Q2 2012/13 SAS AB Earnings Conference Call

Jun 12, 2013 AM EDT
SAS.ST - SAS AB
Q2 2012/13 SAS AB Earnings Conference Call
Jun 12, 2013 / 08:00AM GMT 

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Corporate Participants
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   *  Rickard Gustafson
      SAS Group - President & CEO
   *  Goran Jansson
      SAS Group - CFO

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Conference Call Participants
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   *  Dan Togo
      Handelsbanken Capital Markets - Analyst
   *  Jacob Pedersen
      Sydbank - Analyst
   *  Paul Owens
      Avoca Capital - Analyst
   *  Andrew Lobbenberg
      HSBC Global Research - Analyst
   *  Lars Heindorff
      ABG - Analyst
   *  Julian Raffelser
      BNP Paribas - Analyst

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Presentation
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Operator   [1]
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 Good day, ladies and gentlemen, and welcome to the Q2, 2013 SAS Group earnings conference call. At this time, I would like to turn the conference over to Rickard Gustafson, CEO. Please go ahead.

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 Rickard Gustafson,  SAS Group - President & CEO   [2]
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 Thank you very much and welcome, everyone, to this conference call. I hope you have the presentation in front of you. I'm going to try, as I go through this, to point you to the right page as we talk this through. As normal, me and my CFO, Goran Jansson, we will do a short presentation, and then we hand this back to a Q&A session.

 So with that, I think we'll get going. And I'll start on page 1, where we say that we have another very intense quarter behind us, where we are fundamentally restructuring SAS at an extremely high pace.

 Capacity is up 4.3%, and FX adjusted yield is actually up 2.7%. Traffic doesn't fully match the increased capacity, and the load factor is down 2.3 percentage points, while number of passengers more or less are flat in the period at 6.8 million in the quarter.

 Total operating revenues are down, in nominal terms, at 1%, but they are up 1.6% on an FX adjusted basis. We maintain speed and focus in our restructuring program, and our efforts are now visible in our KPIs and our results.

 Unit cost is down with more than 10% in the quarter. Earnings before tax and restructuring cost is actually in the black at SEK57 million. That is almost SEK700 million better than the same period last year. However, the level of profitability is not yet at a satisfactory level, but it is fully in line with our own expectations and plans.

 But, more importantly, we're using a more effective cost platform to invest in our business and play more offensive. We invest in new destinations, and we invest in our customer offering, such as the new service concept SAS Go and SAS Plus that we launched this Sunday.

 Taking you then to page 2. I'd like to spend a few minutes to recapture what we have done within our restructuring efforts. It is a complete overhaul of our business, and it impacts every single part of our organization.

 Altogether, we are about to implement cost measures to reduce our operating expenses by roughly SEK3 billion. We will improve liquidity with another SEK3 billion. And we're going to mitigate the negative equity impact of new IFRS accounting standards with more than SEK3 billion.

 We are driving this change forcefully and rapidly throughout the organization, and the whole program rests on seven pillars.

 Firstly, we have the new agreements, which were implemented in November last year. From a compensation point of view, they took effect already in December 2012. And from a scheduling point of view, they are now in force since March this year.

 Secondly, on our new pension schemes we have changed everybody over to a defined contribution pension scheme. We're done with that in Denmark and Sweden, and Norway will come during this year. We have also been able to achieve, through a change to early retirements, an effect also of SEK450 million that actually impact on the results in this quarter.

 In terms of administration, we are having a high pace in our centralization and downsizing of our administration functions. Out of 1,000 FTEs, or 45% of our total admin staff, 300 FTEs have now left or in the process of leaving the business as of Q2.

 Outsourcing; we maintain our efforts there. We have completed the deal with Sykes regarding our call centers. And our discussions are progressing with Swissport regarding our grand handling services.

 IT is going through a massive overhaul in itself, and we have in the quarter signed a new outsourcing agreement with Tata Consulting Services. It's a five-year deal that, over the contract period, will generate savings of around SEK1 billion.

 Divestments; we have had a high pace here as well. And you know that we have, in the quarter, signed a deal to sell Wideroe that generates roughly SEK2 billion in liquidity. We have completed the sale and lease back transaction on our spare engines, generating SEK700 million, and we have also done some other aircraft-related refinancing activities. So all in all, we have line of sight to reach the SEK3 billion of liquidity improvement in Q3, 2013.

