What SAS taught me about how they decide which new routes to fly

When I was at the SAS HQ in Stockholm last week (photo from their lobby below), I sat through a lecture on route management.  In particular, how SAS – with a fleet of 12 long haul aircraft – decides which new routes to serve.  I thought you might be interested to know how they approach such a project.

At present, SAS serves 11 long-haul routes to 8 countries.  Their 12 aircraft fly for an average of 13 hours per day, compared to 8 hours for their short-haul fleet.

Opening a new route – as opposed to switching a plane from an existing one – is a huge decision.

An additional A330 or A340 aircraft will cost around £75m, or alternatively the airline must sign a 12-year lease with a similar total cost.  In addition, running costs will be £50m per year.

On the revenue side, assuming 200 passengers per flight, the average annual load is 140,000 people. For SAS, that limits their options – only a certain number of cities attract 140,000 people from Scandinavia every year.  The airline factors in price DEFLATION when modelling whether a 12-year lease makes sense.

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On the upside, there is ‘market stimulation’.  If SAS opens a new direct route to a country which previously did not have one, the market will grow by 25%-35%.  Many people have a preference for visiting places they can fly non-stop.

On the downside, SAS can never command more than 70%-75% of a route when it is the only non-stop option.  Some people, whether based on price or frequent flyer benefits, will always choose to travel indirectly on another carrier.

The SAS long-haul strategy is based on locations in the Northern hemisphere.  They do not, if possible, want to fly to places where changing planes in London or Frankfurt would not slow down the journey too much.  The ideal SAS route would require a major diversion to go via another hub.

The routes must be viable from the local market.  (We saw charts showing every major global city and how many Scandinavian residents fly there each year.)  SAS is not willing to rely on ‘feed’ from outside Scandinavia when assessing viability.  On the other hand, a destination which has a lot of Star Alliance short-haul traffic IS attractive because it allows for onward connections.

With a fleet of A330 and A340 aircraft – to be replaced by A350 aircraft over the next five years – there are also issues of range.  Cape Town is too far to operate all year round – Winter headwinds would make the distance too long.  Singapore, Brazil and Argentina are too far.

The minimum number of flights per week to get traction for business travellers is five, they feel.

As you can see, there is a lot to it.  The newest SAS route will be Hong Kong, launching in September, and which is replacing Bangkok.

PS.  There was one interesting anecdote which slowed how glacially slow the travel industry can be at times.  Last year, SAS introduced a new top tier in its EuroBonus programme called Diamond.  However, Amadeus – the centralised airline reservation system used by SAS – requires 18 MONTHS to make the necessary software change to add a fourth category and allow a flyer to be marked as Diamond.

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Comments

  1. I couldn’t make SMD6 this year so thank you very much Raffles for the post which is helping to cure some of the pangs of missing out!

    • Shame there are no pictures to show you of the stripped down A380 test plane I was inside in Toulouse – or me in the cockpit. I did actually press the red button on the side of the joystick and the plane, which was ‘switched on’, made a noise. It was a bit nerve wracking.

  2. Thanks Rob. This article is very informative but more than that you have explained it in such simple layman terms without using any typical consultant/management lingo. Have you ever considered a career in teaching?:) Maybe you can teach Miles & Points 101:)

    • I’ll second that, it all made sense to me and I’m a relative newbie in the frequent flyer world, nice to get a behind the scenes understanding of things.

  3. Excellent news. May help in my retention of A3 *G.

  4. James67 says:

    I flew their BKK route a couple of times and it was popular back then. However it suffered heavily once Thai started flying direct to OSL which meant they were then serving all three of SAS main gateways. I guess the route finally succumbed to additional pressure from Norwegian and the Gulf carriers. I thought SAS flew HKG before so this is a relauch as opposed to a new route unless I’m mistaken. I think the key to success for smaller flag carriers is to ensure they offer a market-leading or even matching direct alternatives at a competitive price although I can appreciate this is much easier said than done. Being Edi burgh based, the one new flight I would like to see more than any other is AY EDI to HEL daily on their own metal to give us faster journeys to east and south east Asia.

  5. Frankie says:

    Really interesting read. Thanks Rob.

  6. Gmark37 says:

    I understand that SAS also attend the global route development forum – ‘World Routes’ and smaller regional events such as ‘Routes Europe’ where airports and stakeholders present to airlines about new air service opportunities. These type of networking events are typically where many new routes are first discussed. This year World Routes will take place in Durban, South Africa and no doubt SAS will be attending to meet with new and existing airport partners from around the World.

  7. Fascinating! I’ve always wondered about that side of aviation and the article confirms some of the complexities and considerations that crossed my mind. The question is … how do you put it all together? That might be part of the Miles & Points 201 or 301 course :-)

  8. Great article, Rob – more of these ‘behind the scenes’ insights if possible please! :)

  9. RIccati says:

    SAS long haul product in Economy has a lot of negative feedback of Flyertalk.

    Given they operate sparse long-haul flights out of major Scandinavian cities, their flights are guaranteed to be full. If flying in Economy, there are more comfortable options West and East.

    They should accept their role and provide more (and cheaper) connections for ex-EU flights as well as business traffic. A flight from London to Stockholm if booked at short notice warrants £600-700 price, which shows there is a demand within Northern Europe and short haul.

    • RIccati says:

      If they are scratching the heads on how to compete with Norwegian and United to the West and Gulf carriers to the East — all that instead of satisfying short-haul demand — good luck with that then.

    • The new business class product, being rolled out from this year, looks pretty good to be honest – better than Club World.

      Can’t see SAS seeing the value in giving me a review flight though, given my UK focus, and I don’t have many Star Alliance miles these days.