December 2009. ger. The total leasing commitment for the period 1997-2005 amounts to In conjunction with the sale and leaseback of Boeing 767-300s in the MSEK 258. SAS claims that all airlines should bear their share of the Civil period 1994-2001, nine aircraft are leased back on an operating lease Aviation Administration's capacity costs for Terminal 2 in a competitively under the terms of lease contracts that run for 2-25 months. The cost for neutral manner, i.e. that all airlines should pay the same cost per passenger. 2002 is MSEK 495. The leasing cost for 2003 is MSEK 321. Attempts to renegotiate this agreement have so far been fruitless and SAS SAS sold airport-related properties in December 2001. These were has therefore taken legal action and demanded repayment of amounts paid acquired by Nordisk Renting and GE Capital Real Estate for a purchase in 1993-1996 and wavier of payment thereafter. A ruling by the Norrköping price of MSEK 3,020. At the same time, SAS leased back all the buildings District Court in December 1999 fully supported SAS's claims. However, for 20 years via operating leases, and has an option to back all or parts of the Civil Aviation Authority lodged an appeal against this ruling with Göta the property portfolio after 10 years. The rent, buy amounts to MSEK 209 Court of Appeal which confirmed the district court's decision in April 2001. in 2002. The Civil Aviation Administration has applied to the Supreme Court for leave SAS and Linjeflyg AB ("SAS") on the one hand and the Swedish Civil to appeal. A decision on the leave to appeal is expected shortly. Note 35 – Income from the sale of fixed assets Note 37 – Auditors' fees 2001 2000 An audit assignment refers to examination of annual accounts and account- Capital gain according to the cash flow statement 1,826 1,756 ing records and the administration of the board of directors and the presi- Costs of phasing in and phasing out aircraft –684 –218 dent. Such assignments also include other duties incumbent on the com- Currency effect in income from the sale of aircraft –492 – pany's auditors as well as advice and other assistance induced by observa- tions made while performing the audit or carrying out such working duties. Capital gain according to the statement of income 650 1,538 All other work is classified as other assignments. The following remuneration was paid to auditors and audit firms for audit assignments and for other assignments. Note 36 – Acquisition of subsidiary Group Parent Company 2001 2000 2001 Braathens was acquired in December. According to the acquisition analy- Deloitte & Touche sis the value of acquired assets and liabilities was as follows: Audit assignments 9 7 * Other assignments 11 7 1 Intangible fixed assets 7 Tangible fixed assets 2,648 Total Deloitte & Touche 20 14 1 Financial fixed assets 990 Other audit firms Current assets 117 Audit assignments 0 1 – Current receivables 731 Other assignments 1 1 – Liquid assets 279 Total other audit firms 1 2 – Provision –691 Long-term liabilities –715 Total 21 16 1 Current liabilities –2,785 * Fees for auditing the parent company are included in fees for the SAS Total 581 Consortium and are therefore included in the amount for the Group. Goodwill 524 Note 38 – Transactions with affiliated companies Purchase price paid 1,105 Revenues from sales to affiliated companies amounted to MSEK 384 Liquid assets in Braathens –279 (301). Costs of purchases from affiliated companies were MSEK 397 Effect on the Group's liquid assets 826 (426). 94 Annual Report 2001 – The SAS Group's notes Note 39 – International Accounting Standards (IAS) Note 39, continued SAS's Annual Report is prepared in accordance with generally accepted contract matures. According to generally accepted accounting principles accounting principles in Sweden. in Sweden, such hedging transactions are reported off the balance sheet and recognized as income in the period in which the hedged position is Differences between generally accepted accounting principles in closed. Sweden and IAS Application of IAS has the following effect on the Group's net income Financial instruments differ in IAS (IAS 39) from generally accepted and shareholders' equity. accounting principles in Sweden mainly as regards derivative instruments, market listed securities and hedging transactions. January-December 2001 According to IAS 39, derivative instruments should be valued at fair val- Net income according to Swedish accounting standards –1,064 ue and reported in the balance sheet. Changes in value are reported in the Financial instruments 17 statement of income. According to generally accepted accounting princi- Deferred tax –5 ples in Sweden, derivative instruments are reported off the balance sheet. According to IAS 39 market listed securities are valued at fair value and Net income according to IAS –1,052 changes in value are reported in the statement of income. According to generally accepted accounting principles in Sweden, these securities are December 31, 2001 reported according to the lower of cost or market value principle where Shareholders' equity according to Swedish adjustments to fair value are reported in the statement of income. accounting standards 15,554 According to IAS 39, changes in value of derivative instruments which Financial instruments –308 are intended to hedge future cash flows (a cash flow hedge) are stated Deferred tax 86 directly in shareholders' equity. The earnings impact is reported when the Shareholders' equity according to IAS 15,332 Note 40 – Subsidiaries in the SAS Group Registered No. of owned Book value Share of equity, Domicile number shares Holding, % SEK 000s SEK 000s Owned by SAS AB: SAS Danmark A/S Copenhagen 56994912 47,000,000 100 567.4 4,699.6 SAS Norge AS Bærum 81117670200 47,000,000 100 625.6 4,349.0 SAS Sverige AB Stockholm 556042-5414 70,500,000 100 723.5 6,817.5 Braathens ASA Bærum 910763644 32,202,450 * 100 1,105.0 581.0 3,021.5 16,447.1 Owned by SAS Danmark A/S, SAS Norge AS, SAS Sverige AB: SAS Consortium Solna 902001-7720 n.a. 100 15,949.0 15,949.0 SAS Commuter Consortium Tårnby 13273073 n.a. 100 632.9 632.9 16,581.9 16,581.9 Owned by the SAS Consortium: Widerøe's Flyveselskap ASA Bodø 917330557 231,442 63.25 345.9 276.4 Linjeflyg AB Stockholm 556062-8454 2,000,000 100 341.4 185.8 SAS Investment A/S Copenhagen 25578104 292,703 100 344.2 373.3 Nordair A/S Tårnby 24176711 10,000 100 670.5 658.8 Linjeflyg Leasing HB Stockholm 916644-1080 n.a. 79 217.5 246.1 SAS Flight Academy Holding AB Stockholm 556397-3378 20,000 100 100.0 391.1 Scandinavian IT Group A/S Tårnby 111.275 25,000 100 44.6 317.5 SAS Trading Holding A/S Tårnby 42710814 500 100 38.1 15.9 Scandinavian Multi Access Systems AB Stockholm 556051-4571 190,000 95 19.5 141.5 Travellink AB Stockholm 556596-2650 60,000 60 34.9 109.9 SAS Media Partner AB Stockholm 556175-9183 5,000 100 12.3 12.7 SAS Ejendom A/S Tårnby 105.786 20,000 100 11.0 35.7 Oy Air Botnia AB Vantaa 409.619 150 100 10.5 –29.5 SAS Capital B.V. Rotterdam 167071 501 100 7.7 44.7 Jetpak Nordic AB Stockholm 556415-6650 50,000 100 7.5 51.8 SAS Flight Support AB Stockholm 556278-5864 5,000 100 26.0 5.3 Others 1.3 7.2 2,232.9 2,844.2 Owned by the SAS Consortium's subsidiaries: Rezidor SAS Hospitality A/S Copenhagen 25578082 67,200,000 100 370.7 1,094.8 SAS Cargo Group A/S Tårnby 25736443 200,500 100 253.9 196.8 624.6 1,291.6 * Of which 488,440 shares were compulsorily redeemed in January 2002. Annual Report 2001 – The SAS Group's notes 95 Parent Company, SAS AB Statement of Income February 23 – December 31, 2001 (MSEK) Note 2001 Payroll expenses 1 –0.2 Other operating expenses –7.4 Operating income –7.6 Anticipated dividend* 126.7 * Dividend from SAS Denmark A/S of MDKK 100. In the SAS Group´s Interest expenses and similar income items –16.4 ....year-end report published on February 12, 2002, SAS AB's net income Income before tax 102.7 ....for the year was reported as MSEK –24.0. The anticipated dividend Tax – ....from SAS Denmark A/S of MSEK 126.7 means that net income for the Net income for the year 102.7 ....year is stated as MSEK 102.7. Balance Sheet, December 31, 2001 ASSETS SHAREHOLDERS' EQUITY AND LIABILITIES (MSEK) Note 2001 (MSEK) Note 2001 Fixed assets Shareholders' equity 3 Financial fixed assets Restricted equity Shares in subsidiaries 2 3,021.5 Share capital, 161,816,396 par value SEK 10 1,618.2 3,021.5 Unrestricted equity Net income for the year 102.7 Current assets Total shareholders' equity 1,720.9 Current receivables Long-term liabilities Receivables from Group companies 127.9 Long-term liabilities to the SAS Consortium 1,277.9 Other receivables 0.5 1,277.9 128.4 Current liabilities TOTAL ASSETS 3,149.9 Liabilities to the SAS Consortium 129.1 Other liabilities 21.0 Accrued expenses and prepaid income 1.0 151.1 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 3,149.9 Notes Note 1 – Number of employees, salaries, other remuneration and social security expenses The President is employed in SAS AB. Payroll expenses for the President are charged against the SAS Consortium. The company has no other employees. 