 Finally, we are also investing in our new customer offering. I already mentioned SAS Go and SAS Plus, but we have also signed agreements with other players, with wet lease partners, to further improve our network efficiency and optimization, also having a big impact.

 Taking you to page 3, I'd like to focus a bit on how we now use this platform to really play more offensive in market, and continue to invest in our core customer segment, i.e., those who travel frequently. We define the frequent travelers as those who conduct more than five round trips a year, both business and leisure-related traffic.

 They value time and simplicity. They are expecting the same service delivery regardless if they travel on business or leisure, and they represent roughly 70% of total market revenues, as defined of point of sale Scandinavia. We have attractive offerings and services to meet the demand of these frequent travelers, and we continue to invest in that particular segment.

 I'd like to mention three key things that really stands out. We have some unique offerings that we are further enhancing throughout SAS. Firstly, we provide global access and reach with a seamless network capability. We fly direct to more than 136 destinations. Together with our network partners, we reach 1,300 destinations from Scandinavia, and we're constantly adding new destinations and new routes to our network to meet the demand of the frequent travelers.

 San Francisco, that we launched in the beginning of this quarter, is one prime example where we both hit business-related traffic and leisure-related traffic.

 Secondly, we truly value our customers' time. We have more than 1,000 daily departures with SAS, and we have a superior frequency and timetable of some of the trunk routes that we offer. We can have that advantage on a frequency basis due to the fact that we have a fleet of various sizes.

 With our partners, we have roughly 22,000 daily departures, and we provide a world-class functionality. And yes, we have had a somewhat of a hiccup in our punctuality due to some IT and maintenance issues. We have acted forcefully and in May, we're back to normal standards; we have punctuality of around 90%.

 Finally, the third area is that we provide simplicity. Throughout the quarter, we have upgraded our lounges. We have extended our fast track capabilities. We have added new mobile solutions to our portfolio of services, such as a highly appreciated app. We have been able to provide our full year bonus content and services to all our customers, including Norway domestic, and we're launching a complete new service concept in SAS Go and SAS Plus.

 So in summary, we are using our more flexible and cost effective platform to play offensive and continue to invest in our market.

 With those words, I'd like to hand over to Goran to take you through some of the more -- some more depth into our financials for the quarter. Goran, please?

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 Goran Jansson,  SAS Group - CFO   [3]
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 Thank you, Rickard. Then if you turn to page number 6, significantly improved EBT. Our total operating revenues are up 1.6%, currency adjusted. In spite increased production, we have reduced operating expenses. The largest decrease is with payroll; as percent of revenues, it's down with 7.6 percent units. This includes a positive effect of SEK450 million from lowering the pension obligations for early retirement, as part of the new collective bargain agreement entered into in November.

 EBITDAR margin is up with 7.2 percent units to 11.3%. Excluding the pension, it's [6.7%] compared with last year's number of 4.1%. The non-recurring items consist mainly of SEK300 million capital loss from the sale of Wideroe.

 If you then turn to next slide, traffic revenues up 2.8%. The traffic revenues after currency -- sorry, the currency has lowered the traffic revenues with SEK266 million, which is important when looking at the numbers on the top line. Our capacity has calculated, giving an effect of SEK276 million.

 The load factor was down in this quarter, reducing the top line with some SEK226 million, but with a very positive yield improvement, we saw SEK184 coming in as an increased revenue from yield. Then other revenues down SEK50 million, and Wideroe, compared to last year, had SEK60 million top line to report, giving a currency-adjusted improvement of 2.8%.

 If you then turn to next slide, development of the total operating expenses in this quarter compared to last year. The operating costs are down by SEK839 million, whereas SEK450 million comes from the pension adjustment mentioned before. Fuel is down with SEK68 million compared with last year, and the volume increase of 4.3 ASK has just increased the cost with SEK130 million. The 4XNG program starts to pay off and delivers SEK470 million in cost reduction, giving a total cost reduction of 8.7%.

 If you then turn to next slide. So if you look into the 4XNG, as I said, it has start to deliver; you can see, as I said, the cost reduction is coming. The unit cost is down with 10.7%. Excluding the pension adjustment, it would be down 3.6%. Most evident is with the payroll cost, which is down 27.9%. Excluding pension, that would be still 12.8% down compared to last year.

