Strategy & Operations » Leadership & Management » Airline SAS CEO warns on climate change

The airline industry as we know it may become a thing of the past. That is the reckoning of Rickard Gustafson, president and CEO of SAS, the regional carrier of Norway, Sweden and Denmark.

He says SAS’s scenario planning includes the possibility of the mass consumer airline industry being brought to an end as the world comes under greater pressure to address the threat of climate change. “The whole sustainability question is an existential question for the aviation industry because of that.

“If we cannot articulate and demonstrate that, not just as a single carrier but as an industry, a trustworthy plan for the future, you will see regulation. You will see that different states will step in and try to kind of reduce travel and that is a very scary proposition,” he says.

His comments come on the first of two global Climate Strike days, on either side of the United Nations Climate Action Summit, that are set to elevate demands for climate change action. Undoubtedly one of the critical expectations aired in days to come will be the need for people to take fewer flights, something Gustafson recognises.

“I’m convinced the whole industry needs to move to a more sustainable footprint, and I want to ensure SAS is in the forefront of that transformation and journey,” he says. It’s not just because it impacts on our ability to earn revenues, but being a citizen and a person that believes in people meeting each other is a good thing for society, I do not want to leave a world to my kids and the next generation where they cannot meet other people,” says Gustafson.

“Regarding sustainability I’m convinced key successful criteria in 2025 will be our ability to fly in a more climate and environmentally friendly way, and if you can do that better than our competitors it gives us competitive advantage,” he says.

The idea that air travelers taking fewer flights will pick airlines that are more environmentally friendly is at the heart of the proposition of SAS. In recent days the group revealed plans to offer customers the chance to purchase biofuel and a move away from plastic in its catering, although there will be critics who will say the idea of an airline becoming greener is questionable.

SAS says it will reduce total carbon emissions by 25% and operate with biofuel equivalent to equal the total consumption of fuel used to operate all domestic SAS flights, by 2030.

But for Gustafson efforts to reduce the airline’s impact on the environment makes for enlightened self-interest. “Being a rather small regional carrier that we are, we need to find our competitive edge. If we can integrate that into our offering in a trustworthy way that could be our competitive edge going forward,” he says.

The airline, which has been the flag carrier for the eco-conscious countries of Norway, Sweden and Denmark since 1946, has to address a discerning Scandinavian clientele with high expectations of their companies’ environmental credentials.

“This whole debate around the environment and sustainability is part of the Scandinavian DNA. We all love to be outdoors, we feel proud about the beautiful landscapes of Scandinavia when they are portrayed elsewhere, it’s kind of who we are, and I think we all want to make sure we observe that,” he says.

Strategic planning

There is an argument that getting the formula right in Scandinavia, where environmental and societal expectations are so high, can be key to winning in other markets. “I think Scandinavia in some respects can work as a test bed. It’s a manageable size of the market and I think that people here are used to embracing technology.

“A lot of technology companies test new products here, to see the consumer reaction,” says Gustafson, a former executive at GE Capital in Europe and the US, who then became president of Danish insurer Codan/Trygg-Hansa in the five years before joining SAS in 2011.

Meeting the expectation of high levels of service is also deemed to be key to differentiating the SAS brand- the Swede’s own email address appears in the airline’s customer service contacts.

Gustafson is acutely aware of the need to keep innovating in an industry that is continually impacted by a breadth of environmental, political and competitive challenges. In 2008, 2009 the airline, owned by a combination of state shareholders and private investors, was hit by big losses, and then on his watch in 2014.

The financial crisis and the emergence of disrupting budget carriers forced continual rethinking around the business model, and the selling of stakes in other airlines and reduced staff terms were introduced.

The airline is profitable again on the back of growing passenger numbers, carrying more than 30 million passengers annually to, from and within Scandinavia, connecting the hubs of Copenhagen, Oslo and Stockholm  with 125 destinations in Europe, the US and Asia.

This week SAS revealed the launch of a new livery, its first make-over in 21 years. “It is a continuation, and affirmation of a long proud history of developing and promoting Scandinavian design and values,” says Gustafson.

He is vigilant about the risk factors that could hit margins rapidly. “Aviation is a fascinating industry. There are so many different factors and influences. In many instances we don’t have safety nets, for example the drone attack that happened in Saudi Arabia the other week, made a big spike in the oil price. It hits directly on our results,” he warns.

“The trick is to figure out what are some of the strategic bets that you can place and you need to stay firm on those in order to navigate to somewhere that can offer sustainable profitability.

“If you ask about my leadership style, I am a generalist,” says Gustafson, who studied engineering at Linkoeping university in Sweden. “I have a lot of competent people around me, so my job is taking that and condensing that into a road map for the future where we can articulate a pathway forward, with some key priorities.

“We think at last five or six years into the future. The thing is, the aircraft we take delivery on were ordered from Airbus was five years ago. Those are the lead times we work to.

“No-one knows what the world may look like in the future but that’s part of this industry. We take delivery of these aircraft, but we know in 2024/25 we will have to compliment our existing fleet with additional aircraft.

“We don’t know what the world will be like then, but one key priority is our ability to move towards more sustainable aviation,” he adds.

 

 

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