Q1 2021 SAS AB Earnings Call Stockholm Feb 26, 2021 (Thomson StreetEvents) — Edited Transcript of SAS AB earnings conference call or presentation Thursday, February 25, 2021 at 9:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Magnus Ornberg SAS AB (publ) – Executive VP & CFO * Rickard Gustafson SAS AB (publ) – President & CEO ================================================================================ Conference Call Participants ================================================================================ * Achal Kumar HSBC, Research Division – Analyst * Andrew Lobbenberg HSBC, Research Division – Head of the European Transport Team * Hans Jørgen Elnæ * Jacob Pedersen Sydbank A/S, Research Division – Head of Equity Analysis & VP ================================================================================ Presentation ——————————————————————————– Operator  ——————————————————————————– Ladies and gentlemen, welcome to the SAS Interim reports Q1 2021. Today, I am pleased to present Rickard Gustafson, President and CEO; and Magnus Ornberg, Executive Vice President and CFO. (Operator Instructions) Just to remind you, this conference is being recorded. I’ll now hand over to our speakers. Please begin your meeting. ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– Thank you very much, and good morning, ladies and gentlemen, and thank you for joining us for this interim report for the first quarter of our fiscal year. As you heard, we’re going to follow the normal procedures where I will start by providing an overview of the quarter and then will be followed by Magnus, who will take you through the — some more details related to our numbers. And after that, the operator will help facilitate the Q&A session. As always, I hope you can follow our presentation online, and we’re going to try to guide you to the pages that we talk to. And with no further ado, I think we dig into it, and I ask you then to flip to the first page with titled highlights for Q1 ’21. I guess there’s no surprise for all of you on this call that we are heavily impacted by the ongoing pandemic and that we have seen a significant worsening in terms of travel restrictions that has been imposed across the world and also across Scandinavia, which has had a significant negative impact on our numbers and our traffic during the quarter. And I think the numbers on the right-hand side of this chart, they tell that story, loud and clear. As you can know — as you may notice, we had 1 million passengers, which is down from 6.2 million in the same quarter last year. We had a rather limited revenue, only SEK 2.3 billion compared to close to SEK 10 billion the same quarter last year, which equates to a reported loss before tax of SEK 1.9 billion, which is some SEK 800 million worse than the same quarter last year. But in those numbers, I think there is also a hidden strength that was demonstrated in this quarter because our revenues are down by north of SEK 7.5 billion, while our result is actually reduced by some SEK 800 million. And I think that’s an indication that SAS has done a decent job in the quarter to adapt our capacity and cost base to the demand environment that we have to live with. So I think even though — of course, I’m not satisfied with the reported significant loss, but I am rather satisfied with SAS ability to adopt to a very, very difficult situation. Liquidity is, of course, key, and you will hear me and also Magnus get and speak more to that shortly. So I will come back to the liquidity. Moving on to the next page. I’m going to focus my presentation today around 4 areas, which we have worked quite significantly within — during the quarter. One, of course, to adapt not just our capacity but also our commercial offering towards the new situation. What we have done is to reduce cost and manage liquidity has been a significant part of our efforts. We are also doing what we can to plan for the future, both in terms of the ramp-up that will come, and we are encouraged by the vaccination schemes that are now being rolled out. And of course, also that we are going to secure our competitors for the future, i.e., delivering our SEK 4 billion transformation program. And I’m going to use a few slides to in order for categories to give you some more flavor to what’s been — we have been up to. So if you then flip to the next page, I just want to give you some sort of illustration of the ongoing pandemic and the situation that we have been through in this quarter, where the travel restrictions has been imposed on a very, very frequent basis and all to the negative side. And this is across Europe, across Scandinavia and in December and in January and February, we have seen a constant increase in travel restrictions. And of course, accordingly, it has impacted demand. And it’s, quite honestly, it also confuses customers quite significantly because it’s extremely hard close to impossible to predict what’s going to happen and know what’s going to be required to travel because things change with a very, very short notice period, and that’s a problem in itself. How that equates then to our situation is shown clearly on the next page, where I now move to rather than compared to the previous — same quarter previous year, I referred to the previous quarter to see how things have evolved during this rather short period of time. And the travel restrictions, they’ve really shown in the number of passengers. In our fourth quarter, on average, we had 600,000 passengers per month that is now cut in half and roughly 300,000 passengers per month there or thereabout, as you can see on this chart. In the quarter, traffic revenue is down by 28% in this quarter, and that’s a number that you should put in back on your head because I will come back to that shortly. But in order to not stand still but to constantly try to capture demand that is out there and also build for the future, we have done a number of things in order to adapt our offering to this situation. Firstly, we have — we know that flexibility is a key word for our customers in order to dare to book tickets, you need to feel secure that you have the freedom and flexibility to rebook or cancel your tickets. Therefore, we have launched new products or ticket rules if may want to use that word, that provides that securities to customers today for all European traffic can actually either cancel the ticket or change the ticket with a 3-month — 3 days’ notice period and for domestic travel, you can actually do it up to the day before travel. So those are some things. We are also deploying a network where we believe that there is demand right now and we are also building for the future and planning for a rather broad offering also to the — when the summer comes, that we’re also out there communicating. We also tried a number of campaigns during the quarter that has proven to be successful. We have done campaigns during Christmas, during New Year’s, we also did a Valentine offering and the response has been rather good, actually. However, though, I do have to admit from very low levels. So the total number of bookings are far from what they normally are. What we can see when we’re out there connecting with our customers, we do get a response and we do know that it’s a significant built up desire to travel that we try to tap into. We also used our cargo capacity, primarily on long haul, has been a significant contributor during the quarter and quite honestly, the only reason why we can maintain some of our long-haul operation is due to the cargo business that we fill in the belly that enable us to operate that without significant losses, but we all do to at least cover our variable costs. We have also seen an interest from some large corporates that has a need to secure their own logistics floats, and they have reached out to us and ask for our assistant to establish air bridges to secure components to production centers. So actually operated A330 from Birmingham to Brussels for 1 corporate client of ours, and we also operate A350 from Copenhagen to São Paulo for another corporate clients of ours. So there are some new business streams as well that we are tapping into. And EuroBonus remains an important cornerstone in our glue and our loyalty and now we build connection with our customers, and we constantly evolve that, too, and we also have relaxed and retained the tier levels for our customers, given that they struggle to travel as given the circumstances as of now. Moving on to the next page and looking into how we have been managed them capacity in line with what they have described in terms of demand. And here, I think you see the capacity. This time it’s expressed in this bar chart as a number of seats that we have offered. And you see, we have rapidly reduced capacity in the first quarter compared to the previous quarter, our fourth quarter and end of October versus end of January, it’s actually down 42% and over the period, over the quarter, the number of seats are down 27%. Now I want you to pick up that number that I gave on the previous chart, that revenues were down 28% and our capacity is down 27%. To me, that’s a decent correlation between capacity and demand that we’ve been able to establish and I think that also shows in the — some of the other comparisons that you have on this slide on the cost base versus — how the cost base has evolved in the quarter, where we have reduced our variable cost by 25%, personnel cost is down 15% in the quarter and other fixed OpEx is down 32% quarter-over-quarter. So again, I think that demonstrates our ability to actually adopt our business to the demand and the situation. However, on the next page, liquidity is strained and is a challenging situation, but we believe that it’s under control, and you’re going to hear more from Magnus shortly. But at the glance, of course, the starting point in the quarter of SEK 10.2 billion of liquidity being dropping to SEK 4.7 million at the end of the quarter is, of course, no drastic. But there are a rather significant set of one-offs in those numbers. As we described and as we have planned for, we have done everything in our power to clear the backlog of refunds. And in the quarter, we have paid back SEK 2.1 billion of refunds, which means that we now have reached 99.99% of the total backlog has now been cleared, and we have dealt with more than 2.5 million customers. So I think this is to me, a one-off, and this will not be repeated in the quarters to come. And I think that’s an important message. Furthermore, and I’m going to allow Magnus to speak more about that. We have also had some other provisions that are also treated as one-offs that impacted this quarter that will not be repeated going forward. But even though we are where we are, but we are also working hard, which you also will hear more of from Magnus on other measures to further strengthen liquidity. There are a number of activities — financing activities connected to our fleet that is ongoing related to — also related to discussions with our vendors and so forth. So we still believe that we have sufficient liquidity, however, though, of course, the most important factor now is how will demand ramp up and what can we expect in demand, that’s going to dictate the future here. And speaking about future demand, I then take you into how we see the future of the rest of this year in terms of demand. And I use this chart as an illustration. The bar charts indicate an index in demand versus the same month in 2019. And this is the assumptions that we have baked into our planning cycles or our planning activities at the moment. It’s the key metric that we follow to determine how we think demand will evolve and why we have ended up in this — with the assumption is the vaccination rollout across our core markets. That’s a key metric that we follow on a daily basis more or less now, and that dictates how we believe when we believe that governments will dare to relax some of the travel restrictions and thereby allow for travel to rebounce again. As you can see, we do not believe that we’re going to have a significant shift in the next few months to come. So February, March and April will remain at these low levels, 10% to 20% as we have experienced over the first quarter. That’s not going to change, and that’s what we plan for. We believe we’re getting to late spring, early summer that vaccination will have been spread and covered a significant part of the population. And thereby, there will be some relaxation, but not complete, but some relaxation in travel restrictions that will allow for traffic to come up to maybe 38% or there or thereabouts of normal demand. And then we’ll get into late summer and the high season in July or August. We believe that there will be more relaxation as the vaccination continues to spread among the populations. And thereby, we’ll