2001 Fees paid to present and former Board members for the period July 1 - December 31,2001 1.7 Social security expenses paid for present and former Board members 0.2 1.9 Note 2 – Shares in subsidiaries Registered Number of Book value Domicile number owned shares Holding, % SEK 000s SAS Danmark A/S Copenhagen 56994912 47,000,000 100 567.4 SAS Norge AS Bærum 81117670200 47,000,000 100 625.6 SAS Sverige AB Stockholm 556042–5414 70,500,000 100 723.5 Braathens ASA Bærum 910763644 32,202,450 * 100 1,105.0 * of which 488,440 shares were compulsorily redeemed in January 2002 3,021.5 Note 3 – Shareholders' equity Note 4 – Fees to audit firms Change in shareholders' equity Fees to Deloitte & Touche were paid amounting to SEK 828,000 for other Share capital Unrestricted equity Total assignments in connection with the single SAS share and acquisition of February 23, 2001 0.5 0.5 Braathens. Non-cash issue 1,552.7 1,552.7 Auditing fees for the 2001 fiscal year were charged to the SAS Consor- Non-cash issue 65.0 65.0 tium. See SAS Group, Note 37. Net income for the year 102.7 102.7 December 31, 2001 1,618.2 102.7 1,720.9 96 Annual Report 2001 – Parent Company, SAS AB Proposed disposition of earnings The SAS Group According to the consolidated balance sheet at December 31, 2001, unrestricted equity amounted to MSEK 7,338. Of this amount MSEK 11 is expected to be allocated as a provision to restricted reserves. SAS AB MSEK Net income for the year 102.7 Total unrestricted equity 102.7 The Board of Directors proposes that this amount be allocated as follows: Allocation to statutory reserve 10.3 To be carried forward to new account 92.4 Total 102.7 Stockholm, February 27, 2002 Jacob Wallenberg Egil Myklebust Fritz H. Schur Vice Chairman Chairman Anitra Steen Berit Kjøll Lars Rebien Sørensen Ulla Gröntvedt Ingvar Lilletun Helmuth Jacobsen Jørgen Lindegaard President and CEO Our auditors' report was submitted on March 1, 2002. The different fiscal years of the Parent Company and the Group are commented on in this report. Deloitte & Touche AB Jan Åke Magnuson Authorized Public Accountant Auditors' Report To the Annual General Meeting of SAS AB, Corporate Identity Number 556606-8499 We have audited the annual accounts of the Parent Company for the fiscal dated accounts. As a basis for our opinion concerning discharge from liabil- year February 23 - December 31, 2001, the consolidated accounts for the ity, we examined significant decisions, actions taken and the circum- period January 1 - December 31, 2001, the accounting records and the stances of the company in order to be able to determine the liability, if any, administration of the Board of Directors and the President of SAS AB. For a to the company of any board member or the President. We also examined detailed description of the background to these different fiscal years, we whether any board member or the President has, in any other way, acted in refer to the account in the section on Group structure in this annual report. contravention of the Companies Act, the Annual Accounts Act or the Arti- The accounts and the administration of the company are the responsibility cles of Association. We believe that our audit provides a reasonable basis of the Board of Directors and the President. Our responsibility is to express for our opinion set out below. an opinion on the annual accounts, the consolidated accounts and the The annual accounts and the consolidated accounts have been pre- administration based on our audit. pared in accordance with the Annual Accounts Act and, thereby, give a true We conducted our audit in accordance with generally accepted auditing and fair view of the company's financial position and results of operations in standards in Sweden. Those standards require that we plan and perform accordance with generally accepted accounting principles in Sweden. the audit to obtain reasonable assurance that the annual accounts are free We recommend to the Annual General Meeting that the statement of of material misstatement. An audit includes examining, on a test basis, evi- income and balance sheet for the Parent Company and the Group be dence supporting the amounts and disclosures in the accounts. An audit adopted, that the profit in the Parent Company be dealt with in accordance also includes assessing the accounting principles used and their applica- with the proposal in the Report by the Board of Directors and that the mem- tion by the Board of Directors and the President, as well as evaluating the bers of the Board of Directors and the President be discharged from liabili- overall presentation of information in the annual accounts and the consoli- ty for the fiscal year. Stockholm, March 1, 2002 Deloitte & Touche AB Jan Åke Magnuson Authorized Public Accountant Annual Report 2001 – Parent Company, SAS AB 97 SAS AB's Board of Directors The Board of Directors consists of nine members Six members are appointed by the shareholders of SAS AB. The employee groups in Denmark, Norway and Egil Myklebust, born 1942 Chairman of the Board Sweden appoint three Board members and six Chairman of Norsk Hydro. deputies in accordance with the law and a specially Directorships: European Round agreed procedure. Table, Executive Committee of the World Business Council for Sustain- The Board has elected a Chairman and Vice Chair- able Development (WBCSD), man from among its members. The Board's work (Chairman in 1998 and 1999), and duties adhere to the Swedish Companies Act Norske Skog ASA. and the formal work plan adopted by the Board. Shareholding: 0 Day-to-day administration is conducted by the President. The Board issues more detailed instruc- tions regarding the authority and obligations in- cumbent on the President. In the opinion of the Board the most rational solu- tion is that the Board and President of both SAS AB and SAS Danmark A/S, SAS Norge AS, SAS Sverige AB and the Scandinavian Airlines System Consor- tium consist of the same people and that the Chair- man of the Board of SAS AB is also the Chairman of Jacob Wallenberg, born 1956 the other named companies. In the Board's opinion, Vice Chairman Chairman of SEB, Skandinaviska such a union of people provides SAS AB with pre- Enskilda Banken. requisites for close relations between shareholders Directorships: Vice Chairman of and operations, as well as simplifying management Atlas Copco, Electrolux, Investor and the Knut and Alice Wallenberg and administration of the SAS Group. Foundation, and Member of the Boards of ABB, EQT, the Marianne Nomination Committee and Marcus Wallenberg Foundation, In accordance with the provisions of SAS AB's Arti- AU Föreningen Svenskt Näringsliv and the Nobel Foundation. cles of Association, at an Extraordinary General Shareholding: 5,000 Meeting held on November 6, 2001, a Nomination Committee was appointed to prepare the election of members of the Board at the next Annual General Meeting. The primary function of the Nomination Committee, which comprises seven representatives for the major shareholders, is to contribute to a suit- able and representative Board composition. The members of the Nomination Committee are Ramsay Brufer, Alecta, Thomas Egebo, Danish Ministry of Berit Kjøll, born 1955 President of Flytoget AS. Transport, Henrik Heideby, PFA, Pia Rudengren, Directorships: DnB Holding ASA, Wallenberg Foundations, Reier Søberg, Norwegian GASSCO, IARO (International Air Rail Ministry of Trade and Industry, Ragnhild M. Wiborg, Organization ), TusenFryd ASA, the Skiing Association. Odin Forvaltning, and Claes Ånstrand, Swedish Min- Shareholding: 0 istry of Trade and Industry. 98 Annual Report 2001 – SAS AB's Board of Directors At an Extraordinary General Meeting of SAS AB held on November 6, Egil Myklebust, Berit Kjøll, Fritz H. Schur, Anitra Steen, Lars Rebien Sørensen and Jacob Wallenberg were elected as new members of the Board. Egil Myklebust was appointed Chairman of the Board. Fritz H. Schur, born 1951 Employee representatives President of the companies in the Ulla Gröntvedt, born 1948 Fritz Schur Group. Employed at SAS in Sweden. Directorships: CIC A/S, Member of the Board of SAS AB Post Danmark, Bluecom Holding A/S, since 2001 D.L. Clémens Eftf. A/S, Dagmar Shareholding: 0 Sørensen Holding A/S, Chairman of Deputies: Det Danske Klasselotteri A/S, Vice Sven-Erik Olsson, first deputy Chairman of Brdr. Klee A/S. Gertie Gambe, second deputy Shareholding: 20,000 Anitra Steen, born 1949 Helmuth Jacobsen, born 1945 President of Systembolaget AB. Employed at SAS in Denmark. Directorships: Chairman of the Board Member of the Board of the SAS of Stockholm University, Member of Consortium since 1998 and of the the Board of the Confederation of Board of SAS AB since 2001. Swedish Enterprise and Almega. Shareholding: 319. Shareholding: 0 Deputies: Nicolas E. Fischer, first deputy Jens Tholstrup Hansen, second deputy Lars Rebien Sørensen, born 1954 Ingvar Lilletun, born 1938 President of Novo Nordisk A/S. Employed at SAS in Norway. Directorships: The European Fed- Member of the Board of the SAS eration of Pharmaceutical Industries Consortium since 1979 and of the and Associations (EFPIA), ZymoGe- Board of SAS AB since 2001. netics Incorporated. Shareholding: 0 Shareholding: 0 Deputies: John Lyng, first deputy Olav H. Lie, second deputy Auditors Deloitte & Touche AB Principal auditor: Jan Åke Magnuson Authorized Public Accountant Annual Report 2001 – SAS AB's Board of Directors 99 SAS Group Management Gunnar Reitan, born 1954. Deputy CEO and Chief Financial Officer. Member of the SAS Management Team from September 1993 to May 8, 2001, and subse- quently member of SAS Group Management responsible for group staff functions within treasury and finance, investor relations, infor- mation technology and asset management. Responsible for SAS's external relations in Norway. Joined SAS in 1988 in Oslo as Director of SAS Station Services. Later Vice President, Finance