(FORTUNE Magazine) – SWEDEN, the tiny country that gave us Ingmar Bergman, Bjorn Borg, and the Volvo, has been making another outsize demand on the world's attention. The latest superstar from the frozen north is one Jan Carlzon, 49, president and chief executive of Scandinavian Airlines System. Over the past decade, Carlzon has transformed SAS from an undistinguished, unprofitable airline company into an elite global corporation that in 1989 reported $193 million in operating income on revenues of $4.6 billion. In a year when TWA, Pan Am, and Alitalia lost money, that's more than Germany's Lufthansa and Spain's Iberia earned combined. Along the way, the engaging Swede has set service standards that have helped change the way airlines treat business travelers. He has also captured the attention of management connoisseurs everywhere with his aphoristic pronouncements on issues ranging from marketing techniques to employee training. A tall, trim man with graying blond hair and a gentle manner, Carlzon is fond of making remarks like ''If you can't communicate it, it can't be sold'' or ''Employees don't want responsibility; they demand it.'' In Search of Excellence co-author Tom Peters wrote a gushy foreword to Carlzon's autobiography, and normally skeptical industry analysts tend to whoop when his name is mentioned. Says Kevin C. Murphy, who follows airlines for Morgan Stanley in New York City: ''Carlzon is a dynamic entrepreneur, a man of the bold masterstroke, a sort of Lee Iacocca of Northern Europe.'' At least some of Carlzon's success is due to the company's unique ownership structure. SAS, which is headquartered in Stockholm but has its main hub in Copenhagen, is half owned by the governments of Sweden, Norway, and Denmark. The arrangement has allowed Carlzon relative freedom to pursue long-range schemes without the kind of stock market pressures faced by the big U.S. carriers. Both in the air and on the ground he has been well ahead of most rivals in coming up with service innovations. He has also cunningly extended his airline's reach worldwide through strategic alliances with a diverse group of flying partners (see table). Carlzon's biggest and riskiest move so far has been his acquisition of 18.4% of Continental Airlines Holdings. That made him the biggest single shareholder in America's fifth-largest carrier. Already one of the most troubled airlines, Continental has been suffering along with the rest of the U.S. industry of late because of high fuel costs and slumping traffic. Its decision to declare bankruptcy in December came about because it faced over $1 billion in debt payments during the next four years, and its cash reserves and liquid assets amounted to less than $200 million. While clearly embarrassing, Continental's bankruptcy could well prove only a minor bit of turbulence for Carlzon. SAS sits on more than $1 billion in cash and marketable securities, so the paper loss on its $106 million investment, which the company will acknowledge with a year-end write-off, is no sweat. Indeed, if Continental emerges from reorganization with its extensive domestic route system intact, that will have been a small price to pay for effective control. It's those domestic routes that are crucial to Carlzon's goal of propelling SAS further up the ranks of international airlines. Although traffic between Scandinavia and North America has been building nicely in recent years, SAS had been losing out in the world's biggest market because of its limited access to U.S. destinations beyond its principal arrival point at New York's Kennedy Airport. ENTER CONTINENTAL. Though the company had struggled for years under Frank Lorenzo's tumultuous leadership, it retained strong hubs in Houston and Denver and, as a largely non-union airline, had the lowest labor costs of any major U.S. carrier. Most important, Continental occupied a glitzy new international terminal in Newark, New Jersey, that would permit easy transfers for SAS passengers to domestic flights. Carlzon first bought slightly under 10% in 1988, then boosted his share this summer when Lorenzo got tired of being the airline boss everyone loves to hate and sold out. Policymakers at the U.S. Department of Transportation, ever jittery about foreign ownership of American carriers, approved the deal but turned down a request by Continental's board that Carlzon be named chairman. He's on the board now, without a title, and has no doubt been pulling the strings -- but very quietly. What Carlzon will continue to pull for is keeping Continental's domestic route system off the block. Since he began cooperating with Continental and landing mainly in Newark, traffic between Scandinavia and the New York area has climbed roughly 36%, and SAS has more than doubled its share of passengers who pass through that gateway to other U.S. destinations. Continental had been showing signs of renewed vigor as well. With SAS's help, it had begun wooing back business travelers, who had deserted it in droves. Thousands of Continental employees had been put through an attitude-adjustment program, and a certain amount of post-Lorenzo enthusiasm appeared to be building. For the first nine months of 1990, net losses were just $97 million, compared with a staggering $522.8 million over the same period in 1989. But all hopes of stanching the flow of red ink ended when the Persian Gulf crisis more than doubled jet fuel prices. This October alone, Continental overspent its fuel budget by $70 million. Says Carlzon, wistfully: ''If Saddam Hussein doesn't kill the whole industry, I think you will see this airline become very successful.''