reach something close to 50% of demand. So again, we are not naive, we do not plan for a normal summer, but we do plan for a somewhat of a pickup when we get to the summer season. And based on these assumptions on demand and based on the ongoing activities that we have related to strengthen in our liquidity, we believe that we have the liquidity that is sufficient to take us through this pandemic crisis. But we also need to prepare for a life after the pandemic, and that’s kind of the fourth area that I wanted to take you through. If you move then to the next chart, we believe that when we get through this pandemic, we’re going to face a different market dynamic. We know for sure that during the pandemic, most corporates have used this time wisely and accelerated the digitalization efforts. And they have become used to and proven to themselves that a number of business activities and meetings that previously required a fiscal meeting now can be done effectively using digital needs. That’s not going to disappear once we’re through the pandemic. We also believe that leisure travel will be still high on the agenda among our citizens. Everyone I talk to and while interact with customers, I need a significant desire to travel again. People are eager to get out to the sun, explore the world again, meet relatives and loved ones that may happen to live elsewhere that they haven’t seen. And so the need to go out there is high. We know that before the pandemic, we had a situation where a flat growth in terms of business travel and a rather significant growth in leisure travel. We believe that post pandemic, we’re going to have a somewhat shrinking leisure travel, it’s not going to disappear. And don’t misunderstand me here and misquote me. The business travel will be a vital part of our business going forward, but that will not be a growing segment going forward. The growing segment will continue to be leisure segment. And over time, that means that the shift and power shift of the total customer portfolio will tilt more towards leisure over time than business, and we need to plan for that. You also know that competition is not standing still during this pandemic. And you all already have seen announcements from new entrants into the market. We know that some other players are going through significant restructuring, and that they may or may not come out on the other end with a blank sheet of paper and restart the business, and we need to deal with that as well. That’s why we are still confident that our operating model that we built over the last few years, existing built up by different components, all with specific purpose to fulfill where we have each of them will serve a specific segment and that we have access to a different sized aircraft so that we can operate effectively our network also into the regions. And that can also use this as we rebounce and rebuild our traffic, where we can use the smaller aircraft and deploy them. Once we try to rebuild demand and in destination and when demand has returned, we swap that aircraft out for larger aircraft and move that smaller aircraft to rebuild the next destination. I think this can prove then to be a cost-effective way for us to rebuild our business, and that’s a competitive advantage of us. We believe we are firm that this structure is the right structure going forward, and we have the intention to further evolve and develop all components of this operating model. Don’t forget that we have demonstrated 5 consecutive years of profitability and a growing market share and an ability to hire more people in all platforms, over the period before — or 5-year period before the pandemic. We intend to continue that journey also post the pandemic. But we also need to stay competitive and continue to evolve our business, and that’s what we’re about to do. When we announced our recapitalization, the effort, we also talked about the business plan that rested on 4 main pillars on maintaining the position among the frequent travelers in Scandinavia, transition our company towards a 1 type, single-type fleet, create a fully operating model and then maintain our emphasis on moving towards a more sustainable future. That agenda is still intact. And I think that we can demonstrate some proof points as we move forward in all 4 areas in the quarter. In terms of the — our customer offering and customer experience, I mentioned what we’ve done with ticket rules and so forth and that will maintain our network. I’m also pleased about the announcement with Apollo that we announced a few weeks ago that will France serve as a good backbone for our bookings going forward. It’s important and a significant contract that we are very happy with. We are moving forward towards our fleet transition and in the quarter in isolation, we have retired 5 older 737s and take a delivery of 3 brand-new A320neos. So again, as a proof point, that journey is ongoing. In terms of cost and productivity efforts in our operating structures. Again, I refer to one key achievement, which is that we have now completed the significant redundancy that we have been through, 5,000 positions. A painful and regretful but necessary process that we have been done — been through. And if you read our P&L, you will notice that the personnel cost line is down 45% Q1 ’21 versus Q1 ’20. So it’s clear now that you can see that in our numbers. We have also signed new collective bargain agreements with some other unions, for example, our cabin crew in Norway. And we have also reached agreement with other unions about a salary freeze for the next few years to come. But we’re not through with all and we have not completed signed new deals with everyone, and that work will continue in the quarter to come. And finally, sustainability. I personally take a lot of joy here and pride that we are — have the capacity that we continue to move forward in that important area. And today, in this quarter, we announced that we have signed an agreement with a U.S.