and Administration for SAS in Norway. Has been Deputy CEO and CFO since 1993. Experience of banking, industry and trans- portation. Member of the Board of Alecta Pensions- försäkring Ömsesidigt, Vital Forsikring A/S and Leif Høegh & Co ASA Shareholding: 1,000 Bernhard Rikardsen, born 1956. Senior Vice President. Member of the SAS Management Team and head of the Human Resources staff function from November 1993 until May 8, 2001. Since May 8, member of SAS Group Management and responsible within Human Resources for Group staff functions within strategic manage- ment, employee and union relations, human capital, working environment and salary policy. Joined the human resources at SAS in Marie Ehrling, Bernhard Rikardsen, Henry Sténson, Gunnar Reitan and Jørgen Lindegaard. Norway in 1981. Personnel Director at SAS in Norway in 1990. Shareholding: 0 Jørgen Lindegaard, born 1948. Marie Ehrling, born 1955. Henry Sténson, born 1955. President and CEO. Deputy CEO and Chief Operating Officer as well Senior Vice President. Background in telecommunications and has as Accountable Manager for SAS Airline. Member of the SAS Management Team from held a number of senior executives positions Member of the SAS Management Team from March 1998 until May 8, 2001, responsible for since 1975, including President of Fyns Telefon October 1997 until May 8, 2001, and subse- the staff function Public Relations & Govern- A/S, Københavns Telefon A/S and a Director of quently member of SAS Group Management ment Affairs. Since May 8, member of SAS TeleDanmark. Joined GN Store Nord A/S in with responsibility for Airline Operations. COO Group Management and responsible for Com- 1996 and became its President and CEO in for SAS Airline since August 7. munications Group staff function including 1997. Took up his position at SAS on May 8, Responsible for SAS's external relations in Internal and External Communication, Contacts 2001. Sweden. with Authorities, Customer Relations and Brand Chairman of Sonofon Holding A/S, Member Joined SAS 1982 as Manager Economic Strategy. of the Board of the Financing Institute for Planning & Control. Vice President Internation- Previously Head of Information at Volvo Flyg- Industri og Håndværk A/S and Telenor A/S. al Routes 1994. From October 1997 responsi- motor AB, Head of Automotive Communica- Shareholding: 4,000 ble for Station Services Division, from January tions at AB Volvo, Information Director of Saab 2001 Scandinavian Ground Services. Previous Aircraft AB and Information Director of Volvo experience as a financial analyst at the 4th AP Car Corporation. Fund, information secretary at the Swedish Chairman of the Board of the European Centre Government departments Education, Finance for Public Affairs. and Treasury. Shareholding: 0 Member of the Board of AB Lindex and the Confederation of Swedish Enterprise. Shareholding: 0 100 Annual Report 2001 – SAS Group Management Summary of Environmental Report The goals remain firm Key performance indicators and index Operations in 2001 Environment and economy Environmental Report on the Internet 101 Contents Key performance indicators 104 Summary report of progress in the SAS Group's most important environmental performance indicators. Environmental Index 104 Progress of the Environmental Index (1999–2001) for SAS Airline. Operations in 2001 105 A description of the SAS Group's principal environmental impact, the new way of managing and structuring environmental work at SAS, factors involving the outside world and the year's most important environmentally-related events. Resource use and environmental impact 111 An illustration showing the SAS Group's use of natural resources and environmental impact. The diagram covers the businesses in the entire SAS Group, and not only SAS Airline as previously. Environment and economy 112 A summary of the information provided in the "Environment and economy" section in the Environmental Report on the Internet. The information provided in this summary, which highlights the SAS Group's considerable environmental impact, has been chosen on the basis of its importance for the Group's financial performance. Guide to the Environmental Report on the Internet 114 Introduction to and description of the SAS Group's Environmental Report 2001 on the Internet. Contact SAS on environmental issues E-mail: firstname.lastname@example.com Mail: SAS, Niels Eirik Nertun, OSLPP, NO-0800 Oslo Fax: +47 64 81 83 70 102 Summary of Environmental Report "Our goals remain firm" Despite the recession and the difficulties suffered by the airline and travel industry after September 11, we see long-term growth in the airline business from here on out. Annual growth in the airline industry of about 5% until 2015, as forecast by the UN Intergovernmental Pan- el on Climate Change (IPCC), implies an increased envi- ronmental impact. Therefore, it is one of our goals to con- tinue growing while simultaneously reducing the relative environmental impact. Our environmental goals remain firm, despite the recession. Our policy of constant improvement applies even in times of crisis. In 2002 we will also be developing environmental programs for airline as well as hotel oper- ations that will be the most ambitious in their respective industries. At the same time, we will improve the way we report these environmental efforts. Last year we were accorded with more honors than ever before for our environmental report. The SAS Envi- ronmental Report 2000 won the award for best environ- mental report in both Denmark and Norway. In Sweden it got the highest marks of all in Deloitte & Touche's annual "This year we are taking a further step, publishing review of environmental reports, in addition to being judged "an environmental report of top international caliber." the SAS Environmental Report 2001 exclusively In Sweden, Denmark and Norway the appropriate nom- on the Internet. We hope and trust that we have inating committiees, independently of one another, nom- made the right choice." inated SAS Environmental Report 2000 for the "Euro- pean Environmental Reporting Awards," to be presented in April 2002. There is a trend to use the Internet for environmental is to help them to better understand how the proactive communications. Since 1999 we have published our and effective environmental work in the SAS Group can environmental report on our website in dynamic form. contribute to a positive trend of the shareholder value. This has enabled readers to find more information than We hope and trust that we have made the right choice. was available in the printed version. We would therefore very much like to have a dialog with This year we are taking a further step, publishing the our stakeholders regarding both our environmental SAS Environmental Report 2001 exclusively on the Inter- efforts and the way in which we report them. Constant net. What you are reading right now is a summary of that improvement is our policy, and it applies to environmen- report. All the information it contains, just like the envi- tal communications, too. ronmentally related information in the annual report, has been taken from the complete environmental report, which, in turn, has been examined by the SAS Group's Stockholm, February 2002 external auditors. For a more complete picture of the environmental work of the SAS Group during 2001, please see the SAS Environmental Report 2001 on the Internet. An important reason that we are presenting a summa- Jørgen Lindegaard ry of our environmental report in the annual report is our President and CEO wish to provide investors and other capital market play- ers with the environmental information they need. All this Summary of Environmental Report 103 Key performance indicators Environmental performance indicators, SAS Airline 2001 2000 1999 Environmental index, 1996 =100 80 82 88 Fuel efficiency, kg /100 RPK 5.6 5.7 6.1 Cabin factor, % 64.7 67.0 64.0 Carbon dioxide (COC) emissions,1,000 tonnes 4,110 4,095 4,164 g /RTK 1,449 1,447 1,470 Nitrogen oxides (NOx) emissions, 1,000 tonnes 14.8 14.3 14.5 g /RTK 5.2 5.1 5.1 Environmental performance indicators, Subsidiary and Affiliated Airlines 2001 2000 1999 Carbon dioxide (COC) emissions, Braathens, 1,000 tonnes 404 419 452 Carbon dioxide (COC) emissions, Air Botnia, 1,000 tonnes 92 88 43 Carbon dioxide (COC) emissions, Widerøe, 1,000 tonnes 95 97 101 Environmental Performance Indicators, Airline Related Businesses 2001 2000 1999 Percentage of employees having had environmental education, SAS Media, % 83 n.a. n.a. Average number of readers per issue of Scanorama, SAS Media 22 21 16 Environmental Performance Indicators, Rezidor SAS Hospitality 2001 2000 1999 Water consumption, 1,000 md 2,462 2,822 2,460 Energy consumption, GWh 392 409 390 Carbon dioxide (COC) emissions, tonnes 6,13 n.a. n.a. Unsorted waste, 1,000 tonnes 12 n.a. n.a. Environmental index SAS Airline measures its overall eco-efficiency with the index improved by 2 points, which is chiefly due to aid of an environmental index. A lower index means better improvements in ground and cabin operations, whereas eco-efficiency. During 2001, the overall environmental flight operations' share of the index is mostly unchanged. Environmental index, overall, SAS Airline 1996=100 110 SAS Airline's progress: The base year of SAS Airline's envi- 105 ronmental index is 1996. The overall index essentially follows 100 the trend in the index for flight operations, as this is weighted heaviest, 90%. Improvements in 2001 are primarily due to 95 97 96 increased efficiencies in water and energy consumption in 90 cabin operations after the inflight caterer began to put new or 88 refurbished galleys into service. In ground operations, better 85 energy efficiency help to improve the index. As of 2000, the 80 82 80 environmental index for SAS Airlines is calculated according to 75 new principles. The indexes from previous years have been 1997 1998 1999 2000 2001 recalculated for the sake of comparability. 