 Then move to next slide, our finance position and cash flow is improving. Cash flow improved with [7.6%] in the quarter compared with last year. The net debt declined to a level below SEK6 billion. Our financial preparedness was 18% end of April. The key ratio does now include a bank receivable with longer maturities whereby it has been reduced.

 The financial preparedness is expected to be strengthened and above our target of 20% end of the fiscal year, and the sale of Wideroe will give a reduction of the net debt of more than SEK2 billion. Limit investments in the quarter going forward will also have a positive effect on the financial preparedness.

 With that, I hand over to Rickard to conclude.

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 Rickard Gustafson,  SAS Group - President & CEO   [4]
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 Thank you, Goran. Looking then at page 11; to summarize this Q2 presentation, I'd like to put some priority and focus on four main areas, and four main drivers.

 Firstly, we are improving our cost structure. We have implemented new collective agreements throughout this business. We are rapidly shrinking our admin overhead, and we are taking some severe measures for cost savings in the IT area. As a proof point, we see a significant reduction in unit cost, north of 10% in the quarter.

 Secondly, we are building a more efficient operating platform. We have improved the productivity amongst our flight deck and our cabin. We have significantly improved our network optimization, also through the extended use of wet leases, together with partners such as Jet Time. As a proof point here, I can report that [air capacity utilization] is actually up a full hour in April '13 versus April '12, related to our short haul fleet.

 Thirdly, we are creating a more solid financial platform. We are forcefully implementing the new pension systems and schemes, and we are rapidly delivering on our divestment agenda in terms of Wideroe and aircraft engines. That means altogether that pension liabilities will be reduced by 60%, net debt will be reduced by roughly SEK2.7 billion in Q3, and we are, as we have promised, making us less dependent on external credit for our financial preparedness.

 And fourthly, we are investing in our core customers, the frequent travelers. We do that through an upgraded service concept called SAS Go and SAS Plus; we do it through upgraded lounges; we do it through extended fast track network; we do it through an enhanced EuroBonus delivery, also including Norway; and we do it by adding new destinations, where San Francisco is a prime example.

 Given the progress that we see in our restructuring program, I maintain the outlook for the full-year 2012/2013. Subject to no unforeseen events, we see a path to an EBIT margin north of 3%, and a positive EBT result for the full year.

 So with that, I'd like to hand back to the operator to help us initiate the Q&A session. Thank you very much. Operator, please?



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Questions and Answers
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Operator   [1]
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 Thank you. (Operator Instructions). Dan Togo, Handelsbanken.

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 Dan Togo,  Handelsbanken Capital Markets - Analyst   [2]
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 A question regarding your guidance and the SEK450 million reduced pension liability that affects Q1 here. How should we see that? This SEK450 million, were they included when you guided for '12/'13 a quarter ago as well? Did you calculate this SEK450 million into the guidance? And even excluding that, would you still expect to see a positive EBT?

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 Rickard Gustafson,  SAS Group - President & CEO   [3]
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 Yes, we had the knowledge about the SEK450 million, or at least something around SEK450 million, when we made up our expectation for the full year. So that's included in our prognosis, yes.

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 Dan Togo,  Handelsbanken Capital Markets - Analyst   [4]
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 Okay. Then a question on your fleet, going forward, because we are seeing competitors introducing new and more fuel-efficient planes. I know you have started slowly here, but how do you see your fleet going on in the future? And when will you significantly launch something on the fleet side, and how will you finance it, going forward?

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 Rickard Gustafson,  SAS Group - President & CEO   [5]
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 Right. I'll start and then maybe, Goran, you can [comment] on this one. First and foremost, I'd like to draw your attention to the fact that we actually are improving our fleet as we speak.

 We have, in a high pace, phased out our old aircraft, our MD-80s and so forth. We now have a fully next-generation platform in Stockholm and in Oslo, and we will shortly be a fully Airbus 320 platform in Copenhagen by this fall.

 And then beyond that, we actually also know we were one of the first carriers in Europe to place an order for the next technology leap, which is the Airbus 320neo, where we will have the first delivery in 2016.