-based producer of sustainable fuels called Gevo. Where we have entered into an offtake agreement with them from 2024 and onwards, that will secure that we get access to 20% of the anticipated sustainable fuel that we will need in 2025 to reach our goal of reducing our total emissions by 25% by 2025. So a significant step forward and proof point that we are determined to deliver on that objective. So with that, I stop this overview part of the presentation and hand the baton over to Magnus to take you through the numbers for the quarter. Magnus, please? ——————————————————————————– Magnus Ornberg, SAS AB (publ) – Executive VP & CFO  ——————————————————————————– Thank you, Rickard for that. And I will run down some of the financial numbers and dig a little bit deeper on some. I might repeat a few things as well to get us through this. But I start on the next page, and high-level summary that we usually start on. And obviously, we have a number of quite significant changes on the traffic numbers. Of course, the demand and the travel restrictions are impacting the volumes, and we have continued to adapt capacity, as also Rickard talked about, our offered seat capacity is now down almost 75%. For shorter reduced capacity and also the lower demand impact our revenue passenger kilometers, down 90%. And as also the cabin factor ended 30% unit revenue down about 40%. And although we have been doing a good job in mitigating the costs, I’ll come back on that, the unit cost due to the lower demand is doubled or actually a little bit lower. So this tough reality, of course, is reflected in our financial development, SEK 2.3 billion on revenue versus SEK 9.7 million 1 year ago. The result, 1.9 million, I will dig a little bit deeper into that one, down some EUR 800 million, SEK 900 million in the quarter and the cash from operation including also changes in working capital, minus 4.9%. And I start with that one, I dig straight into the cash flow on the next slide. And reiterating a bit on what Rickard talked about. We had, of course, the impact on the cash development, starting with a negative earnings, of course, that is impacting cash. But of course, the big point here is that we have accelerated the pace of refunds, and we are now cleared our backlog. And to put it in our mental mind frame. Basically, this was cost or cash that should have — is more attributed to Q3 and Q4, but they were paid out now during Q1. And other one-off for spillovers from previous quarters are also payables, which we have agreed with some suppliers in Q3 and Q4 to deferred payment, some 6 months, sometimes 9 months, but they were basically now paid out during Q1. And on top of this, we also had one-offs, which is a little bit also an effect of our redundancy program, even though most of the costs were taken earlier, the payout of cash on some items that came in Q1. We are estimating that we have a little bit like SEK 2.8 billion or so, which are really attachable to previous quarters. Also on top of this, we see fewer new bookings. And this is, of course, in line with the uncertainty now and the restrictions in the market and also that bookings tend to be made closer to the time of travel. And that is also impacting the working capital. Investing activities, around SEK 500 million in the quarter, and this is mainly the prepayment of the aircrafts already on order. We have mitigated part of that by our sale of 377, plus 1 smaller building actually also. And on the financing activities, cash neutral in the quarter. We did sign up and draw on a NOK 1.5 billion term loan guaranteed by the Norwegian export credit guarantee agency, but we have also repaid 1 credit facility, a EUR 35 million medium-term loan. And also ended an aircraft financing of SEK 12 million. And then we have sort of normal amortization in the quarter, which was basically according to the schedule, roughly SEK 900 million. That takes us to a cash position of some SEK 4.7 billion. And with — if we adjust for those one-offs and take that into account the operating cash flow is roughly in line with how it was in Q4 or around SEK 700 million per month. So a lot of actions in the quarter. We have the line demand. We have signed up for the NOK facility. We have sold 77s. We have introduced discussions with our suppliers, and we have secured that we are utilizing a third of. So going forward, we are now working hard on coming up with new agreements with supplier, postponing payments further, trying to share the burden of the cash throughout the value chain. And we believe that right now, some SEK 700 million is agreed, and we will work more on in the next few weeks as well. We are also in the final terms and discussion on sale and leaseback solutions and also utilizing additional headroom in existing aircraft facilities. We will continue to divest additional aircraft according to our plan or feeding up a phase out plan of 737. We are utilizing, of course, the postponement of tax and also government subsidies as applicable. And as Rickard mentioned, we are monitoring and making sure that we’re catching the demand that is out there or either by stimulating with targeted campaigns we’re really measuring almost on a daily basis, how we should plan the production, I think that’s important. And finally, we are in final discussions on financing on aircraft that are due to be delivered as well. So that also shows that we are able to utilize financial markets as we speak. So a lot of action on the cash behind these numbers and also, which are part of our assumptions going forward. Okay. Let me go into next slide, which is the revenue development. We have seen that it goes from 9.7% last year to 2.3%, but what has happened in the quarter, we have roughly SEK 465 million impact in currency, which is mainly the weak Norwegian krone versus the SEK. But of course, the big impact in the quarter is the passenger revenue, down from 5.9%, which is mainly capacity-driven and also load factor and a little bit uptick on the yield. Rickard mentioned cargo, yes, we have positive impact from the cargo operation now seeing higher revenue in the last portion of the quarter both in terms of supporting our long-haul operations, as Rickard said, but also some cargo-only flights. But of course, if you compare to 1 year ago, it is lower, and that has to do with reduced long-haul traffic of course. And on top of that, we have other traffic revenue and other operating revenue, which is more volume-driven, and this could be charter revenue, this could be airport services revenue, for instance, and that is down roughly SEK 1 billion. Okay. Let’s go a little bit into the cost side because that’s, of course, important the cash and other areas, we are working heavily on to mitigate the lower revenue. And that’s a full focus on that. You can see that we reduced until Q4 last year, some 45% of the