104 Summary of Environmental Report Operations in 2001 Environmental impact subsequent two months, between 150,000 and 200,000 The airline business accounts for approx. 86% of the SAS jobs disappeared in the global airline industry. This, in turn, Group's total environmental impact, which is illustrated on had ripple effects, since every job in the airlines generates page 111 under the heading "Resource use and environ- approx. two other jobs in the local communities they mental impact." This impact stems chiefly from the use of affect. fossil fuels, the combustion of which increases atmos- pheric carbon dioxide, contributing to global climate Demands and expectations change. Aviation fuel combustion also emits nitrogen In step with the deregulation and globalization of the oxides, which contribute to local acidification of soil and economy, there have been increasing demands for large water. Aircraft also produce noise, a local environmental corporations especially to shoulder greater social problem. responsibility. One argument is that of the world's 100 The environmental impact of other businesses, espe- largest economies, 51 are corporations and 49 are coun- cially hotels, is chiefly their energy and water consump- tries. Another is that it is the large multinationals that are tion. Other businesses also generate large quantities of primarily the big winners from globalization. waste. However, compared with SAS's airline business, Environmental and human rights organizations con- this environmental impact is relatively slight. Therefore, tinuously monitor corporate behavior. Reports of impro- the report below will focus mainly on the airline business, prieties spread quickly. A poor environmental or social particularly on its single largest operation – SAS Airline, reputation may have immediate, negative consequences also in terms of revenues the largest business area. for a company's bottom line. This may be because of child labor, substandard working conditions or other The world around us misdeeds. In many cases it is a subcontractor that has Travel and tourism are extremely sensitive to the world conducted itself poorly, but this does not matter – revela- situation. The airline and hotel businesses, especially tions of wrongdoing just as often affect the buyer. those reliant on tourism, are profoundly affected by polit- This is one reason companies set environmental, ethi- ical conflicts, social unrest and environmental disasters. cal or social standards for their subcontractors. Such stan- All these things result in diminished travel, which the act dards are also set for travel and tourism, and the SAS Group, of terrorism last September 11 proved. as a purveyor of air transportation and hotel services. The airline and hotel businesses are also both pro- In addition, all companies that have implemented an foundly affected by the prices of fuel, electricity, water environmental management system certified according and waste treatment – the oil price in particular fluctu- to ISO 14001 or registered according to the EU's Eco- ates sharply depending on political factors. Management and Audit Scheme (EMAS) are supposed to At the same time it should be stressed that as part of ensure that all their subcontractors' environmental work globalized economy, the travel industry, and thus the are at least on par with the company's own aims. SAS Group, is a vital communications link, contributing added value to the individual companies as well as the Sharpened focus on brands Group's three home countries. SAS, for example, is one Consumers are increasingly expected to see not only the of Denmark's biggest employers. product in isolation, but also what the company behind it Just how vital the airlines are to the economy and stands for. Therefore, it has become more and more employment became clear after September 11. During the important for companies to share their assessments with Summary of Environmental Report 105 their customers and stakeholders. Developing and pro- this does not mean that it will shirk its duty to reduce glob- tecting the SAS Group's brands are therfore becoming al emissions according the UN Convention on Climate increasingly important. Change. The UN International Civil Aviation Organization (ICAO), is studying how air transportation should reduce Sustainable development its global greenhouse gas emissions and is leaning The business sector has acted in various ways to meet toward open emissions trading as the most reasonable outside demands and expectations, for instance, by solution. That is, the airline industry, which for the fore- forming organizations such as the World Business Coun- seeable future will be dependent on fossil fuels – and thus cil for Sustainable Development (WBCSD) and joining emit greenhouse gases – will be able to buy emission the Global Reporting Initiative (GRI). rights from those players who can more easily reduce WBCSD, an organization with 150 member compa- their emissions by switching to biofuels, for example. nies, has taken on the role of stressing the business sec- tor's part as leaders in sustainable development. In par- Cooperation ticular, WBCSD highlights such issues as eco-efficiency, SAS Airline in particular is very active in environmental innovations and corporate social responsibility. cooperation. Besides being a driving force in focusing on GRI has been set up by the United Nations Environ- environmental issues in the airline network Star Alliance, ment Programme (UNEP) in collaboration with the non- representatives of SAS Airline participate in numerous profit organization CERES. GRI's chief task is to draft international contexts associated with aviation and the guidelines for reporting the environmental, economic environment. These include within the ICAO, where SAS and social dimensions of companies' efforts to create represents the International Air Transport Association sustainable development, i.e. development in line with (IATA) on the Committee on Aviation Environmental Pro- Agenda 21, adopted at the UN Conference on Environ- tection (CAEP). SAS Airline is also part of the IATA's envi- ment and Development in Rio de Janeiro in 1992. ronmental working group and promotes environmental SAS is following developments in both the WBCSD issues in the International Flight Catering Association and the GRI with great interest. For instance, the thinking (IFCA) and in the Association of European Airlines (AEA). behind the WBCSD's eco-efficiency project is reflected in Like SAS Airline, Radisson SAS has begun to cooper- SAS Airline's environmental index. SAS uses Deloitte & ate with local and international organizations, such as Touche's "Checklist for the development and evaluation Save the Children. SAS Airline also works together with of voluntary reports," in preparing the environmental the World Wildlife Fund and the Norwegian environmen- report. This checklist, in turn, follows GRI guidelines. tal organization Bellona. The SAS Group, like its business units and various companies, also engages in an ongoing dialog with vari- Research and development ous stakeholders, not only customers, suppliers and the SAS Airline is one of the airlines most active in promoting authorities, but also environmental and human rights environmental issues through its orders of new aircraft organizations. and engines. In many cases, SAS's environmental requirements have been decisive in getting the aircraft The climate issue engine industry in particular to commit to new and greener The single largest environmental impact of travel and solutions. Currently SAS, Boeing and a couple of engine tourism, and of the airline industry in particular, is emis- manufactures are engaged in a project to find solutions sions of the greenhouse gas carbon dioxide. Within the that can reduce noise from existing aircraft and engines. SAS Group, the airline business accounts for the bulk of carbon dioxide emissions. New organization – new environmental organization Thus, everything concerning the climate issue is of SAS's new management adopted a new Group structure utmost importance to SAS and the entire airline industry. and management organization in May 2001. SAS Group Although, indeed, the link between greenhouse gas emis- Management (GM) comprises five persons, the Presi- sions and climate change is debated by scientists, SAS dent and CEO included . has chosen to follow the path of prudence and assumes Group operations are grouped into four business areas. that carbon dioxide emissions impact global climate. Besides GM, there are staff functions and support func- Since there is a direct connection between reducing tions. The latter have also become independent business carbon dioxide emissions from aircraft engines and units and given added environmental responsibility. reducing aircraft fuel consumption, SAS's efforts to hold Environmental matters fall under Government and down – for economic reasons – fuel consumption coincide External Relations (GER), which is