Sterling European Airlines A/S Business Information, Profile, and History

Company Perspectives:

Through more than 40 years, the Sterling name has been dear to the Scandinavians' heart. Millions of Scandinavian tourists have enjoyed the effective transport and good service of the airline to and from holidays, primarily in Southern Europe, which have added much to experience. The legendary founder of Tjæreborg Rejser, Rev. Ejlif Krogager, founded Sterling Airways. He got the inspiration to the Sterling name from his mother, who always used Sterling silver for presents because, to her, it was a symbol of quality. This attitude still lies behind the special Sterling spirit, which has been created through decades: The essence of dynamics and drive focusing on safety, quality and service.

History of Sterling European Airlines A/S

Sterling European Airlines A/S (SEA) is Scandinavia's leading low-fare airline. It was created in 1994 from the ashes of Sterling Airways, which had once been the world's largest charter airline. SEA's predecessor pioneered low-fare routes from Denmark to southern Europe and North America, and Sterling European is also known for its budget emphasis. Sterling is 50-50 owned by Ganger Rold ASA and Bonheur ASA, both of whose shares trade on the Oslo Stock Exchange. About 1.8 million people flew Sterling in 2004. SEA also has significant cargo and maintenance operations. The airline has a fleet of about a dozen Boeing 737s. Based in Copenhagen with Norwegian ownership, Sterling operates from all three Scandinavian countries: Denmark, Sweden, and Norway.

Origins

The history of Sterling European Airways can be traced back to Rev. Ejlif Krogager, dubbed the "Flying Vicar" by some. Krogager was a Lutheran priest in the village of Tjaereborg in West Jutland, Denmark. In the 1950s, he began taking parishioners on bus tours to Spain and other southern European destinations. This developed into the Tjaereborg Rejser group, which specialized in budget holidays. By the early 1960s, notes a 1992 obituary of Krogager in the Times (London), the group had 80 buses.

In May 1962, Krogager established the original Sterling Airways, a charter airline, with two prop-driven DC-6s acquired from Swissair. Flights began that July. In 1965, the airline began flying modern Caravelle jets.

Sterling became the world's largest private charter airline in the 1970s. In the late 1970s, Sterling filed a complaint with the EEC against the monopoly by government-sponsored SAS on scheduled routes from Scandinavia to European capitals. A decade later, Sterling was pioneering charter flights from Denmark to North America, also against resistance from SAS.

Sterling Airways was spun off from the Tjaereborg group in 1986. At the time of its 25th anniversary in 1987, according to company records, the airline had a fleet of 19 aircraft and nearly 1,300 employees. Sterling's sales were then about DKK 2 billion. It was flying around 800,000 passengers a year.

Sterling Airways managing Director Ejnar Lundt led a management buyout of the airline and its flight catering unit Aero Chef in 1988. An investment group paid DKK 754 million ($118.4 million) to acquire the company. Danish investors, including Sterling employees, held 51 percent of shares, with Sweden's Reso Travel Group taking up the rest. A new company, Sterling Holding, was formed for the transaction. Company founder Ejlif Krogager retired from the Tjaereborg travel company at this time. He had left the clergy in 1972 and died in 1992.

Sterling ended the 1980s with 1,800 employees. Sales were DKK 2.1 billion with a pre-tax profit of DKK 101 million in the fiscal year ending March 1989. The fleet included ten Boeing 727s, five Caravelles, two Corvettes, and two new Boeing 757s.

Liberalization in the 1990s

Sterling built a giant new hangar, and in 1990 the company won the rights to set up a European maintenance center for refitting Boeing 727s with hush kits. Around the same time, a merger with small charter carrier A/S Conair was discussed but not consummated.

In 1991, Sterling joined two other independent Scandinavian airlines in an alliance as the European aviation market neared liberalization (deregulation). Its partners in the TransNordic Group were Stockholm-based Transwede Airways and Oslo's Norway Airlines. Sterling had acquired 33 percent of the shares of both of these airlines. The three were all affiliated with Stockholm's NRT Nordisk Group, which was partly owned by the Reso Travel Group. Sterling was providing flight training and catering services for its TransNordic partners.

According to Flight International World Airline Directory, in 1993 Sterling was operating only one scheduled route, between Copenhagen and Luxembourg. The airline had a dozen planes, mostly Boeing 727s, and 1,000 employees.

Sterling European Formed in 1994

Sterling's years as an independent company were numbered, however. On September 22, 1993, the airline was pronounced bankrupt. It had 722 employees at the time.

A new charter airline, Sterling European Airlines (SEA), was formed on January 1, 1994 following the demise of the original Sterling Airways. It started charter operations with Boeing 727 airliners leased from Sterling Airways in May 1994. There were about 180 employees. Startup capital was just DKK 5 million.