cost and now we have continued another 23% in the quarter. So almost a 60% year-on-year down. So we are not sort of stopping at sort of last quarter’s level. We are continuing. Of course, a lot of this is variable cost, fuel, airport charges, selling and distribution costs, et cetera, et cetera. But we’re also focusing on fixed and semi-fixed costs. For example, personnel costs, we were down some 35% until Q4, but we are now continuing with another 15% in this quarter and that is partly due to the redundancy now getting almost full effect and also that the furlough schemes, we are, of course, utilizing and managing that and planning that very actively so that we can balance the demand. Another item is maintenance cost, down over 50%. Of course, lower aircraft utilization is impacting, but also the renewal of the fleet. And just as a third example, I want to highlight the costs that are normally very fixed premises cost, which is down from 35%. And there we work on reducing square meters. We are discussing with suppliers and getting support also on cost there. So it is a lot of work behind this quarter’s numbers. And of course, we will continue to work on that going forward to balance the demand. Let’s look into the EBT and see how that developed. We had roughly SEK 1 billion, a little bit SEK 1 billion negative 1 year ago. And we ended up then at minus SEK 1.9 billion now. And we got a little help in the quarter of the currencies, SEK 600 million, and that is, of course, due to the stronger SEK versus the dollar. And — but of course, the big impact in the quarter is the lowering of the revenue from this crisis period and impacting significantly the result. Then we have some positive also coming from infrastructure support, which we call revenue here and lower fuel costs. The cost level has been lower in Q1. So managing to keep them the result only SEK 849 million less than previous year when we have reduced revenues by more than SEK 7 billion. So I’m positive and appreciative of all the efforts done to deliver this one. Let me take you a little bit through our fuel and currency hedges. Of course, the current situation with reduction in demand and production in this speed is, of course, making difficult to judge the exposure. It’s more uncertain than before. We have changed in the quarter our policy on fuel hedging, instead of having 40% to 80%, we have now set it between 0% and 80%. And coming to the fuel hedge, we are now at 20% of the estimated or anticipated 12 months consumption. So we have not done any new fuel hedges in the quarter. On the currency side, on the Norwegian krone, where we had a surplus, we are hedged at some 54% and U.S. dollar, where we have deficit, we are hedged at some 40% and no hedges beyond 12 months. The next slide, the debt maturity, not so much changes this quarter. We have added, of course, the Norwegian term loan, which as you can see now are maturing in 2024. Otherwise, no changes there. And on the aircraft orders, we have taken some deliveries of A320 in the quarter but also deferred 1 A350 delivery from financial year ’22 into financial year ’23, and we have a continued dialogue with Airbus on the delivery schedule to better meet the expected demand going forward. And not shown in this picture, but we have mentioned it 3 Boeing 737 divested and also 2 737 phased out. And this, of course, reduces lease costs and lowering maintenance costs as well. And my final slide, financial targets. All metrics of 12 months rolling, but of course, in these times, they come out challenging, of course, return on invested capital, negative 30%, of course, due to the low in EBIT. And here, of course, we have to come back when we start to see turnaround of the company and also on the leverage matrix where financial net debt to EBITDA, of course, comes out as a negative number with a negative EBITDA. So also there, we need to, of course, secure that going forward when we turn around the company. We are, of course, following the gross debt as we speak. Financial preparedness target of more than 25%. We are at 44% right now, down from previous quarter due to the lower liquidity, of course. But here, we are, of course, monitoring that on daily, weekly basis to focus on that. And with that, I hand over to Rickard for a summary of the quarter. ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– Thank you, and I will be very brief. The key messages are summarized on this final page, where, again, travel restrictions are impacting us significantly, led to a significant revenue shortfall that we’ve been able to mitigate to a large extent with cost activities. We are working actively around liquidity to secure that, and we are aware of that had a large drain during the quarter, but to a large extent, planned for as such. As we look ahead, vaccinations, will be key for the world to dare to reopen, and we follow that closely. And again, we are not naive, we know that we also need to transform our business to stay competitive in environment post COVID-19. So with that, I thank you for the formal part of the presentation, and I’m going to ask the operator to help us now facilitate the Q&A session. So operator, please. ================================================================================ Questions and Answers ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) And we have one question in the queue so far that’s from the line of Jacob Pedersen of Sydbank. ——————————————————————————– Jacob Pedersen, Sydbank A/S, Research Division – Head of Equity Analysis & VP  ——————————————————————————– I have a couple of questions. First of all, if the ramp-up, looking into 2021 is slower than what you anticipate, what are your options? Could you go for more divestments or will you need to address the capital market? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– Well, Jacob, of course, it’s key that the world reopens again. Otherwise, we don’t have a business. And if we don’t see that happening, I don’t think that just SAS will have a problem, but the whole entire aviation industry and the broader societies in general as well. So let’s all hope for the vaccines. To be honest, we don’t have an enormous safety net in this. We can cope with some delays and adjustments in the ramp-up versus what we announced today. But if there is a major shift then that the ramp-up doesn’t exist or if it’s pushing far into end of 2021 and into ’22, yes, we will have a very, very difficult situation to face. And as I said, we are not alone I’m rather convinced if that’s going to be the case. ——————————————————————————– Jacob Pedersen, Sydbank A/S, Research Division – Head of Equity Analysis & VP  ——————————————————————————– Okay. Then also some thoughts on the ticket pricing over the summer, when ramp up, hopefully, begins, what are your thoughts on this? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– Well, it’s always difficult to guide on ticket prices, as you know. What I foresee, as I mentioned, I foresee a shift towards more leisure traffic. And we know that there is a different kind of willingness to pay for in that segment then in the corporate segment. I also note that it seems that when we come out of this crisis, we’re going to face even severe competition than we did before the crisis, especially in the important Norwegian market. That seems to be rather crowded with us, Norwegian with Flybe and Widerøe. So again, I see that, that sounds like there will be a lot of capacity deployed in the market and the question is if it’s going to be more than or surpass demand. And then we know that that’s going to have a negative impact on yields. So I’m not sure. We will constantly try, of course, to find the sweet spot and the price point in the market where we get as much yield as possible, while I will still be perceived from our customers. There is a good balance between quality and price. And that’s what we always do. But I don’t dare to predict, but I can’t guarantee that there would be room for price increases given the market dynamics. ——————————————————————————– Jacob Pedersen, Sydbank A/S, Research Division – Head of Equity Analysis & VP  ——————————————————————————– Okay. Okay. Last question from my side. Looking at the SEK 4 billion savings program, how far would you say that you are in having finalized negotiations and other things and how is that overall progressing? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– In general terms, it’s progressing very well. We have done a number of things and completed a number of things, and we have line of sight of the SEK 4 billion. With that said, though, there are still some components remaining, for example, we need to reach an agreement with our 4 private unions, for example, that’s going to happen in this spring, where you need to enter into those discussions and find solutions. And there are also some other union groups in SAS that we still have pending discussions and that we need to find both short-term measures and long-term measures together in a constructive manner. I’m sure there will be intense dialogue as it always is. But given the circumstances and given the fact that I think we all fight for the same end goal that we want to do whatever we can to create as competitive SAS as possible and thereby secure as many jobs as possible is a good foundation for a constructive dialogue. ——————————————————————————– Operator  ——————————————————————————– Our next question comes from the line of Achal Kumar of HSBC. ——————————————————————————– Achal Kumar, HSBC, Research Division – Analyst  ——————————————————————————– First of all, what I want to understand is on the liquidity. So your liquidity has risen very rapidly from the end of Q1 — from the end of last financial year to this Q1. And now you have about SEK 4.7 billion of liquidity, and while that is the liquidity a you have. On the cash burn side, previously, you guided SEK 500 million to SEK 700 million cash burn per month, other than that, you have a debt repayment of SEK 1.6 billion. So looks like SEK 4.7 billion might not be enough to strive through this crisis. So how do you see — I mean, in case you don’t — in case the liquidity is not sufficient, what other sources you have to raise further liquidity, are you going to — are you expecting to go to capital markets? Or how do you see the overall equation looks like? ——————————————————————————– Magnus Ornberg, SAS AB (publ) – Executive VP & CFO  ——————————————————————————– Yes. Thank you, Magnus here. I take that and it’s a good question. And of course, something we are working on very hard. But our judgment is that this is sufficient. And why do I say that? We basically have apart from the operating cash flow, we are working very hard also to look at financing activities. I mean we have a number of activities now on sale and leaseback solutions. We are also working on some credit facilities and utilizing those that we already have. We are working on divestment of aircraft. But of course, we are also working on managing the demand. That is important, and we have to get that also in. If you look at our — the situation as of end of January, we are probably at the lowest level when it comes to sold tickets. And that is something, of course, that we now see that. With an improvement going forward, we should have — also have some support there. So our judgment is that this should reduce the cash burn. We’re not giving predictions short term, but over the long term, we believe that we should take us through this one. ——————————————————————————– Achal Kumar, HSBC, Research Division – Analyst  ——————————————————————————– Okay. Okay. Fair enough. Secondly, I wanted to understand a bit more about the employee spaces at the moment where you have already cut 5,000 jobs, and you’re still negotiating to more temporary layoffs. So exactly what is the status? I mean, are you sort of planning to cut some of the permanent job and then keep some of them on the furlough scheme? And where are we in terms of negotiation with the unions? So how do you see the overall situation ramping up? And then where do you expect yourselves at the end of the year in terms of your employees? