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The SAS Turnaround

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During the early 1980s Jan Carlzon was appointed chief operating officer for Scandinavian Airlines (SAS). At this time, the entire airline industry was in the midst of a slump, and SAS was about to record a second straight year of losses. Carlzon halted the practice of instituting across-the-board cuts and instead focused on developing a strategic mission that would make SAS profitable during a time of zero market growth. The strategy was to make SAS known as the best airline in the world for the frequent business traveler. SAS realized that business travelers were the most stable part of the market and tended to purchase full-fare tickets as opposed to discounted tickets. Furthermore, business travelers tended to have unique needs that would allow SAS to develop services to attract their full-fare business.

Under Carlzon’s leadership, SAS scrutinized every project and expense as to whether it contributed to improving the service to the frequent business traveler. If the answer was no, no matter what it was or how dear it was to those within SAS, it was cut. Projects such as developing vacation packages to the Mediterranean were eliminated, and overall SAS was able to cut $40 million in nonessential expenses. At the same time, Carlzon persuaded the SAS board to invest $45 million and increase operating expenses $12 million a year for 147 different projects designed to attract and serve the frequent business traveler. They launched a comprehensive punctuality campaign, improved the traffic hub in Copenhagen, and offered customer service courses for more than 12,000 staff members.

SAS dropped first-class seating and created “Euro-Class” at full-fare coach prices. They installed movable partitions in their aircraft to separate the Euro-Class section from the others. They were among the first airlines to create comfortable lounges at the terminals with telephone and telex services for Euro-Class passengers. They gave Euro-Class travelers separate, express check-in counters, more comfortable seats, and better food.

The results were startling. Within three years SAS increased the number of full-fare business passengers by 23 percent at a time when the overall market was stagnant. Fortune magazine conducted a survey that named SAS the best airline for business travelers in the world. The SAS story illustrates how a clear mission allows an organization to concentrate its limited resources on those projects that increase the profitability and success of the firm.

Reference: Jan Carlzon, Moments of Truth (New York: Harper & Row, 1987).

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