 I think on the short-haul fleet, we are making progress. I've already pointed out the path forward on that one. When it comes to our long-haul fleet, wide-bodied fleet, we do [owe you an answer to] that one, and that's a question that we debate intensively at the moment and we will come out with more guidance and clarity about that within very, very short timeframe. But, at the moment, I can't say more than that is something we work on, on a very intensive basis at the moment.

 Goran, any further comments?

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 Goran Jansson,  SAS Group - CFO   [6]
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 On the finances side, since we have picked one of the most easy financing objects in the fleet market, with the neo, that is something we're currently working on, and we have already an understanding on how we can finance it. We're trying to get even better terms on it, so we're working on it.

 The first deliveries, as Rickard said, will come in 2016, so there's still time to arrange that, but it's certainly so that we already seen a really attractive financing scheme.

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 Dan Togo,  Handelsbanken Capital Markets - Analyst   [7]
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 Okay. Thank you.

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Operator   [8]
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 Jacob Pedersen, Sydbank.

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 Jacob Pedersen,  Sydbank - Analyst   [9]
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 Your unit cost decreases 3.6% if we correct for the pension effects in this quarter. How should we view that going into the next quarters? Do you expect this decrease to pick up, or will this be the area that that we will see in the next quarters too?

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 Rickard Gustafson,  SAS Group - President & CEO   [10]
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 Okay, Goran, would you like to take that first?

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 Goran Jansson,  SAS Group - CFO   [11]
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 First, there is a reduction of the unit costs, just to start off with, so even if you add back the SEK450 million, but it's also so what we have guided on. The whole program is supposed to take down the unit cost with 15% and this is just the beginning of this journey. We have not promised to have all the 15% delivered in the second quarter after the launch. It's [some other] more quarters to come. So it will gradually, and especially when we start to see also costs coming out of our admin reduction, our [EP] cost reduction, that will start to pay off later on.

 So we don't give a specific guidance for the year on unit cost, but we have said it will give a 15% over the timeframe we set the whole program to be effective.

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 Jacob Pedersen,  Sydbank - Analyst   [12]
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 Okay. Yes, just to understand it a bit better, if we look at the agreement with pilots and cabin crew that you reached in November, I would think that they would have a bigger effect on your unit cost during your low season than in your high season; is that correct?

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 Goran Jansson,  SAS Group - CFO   [13]
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 And you mean because we would produce more ASK in the high season, the second half of the year, and (multiple speakers) yes, somewhat, but it's quite limited. But there is, of course, an effect like that.

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 Jacob Pedersen,  Sydbank - Analyst   [14]
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 Okay. Also, you guided on lower yields going forward already from May. Is there a change in dynamics in the market, or is this simply to give you a better lift off on some of your newly launched routes?

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 Rickard Gustafson,  SAS Group - President & CEO   [15]
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 I think you need to put in that perspective, Jacob, that we have been able to maintain our core business pretty strongly from a yield perspective in the first six months, but we're now entering into a period where we have also added a number of new destinations in our summer program. Many of those are lesser related and a longer stage length. So, therefore, by pure mathematics, we will see a declining yield.

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 Jacob Pedersen,  Sydbank - Analyst   [16]
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 Okay, okay. A question on your joint ventures. The Lufthansa joint venture is to be dissolved and also, your collaboration with United over the Atlantic. Could you give some kind of perspective on the earnings effect from these two collaborations now being stopped?

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 Rickard Gustafson,  SAS Group - President & CEO   [17]
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 Well, first and foremost, we have never been part of A-Plus-Plus, so there's nothing really to either give or take on that one. That's important to understand.

 It's true that we have been -- for many, many years, have had a joint venture with Lufthansa on the traffic between Scandinavia and Germany that we now have stopped, due to the fact that Lufthansa is changing their business model and shifting a lot of traffic over to Germanwings.

 From a impact point of view, we're still friends with Lufthansa. We still operate with a lot of [co-share] with them. We still have a strong collaboration to a large extent. So the impact, from a customer point of view and from a financial point of view, is not significant to actually highlight in any specific way.

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 Jacob Pedersen,  Sydbank - Analyst   [18]
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 Okay. My last question, the currency effect on your pretax profit from the second quarter?