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– Well, if I take this then, this is Rickard. I’m very pleased that we were early on that we took that regrettable decision and painful decision to let go of 5,000 of our employees or 40% of our workforce. That is now completed. And if you look into the forecast of demand that I went through, I foresee or we foresee that demand by the end of this fiscal year will reach 40%, 50% of normal levels. That implies that we should be roughly in good balance. We have reduced our capacity of 40%. We have 6% of our work capacity here, and that’s where demand might end up. So to answer your question, we don’t foresee any rehiring at this stage. I think we have the resources that we need. We also are going after additional productivity measures that will further create flexibility and our ability to adopt and don’t have to rehire to some same extent as demand rebounces. So I think that’s important. And as I mentioned, in terms of where we are with our unions, I’m not going through any negotiation tactics here in this — in the public call. But we have signed new agreements with a number of our union representatives. And most recently, in Norway, we signed with our cabin union, and we still have some large groups pending, for example, the pilots and some of our technicians as well. But those dialogues and those conversations are ongoing, and we are eager to come to conclusion as fast as possible. ——————————————————————————– Achal Kumar, HSBC, Research Division – Analyst  ——————————————————————————– Right. Fine. The other thing I also wanted to know a bit more about the competitive landscape. So of course, it’s now the agency is shrinking but the new competitors coming in. And as you mentioned, that the competition — good competition could rise. So how do you see the overall competitive landscape for SAS going ahead? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– I think it’s going to maintain very competitive. Short term, it will continue to increase. How it will play out longer term? I don’t know. It’s going to be a tough competition. We believe that we have the overall structure, access to the right type fleet on different sizes, an operating model that is actually fit for this task that were ahead of us. We are not naive. We know that we need to continue to further enhance our customer experience. We need to drive further efficiencies. We’re on that. We are actively working with that. We’re using this crisis also to prepare for the future. So again, I respect competition, but I don’t fear competition. We’ve proven before that we can win also in a highly competitive environment. And again, I’d like to remind everyone that we have reported 5 consecutive years of profits in a highly competitive environment. And the intent is to redo that trick also beyond this crisis. ——————————————————————————– Achal Kumar, HSBC, Research Division – Analyst  ——————————————————————————– Right. Right. If you could also talk about kind of a structure. So it’s a bit of a difficult question. But what I want to understand is that how — what kind of structural changes do you expect following the pandemic? I mean, as you rightly said, the corporate demand would be slower and then the industry demand would be dominated by the leisure traffic. So due to that, what kind of changes do you expect? Do you think a little bit more — you probably will have more seats onboard? What kind of — how do you see the industry changing structurally post-pandemic, if you could please share your thoughts? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– I think we’re all going to face, at least in Europe, that situation that leisure travel will be more and more important. And that will require that you adopt to that and that you have ability to cope with more seasonality. And all European carriers, to the large extent, I’d say, not all, but to a large extent, always have a situation where we make big losses during the winter half, and then we regain that during a strong summer season and hopefully, net-net, the full year is okay. I don’t think that, that’s a sustainable structure that you need to find a way to reduce the negative impact from seasonality during the winter season and be even better at capturing reaping the demand during summer season. So again, that’s going to require changes to employment structures, changes to, if you have utilizing partners and the setup. And again, to me, we’re on that path with our operating model. And I think that needs to further evolve. And we need to build all parts of our operating model to stay competitive. And I expect that that’s going to be the track that you’re going to see across Europe because the seasonality is something that we all have to face, and it’s going to be more and more severe. ——————————————————————————– Achal Kumar, HSBC, Research Division – Analyst  ——————————————————————————– Okay. Fair enough. My last question is, so of course, I know you can’t talk about the guidance. It’s too uncertain environment. But if you need to put your best guess in terms of what kind of capacity decline this year could be year-on-year? Do you think it will be in the range of 10%? Do you think it will be 50%? So what will be your best guess in terms of FY ’21 capacity? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– I’m sorry. But the best guess is what I provided on that in our demand chart, where we believe that demand will be — remain at very low levels throughout the winter and spring. Slowly build up in late spring, early summer and made that best original 50% level for the remainder of the year. So that’s my best guess. ——————————————————————————– Operator  ——————————————————————————– Our next question comes from the line of Andrew Lobbenberg of HSBC. ——————————————————————————– Andrew Lobbenberg, HSBC, Research Division – Head of the European Transport Team  ——————————————————————————– Can I just build on what my colleague Achal was asking and perhaps more bluntly with regard to the competitive landscape. I mean looked at from this distance, I mean what plays out in Norway looks surreal, to be honest, the fact that pre-pandemic, that market supported 2 airlines plus feed that we’re looking at the idea that post-pandemic it should support 4. I mean it’s madness. It’s madness. And yet the airlines are seeking either fresh capital from private investors. And many of the airlines have taken money from government. And yet, this level of competition looks wholly unsustainable, and it’s going to waste government money and individual investors’ money. I mean, how can you shape the public debate to try and get a more rational outcome? I appreciate we’re a liberalized market, and we embrace the competition of capitalism. But this looks ridiculous. What can you do to help shape the public debate? