Goodbye SAS

Financial history from bank runs and financial crisis tells us SAS could be bankrupt in a few months. A massive consumer ‘run’ on the airline could trigger a chain of event that would wipe SAS of the skies for good. 

SAS has been all over the national news this week. Market rumors forced management to release quarterly figures a week ahead of schedule. Every newspaper and news channel flashed the headlines of SAS in trouble. DN.no says “last chance“.

SAS has a combined debt of NOK18 bn. With an equity of NOK 2 bn. The owners, led by the Norwegian Government and Minister of Trade Trond Giske states: “No more rescues”.

For any company; trouble.

But for SAS, consumer psychology will probably be the ‘’pull of the trigger’’.  Terje Erikstad in DN wrote an excellent analysis on the subject in today’s paper. It’s worth repeating. SAS could implode in the very meachanims that break banks during financial crisis: bank runs.

Students of financial history are well-versed in bank runs. Wikipedia describes it as:

“A bank run occurs in a fractional reserve banking system when a large number of customers withdraw their deposits from a financial institution at the same time and”.

But, for SAS, far more importantly “…As a bank run progresses, it generates its own momentum, in a kind of self-fulfilling prophecy (or positive feedback loop) – as more people withdraw their deposits, the likelihood of default increases, thus triggering further withdrawals. This can destabilize the bank to the point where it runs out of cash and thus faces sudden bankruptcy”.

For SAS, this is the biggest threat they are facing. It is not a lack of plan from management; it is not a lack of acceptance for change from the 40 different unions. It is simply the consumer psychology, where once people start doubting SAS’ future survival, they will simply stop buying their tickets from them. – and thanks to 24 hour news cycles and social media, the escalating event would spread like wildfire, in turn triggering more people into not buying their tickets from SAS, or even cancelling their prebooked and prepaid tickets. Once this escalates, it would most likely become a self-fulfilling prophecy. And bankruptcy. Unless the national governments would intervene – again.

But without a clear plan for innovation and growth, without a clear plan for a radically new business model that could lead SAS to profitably, any government intervention would be futile.  – and according to the EU, probably illegal.

Any hope for SAS should start with the questions:

If we were starting an airline today, what would we do? How would we do it?

And that should be SAS’ plan of attack.

Most likely, they won’t.

…and SAS will go into the text books as another great company falling prey to the theory of disruptive innovation…

Good luck SAS. I hope you fly also in 2032. But I doubt it.

BTW: with employees like this, perhaps it’s better the company just declared bankrupt and started over again…

Goodbye SAS

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