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 Goran Jansson,  SAS Group - CFO   [19]
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 Yes. It has a limited effect since we have both a decline of top line, which is, [as I mentioned] almost SEK300 million, but you also have almost the same effect on the cost side, so it's a limited effect further down in the P&L, but it has a --

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 Jacob Pedersen,  Sydbank - Analyst   [20]
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 In your graph on the development of the total operating expenses, on page 4 in the presentation, on the lower graph, is the currency effect of minus, I don't know, how many hundred millions, is that incorporated into that? You state that the cost are down 8.7%, is that including currency effect?

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 Goran Jansson,  SAS Group - CFO   [21]
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 When we talk about unit cost, we always talk about the currency adjusted, just give it the right perspective. We said, KPI we used ourselves wouldn't make sense if we don't currency adjust that.

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 Jacob Pedersen,  Sydbank - Analyst   [22]
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 I understand, but this is total operating expenses on the lower part of page 4 in your presentation. Minus 8.7% in your OpEx; that's including the positive effect from currency.

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 Goran Jansson,  SAS Group - CFO   [23]
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 Here we don't have the -- there is, of course, currencies that have affected these numbers as well, so that's part of the SEK839 million; there is the currency included in that, yes.

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 Jacob Pedersen,  Sydbank - Analyst   [24]
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 Okay, great. Thanks a lot.

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Operator   [25]
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 Paul Owens, Avoca Capital.

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 Paul Owens,  Avoca Capital - Analyst   [26]
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 I have several [questions]. With respect to the ground handling services, I think you've signed a preliminary agreement with Swissport. Could you give me an idea if you think you'll be able to have a formal agreement signed by the end of the year? And at that time, could you give us an estimate -- would you be able to give us an estimate of cost savings from that? That's my first question.

 My second is, the increase in cash in the balance sheet, is that exclusively from the sale and lease back of the jets, or is there any cash from Wideroe on there and, if not, do you expect the SEK2 billion to come in, in increments, between now and 2016? That's my second question.

 My third question is, could you give me an estimate of your run rate of operating lease expense on an annualized basis?

 My final question is, I think I heard you say that the net debt would be reduced by SEK2.3 billion in Q3. What will be the primary drivers in reducing that net debt, please? That's all I have, thank you.

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 Rickard Gustafson,  SAS Group - President & CEO   [27]
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 All right, I will try to sort it out, together with Goran here, starting with the ground handling part.

 It's correct, we did sign the letter of intent earlier this year with Swissport. We have, since then, worked pretty intensively with them to continue that and finalize that deal. We're not there yet; we're still negotiating; we're still making good progress and still, on confidence from both parties that this is the deal we want to do, but it's complex and it needs to take its time.

 From a timing point of view, I can't say anything at this stage but, of course, by the end of this year, it will be something that we would aim for to have completed, that's for sure.

 From a cost point of view, and then savings, I don't want to go into the details on our negotiations, of course, with Swissport, but you should not expect a massive cost reduction from this transaction. The primary driver for us to do this is to create flexibility and simplicity. We want to shift fixed costs to variable costs, and that's a primary driver rather than a cost cutting exercise that we're going after on this particular one. I think that's the answer to your first question.

 Then you had questions regarding cash and the Wideroe transaction. It's a signed deal and, hopefully, will be closed in early fall this year. That's when those payments will happen, those SEK2 billion. Currently, we have just provided for a book loss that will occur, according to IFRS. The cash effect will come at the pre-closing. They will lower the net debt in a bit more than SEK2 billion; part of it will come through cash, the cash improvement, but part of it will also be lowering paying back certain debts relating to aircrafts.

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 Paul Owens,  Avoca Capital - Analyst   [28]
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 Okay. And the operating lease expense run rate?

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 Rickard Gustafson,  SAS Group - President & CEO   [29]
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 The lease expense, it's going at the rate of SEK1.7 billion.

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 Paul Owens,  Avoca Capital - Analyst   [30]
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 Okay. Thank you very much gentlemen; I appreciate it. A very good quarter.

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Operator   [31]
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 Andrew Lobbenberg, HSBC.

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 Andrew Lobbenberg,  HSBC Global Research - Analyst   [32]
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 I wonder if you could talk about what the prospects are, what you see the issues are, in the Norwegian domestic market. How big a factor is it that you're going to be allowed to use your [FSP]? And, on the other hand, what will be the impact of making Wideroe independent, and to what extent will that make a difference in terms of feeding new traffic or not?

