UPDATE 2-SAS sees higher restructuring costs; shares fall

* Restructuring costs seen higher than earlier estimated

* May passenger traffic down 18.1 percent year-on-year

* Shares down 5.8 pct on the news

(Adds analyst, share reaction, Finnair)

By Victoria Klesty and Helena Soderpalm

STOCKHOLM, June 5 (Reuters) - Scandinavian airline SAS (SAS.ST) said its restructuring programme would cost much more this year than it previously had thought as it reported its 10th consecutive drop in traffic, sending its shares lower.

SAS shares were down 5.8 percent at 3.73 crowns at 1100 GMT, underperforming the overall Stockholm index , which was up 0.3 percent.

The loss-making airline said restructuring costs would increase substantially from its earlier guidance of 900 million Swedish crowns ($116.8 million) for 2009 due to an earlier phase-out of aircraft, a higher early retirement ratio than expected and redelivery costs for leased aircraft.

SAS spokesman Sture Stolen said he could not give an estimate on how much higher these costs would be.

"We cannot say exactly how much higher these (costs) will be yet but we see now they will be a lot higher than the 900 million we had calculated," Stolen said.

He said SAS would provide more information in its quarterly report due on Aug. 12.

SAS also reported an 18.1 percent drop in passenger traffic in May from a year earlier. The last time SAS showed an annual rise was last July.

"The primary reason for the share falling is probably these higher restructuring costs," said one analyst who declined to be named.

SAS said market demand had weakened due to significantly weaker macroeconomic development both inside and outside the Scandinavian market.

"The uncertainty regarding the timing of the recovery is considerable," the company said. "SAS cannot rule out additional actions to further offset the negative market environment."

The airline, half-owned by Sweden, Norway and Denmark, had no immediate plans to cut jobs, Stolen said.

"We cannot rule out anything in the current market climate, but at the moment we have no direct plans," he said.

SAS's passenger load factor -- a measure of how successfully it fills seats -- fell 1.2 percentage points year-on-year to 71.5 percent. The yield in April, the most recent month for which data were available, was down 11.7 percent.

The ailing airline said the yield was also expected to have been down in May from the same month last year due to falling demand.

Finnish rival Finnair (FIA1S.HE) said on Friday it would seek an additional 100 million euros ($142 million) in cost savings as it struggles with weak demand and falling ticket prices.

Budget rival Norwegian Air Shuttle (NWC.OL) reported on Friday that it had a 24 percent rise in May traffic. Finnair will report its May passenger traffic data on Tuesday. ($1=7.706 Swedish Crown) (Additional reporting by Oskar von Bahr; editing by Karen Foster)