March 7, 2008 / 11:31 AM / in 10 years

UPDATE 1-SAS says lower yields, fuel to hit Q1

(Adds analyst comment, share price, details)

STOCKHOLM, March 7 (Reuters) - Scandinavian airline SAS (SAS.ST) said on Friday sky-high jet fuel prices and lower yields would hit earnings in the first quarter of the year.

Reporting traffic figures for February, the airline said yield -- a measure of profitabilty -- fell two percent in January. The airline, half-owned by the governments of Sweden, Norway and Denmark, said it expected yield in February to be 3-6 percent lower than in the same month the previous year.

“This, in combination with the record high fuel prices, will affect earnings,” the airline said.

Group traffic, measured by revenue passenger kilometers, rose 14.4 percent year-on-year in February, helped by the extra day in the month.

“They are guiding for a weak first quarter, and I think it is a bit disappointing,” Danske Bank analyst Johannes Moller said. “On the positive side they had quite a growth in passengers in February, though some of it comes from it being a leap year. The negative is that they face this high oil price.”

Shares in the airline were down 1.42 percent at 52.25 crowns at 1025 GMT, in line with the wider Stockholm index .OMXSPI.

The airline’s warning follows a similar prognosis from British Airways BAY.L, Europe’s third-largest airline. It said this week that that airlines were entering a downward cycle due to global economic weakness, with high fuel costs piling on further pressure.

BA warned that with oil prices rising, fuel was set to become its single largest cost.

U.S. light crude CLc1 for April delivery was trading at around $104.88 a barrel on Friday.

SAS has been struggling for years with overcapacity, competition from no-frills airlines and inefficient operations.

Its latest turnaround plan, announced last year, aims to cut cost and focus operations on services in Northern Europe, but the scheme has been delayed by union opposition to sell-offs.

The airline slipped to a loss in the fourth quarter last year, hurt partly by the grounding and replacement of its fleet of Dash 8 Q400 aircraft.

In autumn 2007, three SAS Dash 8 Q400 planes, made by Canada’s Bombardier (BBDb.TO), were forced to make emergency landings.

SAS estimated that its Dash 8 problems would cost 400 million Swedish crowns ($65.66 million) in the first quarter of 2008.

Additional reporting by Victoria Klesty

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