Strategic Analysis and Valuation of Scandinavian Airlines

Tommy Ekman

Student thesis: Master thesis


The purpose of this thesis was to explore the opportunities and threats SAS will face in the years to come, and how SAS can capitalize on these to drive long-term value. Subsequently it answers if SAS shares at the endof its 2016 fiscal year was over or undervalued, and why.
The introduction of low cost airlines after the deregulation of the airline industry in the 1990s put great pressure on SAS and other national legacy carriers to transform. SAS been successful in gradually adopting to the new market conditions, which have meant lowering operating cost and ticket prices. But this have not come easy, and SAS have been through numerous crises in the past decade, most notably in 2012 when it came close to bankruptcy.
In the thesis, a strategic analysis is performed to investigate the macro-environmental factors and industry forces face by SAS, and how these will develop in the future. In addition, it identifies SAS key value drivers, and how these give rise to competitive advantage. The thesis moves on to analyse SAS historic profitability in relation to its competitors, this gave rise to important insight on how the industry have changed, and how different airlines have managed their operations to stay competitive. The insights generated from the profitability analysis and strategic analyses laid the foundation for forecasting SAS future performance, and subsequently the valuation of SAS’ shares.
The findings of the thesis are that while SAS have been successful in decreasing costs, it is still not operating at the same level of profitability as other network legacy airlines. SAS furthermore faces numerous threats. Among these are the gradual decrease in ownership by the Swedish and Norwegian governments, new environmental regulation, and fluctuations in interest rates and exchange rates. While these could have material impact on SAS profitability, none are as important as fluctuations in fuel prices and SAS ability to further decrease labour costs.
The Scandinavian and global airline market is forecasted to grow at impressive rates. If SAS manages its threats successful, it could very well experience prosperity in the decade to come. Globalisation means increased opportunity in the long-haul segments, while Scandinavia’s difficult topography and high income push demand for air travel significantly during times of economic growth.
The observable price of a SAS share as of 31 October 2016 was 15,4 SEK. Using the discounted cash-flow model, as well as multiples, it was found that SAS share was undervalued. However, this rest on the assumption that SAS will be able to keep its current market share, as well as succeed in decreasing labour costs.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2018
Number of pages154