SAS shares jump in Q2, eyes 2011 profit

Scandinavian airline SAS beat all forecasts when swinging to a second-quarter pretax profit and said it was on track for a full-year profit, lifting its shares sharply.

"I stand by the outlook we gave in the first quarter that we will be in the black for the whole of 2011," chief executive Rickard Gustafson told reporters on Wednesday.

SAS has long been struggling with high costs and fierce competition from no-frills rivals such as Norwegian Air , while the global downturn and soaring jet fuel prices in recent years have added to its troubles.

But the latest in a long line of cost-cutting programmes should drag the airline - which has only made a profit in two of the past eight years - back into positive territory in 2011.

SAS stock was up 18 per cent to a five-week high by 0920 GMT.

The airline, half-owned by Denmark, Norway and Sweden, made a pretax profit of 729 million Swedish crowns ($114m), compared with a forecast for 240m in a Reuters poll. It made a loss of 600m crowns in the 2010 period.

SEB Enskilda analyst Steven Brooker said SAS's earnings were far higher than anyone had hoped for.

"This means that the fear of another rights issue, the fear that they could not invest in new aircraft going forward or not expand beyond 2012 or 2013, that story is more or less stillborn now. It also means that they can also fight with Norwegian."

CEO Gustafson said new routes, such as Stockholm to Venice and Copenhagen to Shanghai, had seen good demand, with leisure markets developing particularly well, while SAS recently completed a 7.6 billion crown cost-cutting programme.

"Cost-effectiveness and productivity will be a part of everyday life ahead ... we have to work continuously on our cost-effectiveness," he told Reuters.

Gustafson said recent turbulence in financial markets had started to weigh on its cargo business in North America and there was reason to remain cautious in the face of still-high jet fuel prices.

Industry body IATA said this week the recent revival in global air travel may be about to slow sharply as economic headwinds discourage premium travel.

In June - before the current bout of market turbulence sparked by Europe's debt problems and a weak US economy - IATA more than halved its forecast for airline industry profit this year to $4bn.