a staff function. GER with the environmental aim of minimizing carbon dioxide reports to the SAS Group Environmental Director, who is emissions. also part of GM. International air transportation remains outside the GER deals with issues affecting extra-corporate rela- Kyoto Protocol for reducing greenhouse gases. However, tions, i.e. infrastructure, environment, contacts with 106 Summary of Environmental Report authorities, framework conditions for aviation and other In 2001, SAS's Environmental Index, which currently only matters affecting the SAS Group's social responsibility. covers SAS Airline, has become an increasingly vital man- This extends its responsibility for environmental issues, agement tool and is reported to GM twice a year. During which assume their natural place among other matters 2001 the SAS Group has begun to use the Balanced Score- affecting the Group's relations with the outside world. card (BSC), as part of its business control. SAS Airline's man- For SAS Airline, directing environmental efforts is pri- agement team has introduced an environmental key per- marily a line responsibility within the SAS Group, with formance indicator in its BSC. one person responsible in each country. There are also The environment is also part of the internal control audits technical area coordinators, whose work crosses organi- that are regularly conducted by the Health, Environment zational boundaries. SAS Airline's Environmental Direc- and Safety (HES) departments within the SAS Group. tor also serves as an adviser to GM on environmental matters. Sustainability and environmental policy Rezidor SAS Hospitality has a Director, Environmental During 2001 the SAS Group has formulated a sustain- and Social Affairs, who reports directly to the head of the ability policy applicable to the entire Group, see page 9. business area. There is also an environmental coordina- SAS has formulated a new environmental policy to tor at every hotel, as well as coordinators who operate at support its sustainability policy: the regional level. "SAS aims to contribute to sustainable development The other business areas have environmental directors by minimizing its environmental impact, thereby making or environmental coordinators, depending on the extent the best use of natural resources". of operations and the size of their environmental impact. Previously the SAS Group's environmental work was Overall environmental objectives coordinated via the SAS Environmental Forum. This is The aim is for SAS Airline to be the best in Europe in the gradually being replaced by new, formal groups on vari- environmental sphere, an aim the company intends to ous levels as well as new groupings of networks focused fulfill. Rezidor SAS Hospitality is working to take the lead on environmental issues. These may be the environmen- among international hoteliers in the area of corporate tal directors at the respective business units, or all those responsibility, where environmental and social responsi- involved in purchasing, etc. bility is key. The new Group structure means that SAS can further streamline its environmental efforts. All businesses will Reporting methodology eventually be subject to the new sustainability policy. The figures reported in the Annual Report referring to results and environmental performance chiefly derive Management and follow-up from the SAS Group's most important businesses – eco- Environmental targets and strategies are set annually by nomically and environmentally – i.e. airline and hotels. GM. At the core is an environmental policy. The Group's However, the data have not been consolidated. overall objectives and strategies are then broken down The reason is that differing collection and calculation and translated into operational targets and plans for the methods were used and formed the basis of the various various business areas and companies. Environmental business areas', companies' or units' environmental data. work is an integral element of the operational manage- This is because SAS did not previously have coordinated ment system, which is why the SAS Group does not have a environmental efforts at the Group level, but the respec- separate environmental management system. tive companies and units engaged in their own environ- Summary of Environmental Report 107 mental work. Previously the focus of reporting was prima- passengers, i.e. those paying more than 25% of the total rily on the environmental impact of flight operations. ticket price. Total fuel consumption grew by 0.4% to The plan is to develop uniform collection and calcula- 1,652,000 md. tion methods enabling the Group to guide and follow up In 2001, SAS Airline phased in 23 brand new aircraft, its environmental performance. This will also enable us to all more eco-efficient than those they are replacing. present aggregate environmental data at the Group level The new Airbus A340s and A321s were not delivered in future annual and environmental reports. until late 2001, and so were not able to have a greater impact on results. Eco-efficiency improvements will Following up operational environmental targets become evident during the coming years, when all the air- For information on how the SAS Group has fulfilled its craft ordered go into service. The new aircraft have greater environmental targets, see SAS Environmental Report capacity and, above all, consume relatively less fuel. 2001 on the Internet. In April 2001, SAS chose the Rolls Royce Trent 772B engine for its A330 long-haul aircraft. Although overall Major events economy was decisive, this engine was also quietest, it A new international noise certification standard was adopt- consumes 1 percent less fuel and is also lighter than the ed in October 2001, which has also led to the creation of alternatives, meaning better fuel economy and lower car- new EU directives on aircraft noise, see also page 46. bon dioxide emissions. The closest alternative from The deal between SAS and the Norwegian airline Braa- another manufacturer had better performance regard- thens will, in all probability, yield environmental gains, ing nitrogen oxides emissions, however. especially in the Norwegian domestic market. This SAS has had technical difficulties with the so-called merger will help to reduce the overcapacity prevailing till DAC engines, mounted on the new Boeing 737s. Dis- now, achieving financial as well as environmental gains. covered during 2000, the problem was temporarily dealt If SAS and Braathens together attain a higher cabin with in 2001. In the meantime, the engine manufacturer factor in Norway, this would mean lower fuel consump- has come up with a permanent solution, namely a new tion, reduced carbon dioxide emissions and greater cost turbine blade design. In 2002 and 2003, all DAC engines savings. will gradually be fitted with the new turbine blades. During 2001 SAS was the subject of intense media scrutiny, especially in Scandinavia. The reports dealt pri- SAS Airline – cabin operations marily with allegations that safety was being neglected. In 2001 SAS's inflight caterer put new and refurbished Although groundless, these reports had to be dealt with. In galleys into service, which led to lower water and energy this instance SAS benefited greatly from the open and consumption, though quantities of waste have increased honest account in the environmental report, even of inci- somewhat. During the year, SAS Airline and its inflight dents and environmental results. Representatives of the caterer worked on securing the underlying data and cre- media were quickly provided with the facts, and SAS's rep- ating numerical values to measure the operation. resentatives were more easily able to deal with criticism. In 2001 the outbreak of foot-and-mouth-disease led Danish authorities to implement new regulations. For SAS Airline – flight operations example, waste from all incoming flights from the U.K., Unlike the previous year, in 2001, SAS Airline's total pro- Ireland, France and the Netherlands must be handled duction grew more than its unused capacity did. Cabin separately. In this situation SAS chose to use as many factor fell from 67% to 65%, if one counts only full-fare disposable items as possible. However, the environmen- 108 Summary of Environmental Report tal impact of these measures could not be ascertained. buyers, did a thorough review of all building documenta- In the SAS Group's new organization, all cabin-related tion, including annual and environmental reports. Addi- operations are consolidated in the Inflight Services busi- tionally, inspections were performed, for example, to ness unit, where the environment is a priority area. In check for the presence of asbestos or other problemati- autumn 2001, a new post of environmental engineer was cal building materials. No substantial existing or poten- filled, who is to devote 50% of his time to environmental tial environmental problems were discovered. projects. All decision-making shall take environmental aspects SAS Cargo into account, which also applies to developing new offer- In 2001 SAS Cargo initiated a project together with one ings and services on board. Thus, the feasibility of using of its biggest customers. Its aim is to create a model and disposable tableware of recycled paper on short-haul standards calculating the environmental impact of air routes is being studied. This is also why a new wheel sys- cargo. During 2002, SAS Cargo is continuing the project tem has been developed