Spanair, does anyone care?

In March 2009, SAS Group, the Nordic regions largest airline, sold 80% of Spanair. It retained 11% and on the day Spanair filed for bankruptcy, it's shares fell by 9.5% in one day. Sture Stoelen, SAS's investor relations chief said it was 'too bad' but added it was 'completely manageable for us'; 20,000 passengers were stranded in Europe. John Strickland of JLS Consulting said to Mark Barton on Bloomberg Television's 'The Pulse' on January 30th that it was 'a long time coming'.

In 2010 Spanair reported an operating loss of 115m Euros. (BBC News Website) The collapse comes after Qatar Airlines stopped takeover talks. Demand for air travel is weak in Spain. In 2008, Spanair was involved in  Spain's worst aviation disaster, killing 154 people. A warning system failed to alert pilots that there was a problem. The regional government of Catalonia had helped Spanair stay afloat with more than 150m Euros of subsidies from as far back as 2008, Spanair were cutting jobs to save money. Spanair's mission was to 'connect Barcelona with the world and the world with Barcelona'.

Ryanair's Chief Financial Officer, Howard Miller talked of Spanair being a 'broken business', he sent resources to 'rescue' travellers although he doesn't want to consider taking over Spanair, he is interested in taking over some of their flights.

SAS which is part owned by the governments of Norway, Sweden and Denmark hasn't posted a full year's profit since 2007. It sites rising aviation fuel costs as a major reason together with competition from low cost carriers. Without the writing down associated with Spanair, SAS claims it expected to make a profit in 2011 without 'non-recurring items'.

The situation for Spanair does however provide an opportunity for other low cost airlines, Ryanair, Europe's biggest discount airline has raised it's profit target. It is described as 'sharp' and 'adaptable', all the things Spanair weren't. Ryanair take action to fill their seats, they are proactive, selling seats at low prices where there is the highest need to fill seats. They are glad to see Spanair's capacity disappear.

After doing a little research, I have to agree with Mr Strickland, it has been a long time coming. Spanair seem to have been operating at a loss for some time (at the time of bankruptcy they had 300m euros in liabilities), and bailed out repeatedly by government. The assumed objective of corporate finance from an Anglo-American perspective would be Shareholder Wealth Maximisation. At Spanair there was no greed, the board did not focus on making a profit, they got used to making a loss. They were waiting for Qatar to bail then out further, when they didn't and the Government stopped their 'investment' it could mean only one thing for Spanair. The competition from companies such as Easyjet and Ryanair also helped to push Spanair out of business.

There is little doubt that Spanair's reputation was damaged following the 2008 disaster and to recover from that would it seems take a miracle (or a highly skilled board). Even SAS thought so, they sold their 95% in 2009. Wasn't the writing on the wall then? I wonder what motivated Ferran Soriano to continue business. Were egos at work?

'The demise of Spanair is the result of bad management' said Inversis analyst Julian Coca. I wonder why Mr Soriano was not replaced since he did not create any shareholder wealth. I understand that Value Creation is subjective; it's based on what shareholders expect, i.e. what's acceptable, it seems here that it was expected that Spanair would not make a profit for its shareholders (or maximise their wealth) and so it never did.

Or is that a little unfair? Charles Handy (2002) discussed the different approaches taken to shareholder wealth across Europe, he talked about a 'greater reliance on long-term bank finance' in fact 'the cult of equity is not as prominent in mainland Europe', so maybe Soriano just did what was expected of him, I guess it depends on your expectations and objectives.