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– Well, sorry, I can’t answer that one. It is — we have a free market. And I agree with you, it’s going to be — the Norwegian situation looks very, very challenging. And if it’s smarter or unwise, I think that question go to those who enter the market. We have been there since 1946, and it’s an important part of our market and our network. We have a large set of significant corporate customers, including the Norwegian defense that we serve throughout the interconnect and throughout the entire Norway, and we need to do that also going forward. So — and again, when we have a liberalized market and then to change that, it’s a political discussion. And I refrain to go down that path, Andrew. So I pass on that one. ——————————————————————————– Andrew Lobbenberg, HSBC, Research Division – Head of the European Transport Team  ——————————————————————————– No. Fair enough. Hard to believe from here. What would you say — or what can you comment on the — on your succession process, Rickard? In terms of time or in terms of what the Board are looking for? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– In terms of — I can’t say much, kind honestly. I’m actually convinced that the Board is actively engaged in this question, of course, I’m working towards it. I have a 6-month notice period in my contract. So far, the Board has asked me to serve during that period. And that’s what I do. And I don’t know if that’s going to last for the whole 6 months or a shorter period. But as of now, that’s the marching order I got from the Board, and that’s what I’m going to do. ——————————————————————————– Operator  ——————————————————————————– And we have one final question in the queue that comes from the line of Hans Jørgen Elnæ of WinAir. ——————————————————————————– Hans Jørgen Elnæ,  ——————————————————————————– Rickard, I have a couple of questions for you in the end here, come late in, but hopefully, you can manage to. First of all, I would like to put some — you can put some flavor on the cash burn that we see SAS experience on Q1, which is net after extraordinary expenses during the quarter is around SEK 900 million per month, quite above the guidance you have given around SEK 500 million to SEK 750 million. And I would like that when SAS presenting the quarterly results that you put more pressure on showing of the cash burn as most other airlines do because that’s an important KPI for us who follows the market to see how the situation is. And can you tell me a little bit about that? And how do you see the cash burn going forward in Q2 and Q3? Do you have control with 60% cost reduction and 70% plus on the operational expenses? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– Well, thank you for that question. I’m not sure when you joined this call. But I think that we have done quite a lot on this call trying to explain exactly the cash situation. I went through it, Magnus went through it in-depth but the short executive summary on this is that we still believe, if you take the look of the cash burn that we had in the first quarter and take out some of what we call one-offs. The completion of the refunds of SEK 2.1 billion and another SEK 700 million of one-offs related activities that Magnus went through. We are close to the same cash burn as in Q4 to around SEK 700 million a month. And that in a situation where we have significant lower revenues in Q1 versus Q4. So I think we’ve done a fairly decent job in managing our liquidity and also our cost position. And we intend to do that going forward and I hope that you find us very transparent on this in this report and in this presentation. And we can take a 1 by 1 conversation with Magnus or Michel, if you want to have more details if you miss the highlights on this call. ——————————————————————————– Hans Jørgen Elnæ,  ——————————————————————————– Okay. Okay. I came in late in the call. So I’m sorry if you already discussed that. And secondly, it’s more into Norway. And I understand that previous questions were about the increase the competition in the market. And I think also, there might be more competition than we already know about. And Norway, as you know, is the better on the bread for SAS. And how will SAS really work on securing that position in Norway, I see that the Vice Chair Dag Mejdell is leading the Board. And he has changed with operation from Toronto. So you don’t have really a strong Norwegian person in the Board anymore. What does this tell the market? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– Well, when it comes to the Board composition, I think you need to redirect that question to the Nomination Committee and not to me. But our commitment to the Norwegian market is as strong as ever before. We have throughout this pandemic, we have provided the broadest network, the most frequencies. We have stand by our commitments, we have stood up to defend our position in Norway. We continue to do that. We have not gone and invested unwisely historically. But rather said that let’s focus on the areas where we have our core markets that includes Norway. I believe that the decision we took a few years back to also get access to A321 long-range so that we can operate long-haul with the narrowbody aircraft, which serve us well, especially during the ramp-up and also when Norwegian are leading the long-haul market. So that gives other opportunities that we can deploy. And I’m sure Norway going to benefit from that. So I think you should expect to see in SAS that will continue to move forward in the Norwegian market and make sure that we provide the backbone of the infrastructure in Norway as we’ve done since 1946, and we’re going to do the same in Sweden and Denmark. ——————————————————————————– Hans Jørgen Elnæ,  ——————————————————————————– Okay. And would that also implement that you will increase the SAS sales and administration organization in Norway or as it has been reduced for years? Or you will maintain the present size? ——————————————————————————– Rickard Gustafson, SAS AB (publ) – President & CEO  ——————————————————————————– Time will tell. It will depend on how demand evolves and how things emerge. But to say one thing, we’re not backing down from our desire to drive further cost efficiency and productivity. So I’m not sure that’s spreading our thing as I’ve seen across geography is the right answer. But we will, of course, try to adopt our structure to the best of our liability in line with how the market evolves. And I think we have to close now because we are a bit over time. And I do appreciate all your questions and your taking time to join us for this call. I think we end now, and I wish you all a very good day, and thank you.