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Scandinavian Airlines System: Strategic Management Report

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Updated: Jan 6th, 2022

Introduction

Scandinavian Airlines System (SAS) was founded in 1945. Just as you can tell from its name, the company was set up primarily to operate in the Scandinavian region although it has spread its tentacles to other regions as well. The company is considered the man flag carrier for Sweden, Norway and Denmark.

SWOT Analysis

Strengths

Just as suggested by the name, Scandinavian Airlines System (SAS) mainly operates in the Scandinavian countries although it has operations other countries as well. A main strength for the company therefore is that it is a multinational carrier a fact that gives it a competitive edge over other local carriers in the same locations.

The company is a co-founder of many other companies including Spanair, Airways International, Star Alliance, Linjeflyg, airBaltic and Air Greenland. The Scandinavian Airlines System has continuously registered impressive traffic. For instance, the company handled a passenger load of over 38 million in 2006 (Euroland, 2010) Scandinavian Airlines had 25 million.

Weaknesses

Scandinavian Airlines operates from three different hubs. While this could be seen as a plus in terms of efficiency of the logistics, it obviously results in some additional costs that competitors that have one hub don’t incur especially since the company will have to maintain system-wide load factors utilization. The challenge is that the prices of the services might be higher than some of the competitors. Scandinavian Airlines also made a decision to dispose the “Dash 8 Q400” in 2007. The rationale behind this decision was that the aircraft’s landing gear was faulty and that had been spotted on three different occasions.

Opportunities

Scandinavian Airlines embarked on a biometric system from 2006 across the Scandinavian countries. The system works by linking each client’s fingerprints to their respective luggage. This is bound to guarantee the security in terms of avoid lose of cargo as well as eliminating the transportation of harmful cargo like bombs and drugs.

In addition to the pacts of SAS with Star Alliance, the company has also entered into strategic partnerships with Swiss, Lufthansa, United and Austrian. These partnerships bring the advantage of Code sharing which will go along way into ensuring easier flight connections.

Threats

Just like any other player in the aviation industry SAS has been exposed to accidents and other aviation incidents. Three times in 2007 alone, the pilots were forced to make emergency landings on realizing that they had a problem with the landing gear. This problem was mainly associated with the Dash 8-400. Terrorists are now targeting planes as seen in the 9/11incident which poses a major threat directly to the airline as well as indirectly through lost revenue resulting from travel advisories that are placed by governments in a bid to protect their citizens from acts of terror.

Vertical Integration

The company employed a vertical integration strategy. The company formed in 1946 after Svensk Interkontinental, Det Norske Luftfartselskap, Det Danske and Lufttrafik came together in a bid to capture overseas the overseas traffic (World Airline Directory, 1996). These companies merged and the Scandinavian Airline System was born. As early as 1957 just a few years after the formation of the company, the SAS group became the first ever airline company to offer a flight service that was worldwide over North Pole.

The vertical integration technique was consistently used to gain control of the market by SAS. SAS gradually acquired full or partial ownership of the local airlines. Some of the airlines it acquired are Wideroe and Braathens from Norway, Skyways Express and Linjeflyg from Sweden and Air Cimber of Denmark. The Global star alliance was founded in the year 1997. The alliance consisted of Swiss, Lufthansa, United and Austrian airlines.

The year 2004 saw the Scandinavian Airlines System (SAS) subdivide itself into four companies. The four companies are Scandinavian Airlines Danmark AS, Scandinavian Airlines Syrige AB, SAS Braathens AS and SAS Scandinavian International AS. This was aimed at having different subsets that fully concentrated on the respective markets

This acquisitions and mergers have enabled the company to enjoy a vertical monopoly in the Scandinavian airspace which has in turn translated to huge traffic handling by the SAS group. For instance, the company serviced over thirty eight million customers in the year 2006. The integration strategy can therefore been seen to be largely successful. There was however a failure at one point when the Alcazar project flopped. The ambitious Alcazar project had sought to merge with one of the biggest rivals, Swissair and two other companies namely Austrian and KLM. The plan did not see the light of day and this led to the departure of the CEO that had steered the company to great heights of profitability (Henley, 1993).

Apart from the increased traffic, one of the pointers that the integration strategy was feasible is the recognition that Scandinavian Airlines has received. The company has received the prestigious airline of the year award as well as the International bonus promotion

Conclusion

The company is evidently a good indicator of how vertical integration can be put to use to eliminate completion, penetrate a new market as well as create barriers to ensure that new competition finds it difficult to enter the locked market. The company should concentrate on using the online booking system more than the traditional system as it is not only cost saving to the company but it is also environment friendly as it eliminates the need for extensive paper user.

References

Euroland (2010) Operational key figures. Web.

Henley John (1993) Talks Collapse on European Airline Merger. Times Online. Web.

World Airline Directory (1996) Scandinavian Airlines System Flight Global. Web.

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