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SAS to seek more savings in face of cut-price competition

By Anna Ringstrom

STOCKHOLM (Reuters) - Scandinavian airline SAS launched a new round of savings in the face of fierce competition as it posted a bigger-than-expected adjusted quarterly profit on Thursday on the back of cost cuts.

SAS, 50 percent owned by Sweden, Denmark and Norway, has in recent years carried out a series of restructuring programmes and tapped its owners for cash amid overcapacity and price pressure from budget carriers such as Ryanair and Norwegian .

SAS said that in light of the tough market environment, it would launch additional long-term cost savings to generate an earnings impact of 2.1 billion crowns (174 million pounds) by 2017. It would also review its operating profit margin target of 8 percent.

Chief Financial Officer Goran Jansson said the target was suspended pending better market visibility, the effects of the new cuts and talks with unions on terms for flight staff.

"With the uncertainty around what happens in the European industry where low-price firms' positions are strengthening and new types of contracts and ways to work are emerging, with more outsourcing, we need to take further measures," he told Reuters.

"We will get back on where that level should be long-term once we have a clearer picture," he said on the profit target.

SAS said it has potential to post a profit before tax and non-recurring items in the 2014/2015 fiscal year, but cautioned:

"This is provided that the economy does not weaken, that the trend continues in terms of reduced capacity and lower jet fuel prices ..., that exchange rates are not subject to further deterioration and that no unexpected events occur."

Jansson told Reuters he expected no large one-off costs this year. The recent sharp drop in oil prices would have a small positive effect in the full year 2014/15.

Pre-tax profit before extraordinary items in the August through October period, SAS' fiscal fourth quarter, rose to 789 million crowns ($102.8 million) from a year-ago 601 million and beat a mean forecast of 622 million in a Reuters survey.

Restructuring costs booked in the quarter were higher than analysts had expected, at 1.1 billion crowns.

SAS' shares were down 7.36 percent by 11:01 a.m. to two-week lows.

"Some investors may be disappointed in the earnings prospect for the company. (There are) also quite big restructuring costs," said Sydbank analyst Jacob Pedersen.

(Reporting by Anna Ringstrom, additonal reporting by Johannes Hellstrom and Helena Soderpalm, editing by Terje Solsvik)