SAS Group Interim Report January-March 2012

Strengthened cash flow but negative earnings as forecast
-    continued
challenges in 2012
-    4Excellence measures corresponding to SEK 5 billion to
be implemented
Key ratios January-March 2012

  · Revenue: MSEK 9,591 (9,313)
  · Number of
passengers: increased by 323,000 (5.3%)
  · Income before tax and nonrecurring
items: MSEK -1,049 (-509)
  · EBT margin before nonrecurring items: -10.9%
(‑5.5%)
  · Income before tax: MSEK ‑1,132 (‑558)
  · Net income for the
period: MSEK ‑729 (‑373)
  · Earnings per share: SEK -2.22 (-1.13)
  · SAS’s
financial preparedness on March 31 amounted to SEK 8.6 billion

Important
events in 2012

  · The SAS Annual General Meeting was held on April 19.
-
The Meeting resolved that no dividend would be paid to shareholders for the 2011
fiscal year.
-    All of the Board members were reelected and the Meeting also
voted in accordance with the proposals contained in the notification of the
Meeting.
-    SAS decided to change the fiscal year to comprise the period of
November 1 - October 31 instead of the calendar year.
  · SAS sold six
properties to Swedavia totaling SEK 1.8 billion, with a cash-flow effect of MSEK
450 and a capital gain of MSEK 350, which will be recognized in the second
quarter of 2012.
  · SAS and Apollo signed a historic partnership agreement
valued at MSEK 920.
  · The Board of Directors of Spanair filed for bankruptcy
and SAS recognized an impairment loss in 2011 corresponding to SEK 1.7
billion.
  · SAS became the most punctual airline in Europe for the third
consecutive year, according to the independent source FlightStats.
  · Blue1
commenced a statutory conciliation process to reorganize its operations as part
of the transition to a production company for Scandinavian Airlines.

A
difficult to assess 2012 – Total of SEK 5 billion in measures
2012 is difficult
to assess, primarily due to global economic trends. Jet-fuel prices and
increased capacity in the market present additional challenges. As a result of
the weaker economic climate, the measures under the 4Excellence strategy were
accelerated in February 2012. In total, measures corresponding to SEK 5 billion
will be implemented in the period 2012-2013. Agreements were signed with many of
SAS’s trade unions regarding cost savings corresponding to SEK 1 billion for the
period 2012-2013. The work on reducing the administration is progressing
according to plan. The earnings effect of the combined measures in 2012 is
estimated at approximately SEK 2 billion. Bookings for the summer period are
high and the trend in cash flow was strong. The combination of the uncertainty
regarding economic trends, high jet-fuel prices and intense pressure from
competitors means that SAS will not present a profitability forecast for the
full-year 2012.

 
Comments by the CEO

“Strengthened cash flow but
negative first-quarter earnings as forecast”

As previously announced, SAS
posted unsatisfactorily negative earnings for the seasonally weak first quarter
of 2012. EBT amounted to MSEK -1,132, down MSEK 574 compared with the year
-earlier period. The negative trend was due to sharp increases in jet-fuel
prices, the uncertain economic climate and the fact that the earnings effects of
the 4Excellence program will not be generated until the latter part of 2012. The
year-earlier period was also impacted by a positive currency effect of MSEK 241.
Accordingly, it is worth noting that underlying earnings for several key
destinations reported a positive trend compared with the year-earlier
period.

Unit revenue (RASK) was up 1.7% driven by a strong load factor and
slightly weaker yield pressure. This result is particularly gratifying since we
noted increased capacity and competition in the market throughout the first
quarter. Furthermore, cash flow for the SAS Group was strengthened, mainly
driven by the positive trend in future bookings. Otherwise, we also saw major
improvements in working capital as a direct result of our focused work on
reducing capital tied-up.

High fuel prices presented a significant challenge
for the entire aviation industry, including SAS, and with the prevailing market
situation it is difficult to fully offset this cost increase. In the first
quarter alone, SAS’s jet-fuel cost rose approximately MSEK 350, primarily as the
result of fuel hedging having less of an effect this year. However, yield
pressure during the quarter declined slightly, which is a sign that the industry
sees the necessity of adjusting to these higher fuel prices. As previously, SAS
manages fluctuations in fuel prices by hedging jet fuel, introducing a jet-fuel
surcharge and proactive yield management. In addition to the increase in jet
-fuel cost, the quarter was charged with higher maintenance costs of about MSEK
80. 