SEA posted a gross profit of DKK 45 million for its first fiscal year, which was eight months long. Turnover for this period was DKK 265 million.

In January 1995, Sterling European underwent a management buyout. Lars Svenheim of Sweden, who owned 52 percent of the company, was the managing director, while chairman Keld Ditlev Petersen held 16 percent.

The next year, in 1996, Ganger Rolf ASA and Bonheur ASA acquired 90 percent of the company's shares. Both Ganger Rolf and Bonheur, an affiliate of the Fred Olsen group, were based in Norway and publicly traded. They bought out Sterling European's remaining shares in 1999.

In 1998, SEA began phasing out its Boeing 727s in favor of Next Generation Boeing 737s. The airline was leasing the new planes. By this time, SEA had begun operating dedicated 727 freighters for TNT Airways.

Perceiving a gap in the transatlantic air cargo market, in November 1999 the airline's Sterling Cargo unit began operating a leased Boeing 747 freighter on a twice-weekly service from Copenhagen and Stockholm to New York, Chicago, and Los Angeles. It also started a weekly service to Dubai. SEA posted a loss of DKK 55 million in 2000, which was doubled the next year.

Sterling European expanded, rather than contracted, its services in the uncertain travel environment following the September 11, 2001 attacks on the United States. Several new routes to southern Europe were added by the end of the year. Another 21 routes were opened in 2002, including connections to Oslo and Stockholm. Sales were DKK 881 million.

Repositioned in 2002

By this time, the carrier had repositioned itself as Scandinavia's first low-fare airline. A survey by the Swedish newspaper Aftonbladet soon pronounced Sterling European to be the best low-cost airline in Scandinavia. Unlike some budget rivals, Sterling preferred to fly to major airports. The survey found Sterling offered better shopping opportunities than Snowflake (SAS's budget offshoot) and Ryanair. In 2004, a group of Swedish travel agents also voted Sterling the best low-cost airline in the region. Sterling operated from all three Scandinavian countries.

Sterling European's passenger count rose a colossal 40 percent in 2003, to 1.35 million. Sales were DKK 1.25 billion. The airline opened almost a dozen new routes during the year as the fleet was increased from six to eight Boeing 737 aircraft, the popular mid-size jet that was a favorite of budget airlines along the Southwest Airlines model in the United States.

At the forefront of an industry trend, Sterling European introduced "super-flexible" ticket rules in the spring of 2004. Passengers could cancel or change tickets up to two hours before departure without penalty. This could even be done online. In December of the year, Sterling announced a partnership with Hostelworld, an online reservations company, to offer low-cost lodgings in Europe.

Sterling introduced a unique development to low-cost travel in September 2004: missed departure insurance. This coverage, developed with Europæiske Rejseforsikring, provided reasonable reimbursement for additional airfare and hotel fees in the case of a delay in the first of two connecting flights. This took some of the risk out of combining flights on budget airlines with those on traditional airlines.

In the fall of 2004, there were press reports that German travel group TUI AG was interested in acquiring Sterling European, though this did not happen. Sterling added another four planes to its young fleet during the year, bringing the total to a dozen Boeing 737s. About 1.8 million people few the airline in 2004, a 36 percent improvement over the previous year, in spite of a difficult environment that saw several bankruptcies in the world's aviation industry.

Sterling European was in discussions with several small low-price airlines over the possibility of creating an international alliance to compete with the majors. The company began cooperating with Norway Airlines on several European routes beginning in February 2005. Together, they were able to increase flight frequency to up to 12 flights a day on the vital Copenhagen-Oslo route. Sterling European was continuing to expand in 2005, adding new destinations such as Edinburgh, Scotland, and Montpellier, France.

Principal Competitors: Maersk Air A/S; flynordic; Ryanair Holdings plc; Snowflake.

Chronology

• Key Dates:
• 1962: Sterling Airways is launched by Tjaereborg founder Rev. Ejlif Krogager.
• 1988: Management buys out Sterling Airways.
• 1991: TransNordic alliance is formed with Transwede Airways and Norway Airlines.
• 1993: Sterling Airways goes bankrupt.
• 1994: Sterling European Airlines is formed.
• 1995: Sterling European undergoes a management buyout.
• 1996: Ganger Rolf ASA and Bonheur ASA acquire control of SEA.
• 1998: SEA begins to update its fleet with Next Generation Boeing 737s.
• 1999: Boeing 747 freighter service to the United States and Dubai begins.
• 2002: SEA is repositioned as a low-fare carrier.
• 2004: Passenger count rises 36 percent in spite of a difficult aviation environment.