 And then, two questions on the long haul, please. [Are you noting say] at the moment any impact from the very early days of Norwegian's slightly compromised introduction on long haul, but how do you see that playing out, I guess, particularly in the winter, when there is weaker demand?

 And third question, also on long haul. I think we're increasing the center partnership with Singapore and Thai; is that right and how is that working, please?

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 Rickard Gustafson,  SAS Group - President & CEO   [33]
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 We'll talk on Norway then, on Norway domestic, where it's true that we now have been granted the right to fully launch or use our frequent flyer program also for Norway domestic. We've always been able to provide it to travelling from Norway within Scandinavia and through the rest of the world, but not Norway domestic. Now we can do that.

 We don't disclose a specific number on that one but, of course, it's an important piece to us because we are focused on making sure that we are the national choice for those who travel frequently, and there are a number of Norwegian citizens that do actually commute between some of the larger cities in Norway.

 Our guess is that we're probably talking about a couple of hundred thousand people that travel frequently that has not fully enjoyed the benefit of our frequent flyer program. Of course, we're keen to get them on board and fully integrated into our offering. So that's the positive thing, for us, in the Norwegian market, which is a very big market.

 The question you had regarding Wideroe, well, we have an agreement with the taker of Wideroe to continue as a close collaboration where we're going to continue to have co-share collaboration and they will also, at least to start with, be fully integrated into our frequent flyer programs as well.

 It's not a big breakup there to start with, but the intent is that we, together, will develop a strong regional player in Wideroe to become even stronger, and that will continue to play an important part in our total network and operating than in northern Norway on a [turboprop] basis.

 The long haul fleet, or the long haul discussion if you haven't noticed any immediate effect from a new competitor entering into the market, I think the answer is no. I think it's too early to tell. We're taking them, as everybody else, very seriously. We see an increased focus on long haul where a number of both European and Middle Eastern carriers are actively increasing the capacity.

 We believe that the game for us, to stay ahead, is continue to invest in our product, to make sure that we fly where we have the biggest demand from Scandinavia. We operate those point to point. Then at the back end of those destinations, we have an excellent feeder network and network capabilities, such as we have, for example, in the US with United.

 It's worth noticing that when we touch down in New York roughly half of the cabin have final destination New York; the rest is actually transferring to other destinations in the US. And it's a clear competitive advantage then being able to offer a smooth and seamless connection in New York.

 I think that's the question to that thing, and then I can't really recall, you had a fourth -- Singapore and Thai, thank you.

 It's true. We have a joint venture with Singapore that has been now up and running for a couple of months where we see to strengthen our reach and capacity on Southeast Asia. I think we have two very complementary brands here and, so far, this has taken off in a positive way. And I think both we and Singapore have seen a somewhat improved cabin factor and also profitability on that destination through our joint efforts. So that one is actually progressing well and looks promising.

 When it comes to Thai, we don't have a joint venture, but there we have a very intense and close collaboration on a co-share basis where they actually operate the traffic and fly between Thailand and Scandinavia, and we leverage our very strong sales muscle here in Scandinavia to sell tickets on their (inaudible).

 And that has also taken off very, very well and we see a strong demand and it's working well for both Thai and for us and, first and foremost, for our customers. That means we can provide a very, very attractive product and timetable from all of Scandinavia to Thailand in a cost-efficient manner.

 So the answer to your question is that we are confident that those two initiatives seem to be working well.

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 Andrew Lobbenberg,  HSBC Global Research - Analyst   [34]
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 Okay, lovely. Thank you. Can I just ask one more? As you work through the negotiations with Swissport on trying to close the handling deal, how great a risk do you see from industrial relations upsets as you go through that? Or are you confident that that will go smoothly?

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 Rickard Gustafson,  SAS Group - President & CEO   [35]
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 Well, so far I don't see any reason to raise a red flag in that respect. I think it's working well, and I think we have a good discussion and collaboration also with our union representatives in this particular space.

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 Andrew Lobbenberg,  HSBC Global Research - Analyst   [36]
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 Okay. And on Wideroe, are we through all the union concerns about the transaction? Is that over now, or is there potential of other workers kicking off?