Stable liquidity
Cash flow from operating activities was strong during
the quarter at MSEK 1,215. SAS had a financial preparedness of SEK 8.6 billion,
corresponding to 20.6% of revenue, at March 31. Of this amount, SEK 3.7 billion
comprised cash and cash equivalents. After the end of the quarter, we also
completed the sale of six properties to Swedavia, corresponding to SEK 1.8
billion. This sale is part of our strategy to reduce capital tied-up and the
transaction releases liquidity corresponding to MSEK 450. Accordingly, we have a
sound financial position despite the weak quarterly earnings.

Improved
customer offering and more passengers
We are continuing to develop our customer
offering and the new Copenhagen-Shanghai route was opened in March, which was
immediately well received in the market. In addition, SAS will launch 27 new
routes in 2012. The ongoing rejuvenation and harmonization of the aircraft fleet
have enabled these aggressive ventures. We recently signed an agreement for the
lease of three A320s and we now have a total of 60 new aircraft that will join
the fleet over the next few years. Within two years, all MD80 and B737 Classic
aircraft will have been phased out and replaced by modern A320/B737NG aircraft.
We are also looking forward to receiving delivery to our fleet of the market’s
most efficient aircraft, the Airbus A320 neo. In pace with the rejuvenation of
the fleet, we can expect lower jet-fuel costs, reduced maintenance costs and
lower CO2 emissions.

At the start of the year, we reintroduced free coffee
and tea for all levels of service, onboard WiFi is being gradually introduced to
our fleet, SMART PASS is now available for all destinations throughout
Scandinavia, new partners were added to our EuroBonus offering, Fast Track is
now also available for our passengers in Gothenburg, our traffic between
Scandinavia and Finland has been further strengthened and new partners were
incorporated into the Star Alliance family.  All of these activities are
specific examples of how SAS is continuously developing its product offering to
always deliver value in terms of time and money to our customers. Even now we
can see the results of our efforts, particularly in that we had the pleasure of
welcoming 323,000 more passengers onboard our flights during the
quarter.

Accelerated 4Excellence being implemented
At the end of 2011, we
launched the new 4Excellence strategy with the aim of achieving Excellence in
four core areas by 2015 – Commercial Excellence, Sales Excellence, Operational
Excellence and People Excellence. One of the strategic targets of the
4Excellence strategy is to lower the unit cost by 3-5% per year. Many
initiatives are now fully underway to lower the unit cost, enhance productivity
and reduce complexity in the company as early as in 2012. Collective agreements
were signed with many of our trade unions, which will ensure delivery of the
announced savings corresponding to SEK 1 billion for the period 2012-2013. The
work on reducing the administration is progressing according to plan and, during
the quarter, 150 of the announced 300 FTEs were eliminated or are in the process
of being eliminated from the business. Furthermore, our new modern IT platform
went online in February, exactly as planned, meaning that many older systems can
now be shut down, which will significantly reduce complexity.

Future
outlook
2012 is difficult to assess due to the uncertain business climate,
continued intense competition and high fuel prices. We expect passenger growth
of 5-7%. The SAS Group’s capacity (ASK) is expected to grow in line with the
market, meaning by approximately 5% in 2012. The aim for 2012 is also to remain
the most punctual airline in Europe and customer satisfaction will be further
improved. We forecast and are planning for continued pressure on yield and RASK
in 2012. To meet these challenges, the 4Excellence strategy was accelerated in
February 2012, under which measures corresponding to SEK 5 billion are being
implemented in 2012-2013. The 4Excellence measures are expected to generate
effects in the second half of 2012. Bookings for the summer period are high and
cash flow will be strengthened in the second quarter as a result of the agreed
property transaction with Swedavia. The combination of the uncertainty regarding
economic trends, high jet-fuel prices and intense pressure from competitors
means that SAS will not present a profitability forecast for the full-year
2012.

Rickard Gustafson
President and CEO

Direct questions to Investor
Relations SAS Group:
Vice President Sture Stølen +46 8 797 14 51, e-mail:
investor.relations@sas.se.

SAS discloses this information pursuant to the
Swedish Securities Market Act and/or the Swedish Financial Instruments Trading
Act. The information was provided for publication on May 3, 2012 at 8:00 a.m.