that reduces the weight of serv- it began for introducing an environmental management ing carts. system according to ISO 14001. SAS Airline – ground operations Air Botnia The Copenhagen Airport property department has In May 2001 Air Botnia replaced its Fokker F28s with installed control units to optimize the operation of gas AVRO RJ 85s, which are more eco-efficient. This ended and oil furnaces at two terminal buildings with 36,000 mc the problems the company had previously when it total floor space. An evaluation shows that these meas- exceeded the deadline for landing Chapter 2 aircraft at ures have yielded energy savings of 15% per year. Gardermoen. In connection with its sale of 11 airport buildings in During 2001, Air Botnia's fuel consumption increased 2001 in a sale-leaseback agreement, SAS, along with the somewhat, to 37,000 (35,000) md. Fuel consumption and emissions in relation to production Comparison with other carriers (Source: carriers' most recent annual and environmental reports) g British Airways Lufthansa KLM Alitalia Finnair SAS Airline Fuel consumption 2001 2000/2001 2000/2001 2000 2000 2000 Per ATK 216 226 217 285 – 297 Per RTK 331 299 277 398 378 459 Per RPK 44 48 48 57 44 57 Carbon dioxide Per ATK 680 713 685 899 – 935 Per RTK 1,008 942 874 1,255 1,184 1 447 Per RPK 139 153 150 179 137 179 Nitrogen oxides Per ATK 3.2 3.4 2.7 4.0 – 3,3 Per RTK 5.0 4.5 3.5 5.6 5.0 5,1 Per RPK 0.7 0.7 0.6 0.8 0.6 0,6 Average distance flown per passenger km/passenger 2,771 2,120 3,728 1,593 1,682 980 The tables compare various carriers' fuel consumption and emis- route pattern differs from theirs. Compared with its rivals, SAS sions to production. Airline has a very large percentage of short-haul flights, because ATK, RTK and RPK are various measures of production. ATK SAS operates a large share of its airline business on the Scandi- (Available Tonne Kilometers) means available capacity for pas- navian domestic market. Short flights result in greater fuel con- sengers and cargo, RTK (Revenue Tonne Kilometers) is paid sumption per passenger kilometer, because takeoffs are the capacity for passengers and cargo and RPK stands for Revenue most fuel-intensive segments of flights. Passenger Kilometers. Many of SAS's competitors have a very small percentage of Despite the fact that SAS Airline has modernized its fleet in short-haul flights, aiming their primary activities intercontinental recent years, constantly investing in aircraft with the best envi- traffic. This is one explanation of why compared with SAS Airline ronmental performance, with fuel efficiency thereby being the they have such high fuel efficiency. Other competitors also prime criterion for choosing aircraft and engines, SAS Airline has include charter service in their operations, which also normally higher fuel consumption than its competitors. increases fuel efficiency, as charter aircraft almost always have This does not mean the SAS Airline is a worse environmental more seats fly long routes and nearly always operate full. performer than its competitors, but reflects the fact that SAS's Summary of Environmental Report 109 Braathens SAS Media Braathens' fuel consumption for its Norwegian domestic This company engages primarily in office operations. service fell due to a decline in production to 157,000 SAS Media produces and publishes magazines distrib- (162,000) md. uted in the seatback pockets on SAS flights. The compa- Braathens is having a dialog with the authorities ny has an environmental management system that takes regarding discharge of washing water from aircraft wash- into consideration the outdoor as well as working envi- ing at its technical base in Stavanger, where a new purifi- ronment. Since paper consumption is its principal envi- cation plant costing MSEK 2.9 is coming on line in 2002. ronmental impact, in 2001 efforts were made to reduce it, e.g. the percentage of digital advertising material grew Widerøe's Flyveselskap from 50 to 99. During 2002, all ad design will be digital. The SAS Group own a majority of Widerøe's Flyveselskap, Starting in 2002 there will also be an environmental offi- the largest regional carrier in Norway. During 2001 the cer at SAS Media's office in Oslo. company's fuel consumption fell to 38,000 (39,000) md. Incidents and infringements Rezidor SAS Hospitality After several cases of Legionnaire's disease, some fatal, As appears on pages 67–70, Rezidor SAS Hospitality is in in summer 2001, legionella bacteria was traced to the a vigorous growth phase. The company currently oper- ventilation and air-conditioning system at the Radisson ates two hotel chains, Radisson SAS, with 152 hotels in SAS Hotel Atlantic in Stavanger. Based on what has 34 countries, and Malmaison, with 8 hotels. appeared so far, the hotel has followed all applicable reg- A new post of environmental director, responsible for ulations and maintenance routines. As of this date, the social issues as well, was filled in spring 2001. The hotel has neither been charged by local authorities, fined Responsible Business Program also came into being. It nor taken to court. In a press release, Radisson SAS has covers several aspects of sustainable development, i.e. made clear its intent to take responsibility, if it is proved the environment, human rights, health and safety, busi- that the hotel is liable for the incident. ness ethics and risk prevention. Braathens exceeded permitted thresholds for dis- This year Radisson SAS in particular has made great charge of heavy metals from washing water from aircraft strides, environmentally speaking. Its environmental washing at the technical base in Stavanger. Air Botnia organization has been strengthened and has set for gen- was frequently cited for violating operative noise restric- eral as well as specific environmental goals, to which per- tions at Gardermoen up until May 2001, when new air- formance indicators have been assigned. These embrace craft came into service. social as well as environmental issues. Otherwise the SAS Group has not been guilty of any These indicators shall also be applied in the internal reportable emissions or contamination incidents of sig- planning, management, follow-up, evaluation and analy- nificance. None of its operations were involved in any sis of hotel operations. A responsible business manual environmentally-related disputes. for Radisson SAS was written in 2001 for distribution in Today the SAS Group has no known environmental early 2002. At the same time, a comprehensive training problems of material importance that will impact upon program was inaugurated. the statement of income and balance sheet in the coming The Responsible Business Program covers all of Rezi- years. dor SAS Hospitality, i.e. also Malmaison and new brands to come. However, Radisson SAS was the first to begin For more information on the SAS Group's environmental work on introducing this program. work, please see SAS Environmental Report 2001 on the Water and energy consumption is hotel operations' Internet. principal environmental impact. During 2001 water con- sumption per guest-night fell by nearly 20%. Total annual energy consumption fell by 4%, despite the addition of three new hotels. 110 Summary of Environmental Report Resource use and environmental impact Of the SAS Group's total environmental impact, airline operations account for 86%, hotel operations for 12% and other operations for 2%. Airline operations Flight • Carbon dioxide (CO) Flight accounts for • Fuel • Nitrogen oxides (NOx) 77.4% of the Group's • Engine oil • Hydrocarbons (HC) environmental impact • VOCs • Oil aerosols • Jettisoned fuel • Noise • Water vapor Flight accounts for 90% of airline operations' environmental impact Cabin • Organic wastes Cabin accounts for • Food and beverages • Packaging 4.3% of the Group's • Packaging • Unopened beverages environmental • Disposable/ • Articles for sale impact semi-disposable items • Solid waste • Articles for sale • Lavatory waste • Newspapers • Chlorinated water • Germicides Cabin accounts for 5% of airline operations' environmental impact Ground • Solid waste Ground accounts • Glycol • Hazardous waste for 4.3% of the • Water • Wastewater Group's environ- • Halons and freons • Halons, freons mental impact • Maintenance materials • Sulfur dioxide (SOC) • Energy • Carbon dioxide (COC) • Office supplies • Nitrogen oxides (NOx) • Hydrocarbons (HC) Ground accounts for 5% of airline • VOCs operations' environmental impact • Soot and particles Hotel operations • Water • Wastewater Hotel operations • Energy • Sulfur dioxide (SOC) account for 12% • Food and beverages • Carbon dioxide (COC) of the Group's •Chemicals/ • Packaging environmental Hazardous materials • Nitrogen oxides (NOx) impact • Maintenance materials • Soot and particles • Office supplies • Hazardous waste • Disposable items • Organic waste • Newspapers, brochures • Hydrocarbons (HC) • Packaging Other operations • Water •Wastewater Other operations • Energy •Emissions to the account for 2% of • Supplies atmosphere the Group's envi- •Solid waste ronmental impact •Hazardous waste Summary of Environmental Report 111 Environment and economy At SAS, environmental work has several overall aims: are included in landing fees. During 2001 SAS Airline Besides ensuring that the Group operates in accordance paid a total of MSEK 29 (13) in environmental charges, with environmental laws and regulations, it is also meant equal to 0.5% of infrastructure charges. About half is a to