In Scandinavia, Winter is Coming

Norwegian Air will shrink to save cash. But (surprisingly) SAS is relatively confident about the state of demand.

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Dear readers,

In hindsight, we know Norwegian Air's pre-Covid growth strategy was among the more dramatic follies in the history of commercial aviation. Flying Boeing 787s without a true premium cabin across the Atlantic in winter was bad enough, but there was other bizarre stuff as well, like that short-lived airline in Buenos Aires.

Now that all those ideas are in the past, I better understand why the airline made those decisions. Scandinavia is a rough place to operate an undersized airline — at any time of the year, but particularly in the winter. It’s so rough, in fact, that Norwegian executives said last month during their second quarter earnings call that the airline will cut 30 to 40 percent of its capacity this winter compared to the summer season. The airline has not yet solved its winter problems, and it may never.

Contrast that with SAS, a small carrier fighting against the biggest airline groups in Europe while it goes through Chapter 11 bankruptcy proceedings. SAS should be in a similar position. But SAS, which last week reported its first quarterly profit (a small one) since the pandemic began, had surprisingly positive fall and winter guidance to share on its Sept. 1 earnings call. Northern Europeans love escaping for a December holiday in Thailand, and while Norwegian no longer can fly them there, SAS can. SAS is definitely benefiting from the bump in long-haul premium leisure.

The problem is: long-term trends probably don't favor either airline. Though executives from Norwegian and SAS said they’re not concerned that Ryanair is reopening a base in Copenhagen this winter (albeit with only two aircraft), both must be a little on edge. And while there's enough long-haul demand for SAS now, the two trends spurring this development — pent-up demand and a relative shortage of new aircraft — won't last forever. Still, both airlines are making a go of survival, with SAS a little stronger because of its long-haul operation.

Let's take a look at the recent earnings calls for both airlines.