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 Rickard Gustafson,  SAS Group - President & CEO   [37]
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 We haven't had any concerns [referring to the strike there], but the strike had nothing to do with the transaction itself. It was -- Norway going through with change in pension system, it was how that should be dealt with, with the cabin employees. So it was nothing to do with the transaction itself.

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 Andrew Lobbenberg,  HSBC Global Research - Analyst   [38]
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 Okay, fine. All right, lovely. Thank you very much.

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Operator   [39]
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 Lars Heindorff, ABG.

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 Lars Heindorff,  ABG - Analyst   [40]
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 Two questions from my part. Firstly, if you could give us an update about your CapEx and the fleet renewal. I don't know if you can give us any levels in terms of expected CapEx both for this year, next year and '15, including prepayments for some of the new aircraft.

 And secondly, there's a small sentence in the report regarding a law suit from cargo customers. Could you give us a little bit more insight to that, perhaps? Thank you.

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 Goran Jansson,  SAS Group - CFO   [41]
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 We'll start off with the CapEx. This year, as I said earlier, we don't have any major CapEx to come. There will start to be prepayments on the neo transaction next year. But since it's two years before the delivery and we have very limited deliveries in 2016.

 So there will be limited prepayments coming up with the neo order next year, but there will be an increase compared to this year, yes. And then if we've seen it start to come up a bit and then, of course, in '16 when we take delivery on the neos there will be a CapEx increase.

 Then we always have continuous way of handling our engines and the way we account for engine improvements that is coming through the balance sheet, so that is in the range of a bit more than SEK500 million.

 So if you add that we have this year limited investments. Next year, it will start to come up a bit to be escalating to a higher level in 2016.

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 Rickard Gustafson,  SAS Group - President & CEO   [42]
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 And on that legal question, I can only refer to the decision that was taken by the EU Commission back in 2010, where we, and others, were fined for that cargo collaboration. There might be some spinoffs from that. There have been some indications, but nothing has really moved. So I think that the same text has been -- has stayed firm now for a couple of years, and I have nothing really new to report in that [risk].

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 Lars Heindorff,  ABG - Analyst   [43]
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 All right. Thank you.

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Operator   [44]
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 [Julian Raffelser, BNP Paribas].

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 Julian Raffelser,  BNP Paribas - Analyst   [45]
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 Regarding your upcoming debt maturity, so I can see two bonds who are going to mature in June '14 for around SEK2 billion. I've got two questions. Do you have more material debt maturing before those June '14 maturities?

 And what is in your intention for those two bonds? Do you intend to refinance part of those? Do you intend just to use the proceeds of the disposal of Wideroe? What is your intention vis-a-vis those two bonds, please?

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 Goran Jansson,  SAS Group - CFO   [46]
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 Yes, we have a debt maturity in June next year for the bonds issued in 2011. That is currently exploring different ways or opportunities, both to issue new ones as well as in the plan that we have anticipated to pay most of the cash we will produce from the operations as well as divestments of Wideroe.

 But we're currently looking into the market to see if opportunities arise and then we will take [if we saw that].

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 Julian Raffelser,  BNP Paribas - Analyst   [47]
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 Okay. So you said that in your business plan what you have planned is to repay those with cash from operations and divestments.

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 Goran Jansson,  SAS Group - CFO   [48]
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 Yes.

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 Julian Raffelser,  BNP Paribas - Analyst   [49]
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 Okay. And did you have material debt maturing before this?

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 Goran Jansson,  SAS Group - CFO   [50]
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 No. There are some aircraft-related financing, but they are limited. The ones we have, most of them have already happened and we have refinanced them so far this year. And we have done that at good rates. So we look positively to deal with that; it's not our main concerns.

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 Julian Raffelser,  BNP Paribas - Analyst   [51]
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 Okay, that was very clear. Thanks a lot. Thanks.

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Operator   [52]
------------------------------
 We have no further questions.

------------------------------
 Rickard Gustafson,  SAS Group - President & CEO   [53]
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 Okay. If there are no further questions, then I thank you so much for taking the time to join us for this conference call, and I think we close this conference down now. Thank you so much, and bye-bye.

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 Goran Jansson,  SAS Group - CFO   [54]
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 Thank you. Bye.

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Operator   [55]
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 That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.






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