contribute to more efficient use of natural resources. Swedish noise-related charge for noise insulation of Moreover, this environmental work is intended to help to properties surrounding airports. strengthen the SAS brand. The SAS Group's operations are marked by a close con- Environmentally related charges nection between economy and environmental impact, Environmentally related charges need not correspond to especially between the ownership of older aircraft, the any specific environmental costs. They have simply been phasing-in of new aircraft and fuel consumption as well as created as means of rewarding those who fly aircraft with the emissions resulting from that fuel consumption. In better environmental performance than others. An oper- 2001 fuel costs amounted to 10% of the Group's overall ator that replaces its fleet with aircraft with better envi- costs. At the same time, fuel combustion in aircraft engines ronmental performance will thus be able to lower its accounted for the bulk of the Group's total environmental costs relative to its competitors. impact in the form of emissions, chiefly of carbon dioxide Environmental and environmentally related charges (COC) and nitrogen oxides (NOx), as well as of noise. are imposed primarily for noise. However, there are ongo- Another key environmental and cost aspect for the ing discussions in several countries to introduce other Group is energy consumption in ground and hotel opera- environmentally related charges as well, based on the air- tions. In 2001, the economic importance of the Group's craft's COC and NOx emissions. Sweden and Switzerland other environmental aspects, such as permit infringe- already have such systems in place. ments, disputes, obligations related to contaminated properties, etc., was, as in previous years, insignificant. Emissions-related landing charges The Swedish and Swiss systems of emissions-related The airline industry pays for its infrastructure landing charges differ somewhat. Whereas Switzerland A characteristic of the airline industry is that it pays the bases its system on the quantity of COC and NOx the air- costs of the infrastructure it utilizes, i.e. airports and air traf- craft emits, Sweden's solely concerns NOx emissions. fic control. This payment takes the form of various charges, By phasing in new aircraft, SAS Airline lowered emis- in addition to various kinds of environmental and environ- mentally related charges. During 2001 SAS Airline paid approx. SEK 5.3 billion, worldwide, for infrastructure utiliza- 120 tion, of which approx. SEK 3.6 billion was SAS's own costs and the remainder was taxes and charges which SAS col- 116 lects. Infrastructure costs correspond to 12.4% (approx. 112 13%) of the SAS Airline's revenues. 108 104 Environmental charges Environmental charges are meant to cover the costs of 100 particular environmental measures, such as noise meas- 96 urement systems and noise insulation of properties out- 1997 1998 1999 2000 2001 side airport areas. Environmental charges are normally linked to an aircraft's environmental characteristics and 112 Summary of Environmental Report sions-related charges in Sweden alone from MSEK 49 to The diagram opposite shows that environmental work 34. To compensate for these emissions-related charges, contributes substaintially to developing SAS's image. the general discount on assessed landing charges Otherwise, SAS's environmental efforts primarily help totaled MSEK 44. to improve its cost efficiency. Investing in the best com- mercially available airline technology leads to lower fuel Noise-related landing charges consumption and reduced emissions per passenger kilo- Aircraft noise is an environmental problem that in recent meter, thereby to relatively lower environmental and envi- years has resulted in higher costs for SAS Airline and all ronmentally related charges. Green purchases and waste other carriers. Most countries have introduced noise- separation reduce waste management costs. Reduced related landing charges that reward the quietest aircraft wastage and a general improvement in economizing with a lower rate. However, it should be noted that in resources are additional effects of environmental work many cases, noise-related charges are intended to cover that impact on costs. actual costs incurred by airport operators. This means that they can be forced to raise noise-related charges Risks and opportunities even as airlines continue to invest in quieter fleets. Well thought-out, proactive environmental efforts reduce the risk of violating environmental regulations, which cre- Environmental taxes ates negative publicity and leads to direct costs in the Besides paying for the cost of infrastructure, SAS pays form of fines and damages claims. Proactive environ- environmental taxes. SAS Airline's costs for environmen- mental work also lowers the risk of being caught tally related passenger taxes in Denmark and Norway, unawares by new, tougher environmental standards from environmentally related fiscal COC tax in Norway and the the market or authorities. Anticipating legal or tax-related environmental portion of energy taxes in Denmark requirements can give SAS a competitive advantage. amounted to MSEK 960 (849). Prospects for the coming year Other environmentally related costs A new noise-related certification class, Chapter 4, has In 2001 SAS Airline's other environmental costs for been introduced, which, however, applies only to new air- purification plants, etc. amounted to MSEK 45 (44) and craft from 2006. All aircraft currently being purchased by the costs reported for the company's environmental SAS meet this lower noise level, which the existing MD80 organization amounted to MSEK 9.0 (9.0). fleet, however, does not. This may affect the value of MD80 aircraft, particularly if airports begin to apply Chap- Emissions trading ter 4 as an operational limit, which it is not intended to be. The UN International Civil Aviation Organization (ICAO) is The ongoing phasing-in of new aircraft, primarily Airbus studying the airline industry can shoulder its share of the A321s, A340s, Q400s and Boeing 737s places SAS Airline responsibility to cut greenhouse gas emissions. Air carri- in a relatively favorable position with regard to perform- ers, for the foreseeable future dependent on fossil fuels, ance-based environmental charges, environmentally relat- will be net purchasers of emissions quotas. At present ed charges and regulations. the economic consequences of this cannot be foreseen. Key performance indicators The environment is crucial for value SAS Airline's key environmental performance indicator is Whereas the SAS Group cannot show any specifically an environmental index that measures progress in eco- environmentally related revenues, its environmental efficiency. See page 104. Read more about these indica- efforts have an indirect impact on the value of the brand. tors as well as the definitions of terms on the Internet. Summary of Environmental Report 113 The SAS Group's Environmental Report 2001 on the Internet Because the SAS Environmental Report 2001 is being Readers who are interested only in a particular ques- published exclusively on the Internet, it contains more tion can find answers by doing a free text search. For information than ever before. The Environmental Report those with special interests, there are cross-links in the is formatted for both reading on-screen and printing out document that take them on to more information on their in A4 portrait format. chosen subject area. The SAS Environmental Report 2001 can be found at Here there are also links to other websites with perti- www.scandinavian.net/environment. From that page, the nent information on aviation and the environment. document will be downloaded to the reader's own hard Feel free to send us your comments on the SAS Envi- drive. This will enable those without a broadband connec- ronmental Report 2001. The easiest way is via the docu- tion to read the environmental report without being con- ment on the Internet or by e-mail to: email@example.com nected to the Internet. It also makes reading faster because there are no perceptible delays when going from one page to another. The layout of the environmental report is based on the SAS Group's new structure. Each page clearly shows where in the document the reader is. In the document there are four different links. To the farthest left are links to the various main texts. To the right are bookmarks that mark portions of the vari- ous texts. There are also links to other portions or to sources on the web located outside this document. There may also be links in the body of the text that lead to additional information, i.e. primarily diagrams or tables. The illustration shows examples of the menus found under the various business areas. A red line marks one's place in the text. 114 Summary of Environmental Report On the home page there are links to the various business areas and companies in the SAS Group. Just click on the pictures to proceed. Here is how navigating through the pages works The menu to the left indicates the business area you are in and in which article. Instead of using the quick-search function in the article menu at The menu to the right right, you can use the may contain headings paging arrow to read in the current article, an article's successive links to related articles pages. The numbers or websites. indicate page numbers. The links in the body of the text provide further