CONTINENTAL will need a hefty infusion of cash before that happens, and a sell-off has already begun. At the same time that they announced their bankruptcy filing, Continental officials revealed that American Airlines would buy their Seattle-Tokyo route for $150 million. Though they deny it, they will likely be forced to put most of the airline's highly desirable Pacific route system up for sale as well. Relatively rich carriers like American and Delta will probably pay big for some of the more lucrative routes from North America to Australia. If Continental throws in some routes in the South Pacific emanating from its Guam hub, it could clear as much as $500 million -- and get some breathing room. Should Carlzon escape from Continental's crash a strategic winner, his many admirers will not be surprised. The SAS chief's rise is already the stuff of legend throughout Scandinavia. The son of a midlevel civil servant, he was raised in a small town south of Stockholm and began his career setting up trips for the largest tour operator in the capital. He rose to the presidency of the company by age 32 and boosted profits with judicious cost cutting. Next stop was the presidency of Linjeflyg, the Swedish domestic airline then half owned by SAS, where he again turned things around quickly. This time the key was a seldom-used provision in pricing regulations that permitted low standby fares for passengers under the age of 27. Carlzon offered to fly the youthful customers anywhere in the country for a 100-krona note, about $20 at the time, and the backpackers came out in droves. Carlzon took over as president of SAS in 1980, in the worst of times. The world economy had just been hammered by the second oil shock, and the reputation of the airline, which had lost money the two previous years, was sinking fast. To turn things around, Carlzon knew that SAS had to expand beyond Northern Europe. But its high labor costs, inevitable in affluent Scandinavia, put it at a huge disadvantage to the Asian and U.S. carriers it had to battle for intercontinental business. So he could not hope to compete on price. What he did have going for him was Scandinavia's worldwide reputation for turning out quality products. So Carlzon concluded that he should reposition SAS as the airline of choice for business travelers. Not only is the briefcase set less sensitive to price, but business travelers are always on the lookout for the kind of high-quality service Carlzon was sure he could provide. After staring hard at the numbers, Carlzon and his top aides concluded that first-class cabins could be removed on most flights. They launched SAS's new business-class service, dubbed EuroClass, which gave harried executives the luxury of sitting at the front of the plane in wide leather seats with plenty of legroom and a full range of amenities. SAS devotes at least 30% of seats on most intercontinental flights to EuroClass. On popular routes between Scandinavia and the rest of Europe, the total rises to 60%. To keep business customers coming back, Carlzon held round after round of employee gatherings, driving home the idea that an airline can develop intense brand loyalty if workers deal swiftly and competently with passenger demands at key points during a trip -- at check-in, during the boarding process, whenever or wherever a problem arises. Moments of truth, Carlzon calls these crucial times. Well before corporate chieftains everywhere began to yammer about empowering employees, Carlzon was granting broad responsibility to workers on all levels. He likes to say that he has turned the typical corporate pyramid upside down; managers are there to support the mass of employees on the front lines of customer service. At SAS a clerk can switch a ticket or give vouchers to disgruntled passengers without a lot of red tape; flight attendants can break out the free booze after a delay without bureaucratic wrangling. Carlzon kept hunting for ways to add value for business travelers. He found little to do once they reached their seats. ''The metal tube we are flying around in limits the possibilities of service,'' he says. ''Are you going to feed them vodka and caviar until they vomit?'' He decided to focus on improving life for passengers on the ground. That meant faster check-ins at the airport, improved EuroClass lounges, and wider availability of business facilities with computers and fax machines. Taking the concept a step further, Carlzon has sought to become a full- service travel broker by linking his airline to a network of 131 hotels around the world. SAS runs 25 of them and last year bought 40% of the 106- hotel Inter-Continental chain for $500 million. Part of the idea is simply to capture more of the business traveler's dollar. But the real thrust of the plan is to make life easier for business fliers and thereby win them totally. SAS passengers getting off in, say, London can now drop their luggage at an airport check-in counter and go about the day's business. When they finally reach their SAS-affiliated hotel, the bags are already in their rooms. On the way out they can dump their luggage at an SAS Business Center in the lobby, get their boarding pass, and again spend the day working before proceeding to the airport. If no snags occur, they board the plane unencumbered and pick up their luggage at their destination. EQUALLY CRUCIAL to Carlzon's grand strategy are his links with other carriers around the world. Like all airline bosses seeking to go global, Carlzon knows that tight government controls will prevent him from gaining direct access to all the international routes his customers travel. The only solution: partnerships. In addition to Continental, the SAS chief has cut deals with eight other carriers, from British Midland and Finnair to LAN Chile and Thai Airways. In effect, he has established through these arrangements three global hubs outside Europe -- Newark, Bangkok, and Tokyo. Carlzon is keeping a keen eye on events closer to home as well. The European airline industry is likely to be deregulated after 1992, and he is hunkering down for the turmoil almost certain to follow. As in the U.S. during the 1980s, he believes, smaller and weaker carriers will fail fast in the freewheeling competition. To pare his towering labor costs, which amount to more than one-third of his overall expenses, Carlzon has asked his unions for wage and productivity concessions. Some senior pilots can now earn well over $100,000 and fly only about 400 hours per year, less than half the time logged by captains at most U.S. airlines for similar pay. Ticket agents earn $40,000 or more, nearly twice the U.S. rate, and enjoy five weeks of vacation their first year on the job. At the same time, Carlzon is seeking the critical mass to survive in Europe by creating equity deals and marketing agreements with Swissair, Finnair, and Austrian Airlines. Other carriers are exploring similar links -- Alitalia and Iberia, British Airways with Sabena and KLM. Carlzon figures that a handful of megacarrier operations will eventually emerge in Europe, just as in the U.S. The current slogan heard around SAS's sleek glass-and-steel headquarters building is ''One of Five in '95.'' If he manages to get the Continental mess behind him, chances are excellent that SAS's chief will get his wish.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: SAS'S GLOBAL ALLIANCES