information. Summary of Environmental Report 115 Definitions and concepts Adjusted net debt • Net debt plus present value of aircraft EBIT (including capital gains) • Operating income. leasing costs and minority shares EBITDA margin • EBITDA divided by operating revenue. AEA, The Association of European Airlines • An association EBITDA, Earnings before depreciation • Income before net of the largest European airlines. financial items, tax, depreciation, share of income in affiliated ASK, Available seat kilometers • The total number of seats companies, and income from the sale of fixed assets. available for passengers multiplied by the number of kilome- EBITDAR margin • EBITDAR divided by operating revenue. ters which they are flown. EBITDAR, Earnings before depreciation and leasing costs • ATK, Available tonne kilometers • The total number of Operating income before net financial items, tax, depreciation, tonnes of capacity available for the transportation of passen- share of income in affiliated companies, income from the sale gers, freight and mail multiplied by the number of kilometers of fixed assets and leasing costs for aircraft. which this capacity is flown. ECAC, European Civil Aviation Conference • Forum for AV, Asset value (market adjusted capital employed) • Book cooperation between and coordination of European national shareholders' equity, plus minority interests, plus surplus val- authorities on civil aviation matters. ue in the aircraft fleet, plus 7 times the annual cost for operat- ing leases for aircraft, plus net interest-bearing liabilities, Equity method • Shares in affiliated companies are taken up minus share of equity in affiliated companies. Can also be at SAS's share of equity, taking acquired surplus and deficit expressed as book value of total assets, plus surplus value in values into account. the aircraft fleet, plus 7 times the annual cost for operating Equity per share • Total shareholders' equity divided by the leases for aircraft, minus share of equity in affiliated compa- total number of shares. nies, minus noninterest-bearing liabilities and interest-bear- Equity/assets ratio • Shareholders' equity plus minority ing assets. interests in relation to total assets. Available seat kilometers • See ASK EV, Enterprise value • Average market capitalization (market Available tonne kilometers • See ATK value of shareholders' equity) plus average net debt during the Breakeven load factor • The load factor which makes traffic year and 7 times the annual cost for operating leases for air- revenue the same size as operating expense. craft. Cabin factor, passengers • Relation between RPK and ASK EVA, Equity value added • Return over and above the compa- expressed as a percentage. Describes the capacity utilization ny's average cost of capital (WACC) times market-adjusted of available seats. Also called occupancy rate. capital. CAPEX, Capital Expenditure • Future payments for aircraft Finance leasing • Finance leasing is based on a leasing con- on firm order. tract where the risks and rewards of ownership of the asset are transferred to the lessee. The asset is reported as a fixed asset Capital employed • Total capital according to the balance in the balance sheet and the commitment to pay future leasing sheet minus noninterest-bearing liabilities. charges is entered as a liability. Capital employed, market adjusted • See AV. Gross profit margin • Operating income before depreciation Carbon dioxide (CO ) • A colourless gas formed during com- 2 in relation to operating revenue. bustion. Carbon dioxide is a greenhouse gas. IATA, International Air Transport Association • A global Cash flow from operations • Cash flow from operating activi- association of more than 200 airlines. ties before change in working capital. ICAO, International Civil Aviation Organization • The Unit- CFROI, Cash flow return on investment • EBITDAR in rela- ed Nations' specialized agency for international civil aviation. tion to AV. IFCA, International Flight Catering Association • Organiza- Code-share • When two or more airlines state their flight num- tion for all companies and suppliers which are in some way ber in the timetable for one and the same flight, while only one involved in the airline industry's catering operations. Has 600 of the airlines operates the flight. member companies worldwide. (CO ) • See Carbon dioxide. 2 Interest coverage ratio • Operating income plus financial CSI, Customer satisfaction index • Measures how SAS's income in relation to financial expenses. services are perceived by customers. Surveys are performed IPCC, Intergovernmental Panel on Climate Change • Scien- every six months. tific panel appointed by the United Nations Environmental Pro- Debt/equity ratio • Interest-bearing liabilities minus interest- gram, UNEP, and the World Meteorological Organization, WMO, bearing assets in relation to shareholders' equity and minority to assess the consequences of human-induced climate change. interests. IRR, Internal rate of return • Discount rate where the present Dividend yield, average price • Dividend as a percentage of value of a project's cash flow, from investment to sales, is equal the average share price during the year. to zero. Earnings per share (EPS) • Income after tax divided by the Market capitalization at year-end • Share price multiplied by total number of shares. the number of outstanding shares. 116 Annual Report 2001 - Definitions and concepts Net debt • Interest-bearing liabilities minus interest-bearing Return on equity • Income after taxes in relation to average assets. shareholders' equity. Net financing from operations • Cash flow from operating Revenue passenger kilometers (RPK) • See RPK. activities after changes in working capital. Revenue tonne kilometers (RTK) • See RTK. Net profit margin • Income after financial items in relation to REVPAR, Revenue per available room • Revenue per avail- operating revenue. able hotel room. NPV, Net present value • Used to calculate capitalized future RPK, Revenue passenger kilometers • The number of pay- costs for operating leases for aircraft. ing passengers multiplied by the distance they are flown in Operating cash flow • Net financing from operations for the kilometers. SAS Group divided by the number of shares. RTK, Revenue tonne kilometers • The number of tonnes of Operating leasing • Operating leasing is based on a leasing paid traffic (passengers, freight and mail) multiplied by the contract in which the risk and rewards of ownership remain distance this traffic is flown in kilometers. with the lessor and is equivalent to renting. The leasing Sale and leaseback • Sale of an asset (aircraft, building, etc.) charges are expensed on a current basis in the statement of which is then leased back. income. Total load factor • The relation between RTK and ATK Operating leasing capital • The annual cost of operating expressed as a percentage. The proportion of total available leases for aircraft multiplied by seven. capacity sold and flown. P/CE ratio • Average share price divided by cash flow per Total return • The sum of change in share price and dividends. share after paid tax. TSR, Total shareholder return • Average total return. P/E ratio • Average share price divided by earnings per share after standard tax. Unit cost • Airline operations' total operating expenses minus non-traffic related revenue per ASK. PULS • The Swedish abbreviation for SAS's employee surveys (Personalundersökningar om livet i SAS). These annual sur- Unit revenue (yield) • Average traffic revenue per RPK. veys measure how SAS employees perceive their working WACC, Weighted average cost of capital • Average cost of environment. liabilities, shareholders' equity and operating leases for air- Regularity • The percentage of flights completed in relation to craft. The sources of funds are calculated and weighted in flights scheduled, excluding flights canceled for commercial accordance with the current market value of shareholders' reasons. equity and liabilities and the capitalized present value of oper- ating lease costs for aircraft. Return on capital employed • Operating income plus finan- cial income in relation to average capital employed. Capital Wet lease agreement • Leasing in of aircraft including crew. employed refers to total assets as specified in the balance Yield • See Unit revenue. sheet minus noninterest-bearing liabilities. Financial Calendar Annual General Meeting April 17, 2002 Interim Report 1, January-March 2002 May 14, 2002 Interim Report 2, January-June 2002 August 7, 2002 Interim Report 3, January-September 2002 November 12, 2002 Year-end Report 2002 February 2003 Annual Report 2002 and Environmental Report March 2003 The SAS Group's monthly traffic and capacity statistics are published on the sixth working day of each month. All reports are available in English, Danish, Norwegian and Swedish and can be ordered from SAS, SE-195 87 Stockholm, telephone +46 8 797 00 00, fax +46 8 797 15 15. The reports are also available on the Internet: www.scandinavian.net Investor Relations: Sture Stølen +46 8 797 14 51. e-mail: email@example.com EN V IRONMENT A Production: SAS and Wildeco L IC Photographs: U. Owenede, LA NORD BE L RI H. Bévengut-Lasson m.fl. P R NT ED MAT TE 341 376 Printing: Jernström Offset Paper: Silverblade Matt SAS AB (publ) Corporate identity no. 556606-8499 SE-195 87 Stockholm Telephone +46 8 797 00 00 www.scandinavian.net ENG
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