One-off gain at Swiss hides continuing losses

Swiss continues the painful search to reduce costs Keystone

Switzerland’s national airline, Swiss, has posted its first ever quarterly net profit, although a one-off gain masked operational losses.

Swiss, which has warned it will likely make an operating loss this year, said second-quarter net profit was SFr45 million ($36.31 million).

The airline finished the quarter in the black thanks to a cash boost of SFr68 million, which was released following the settlement of a protracted legal case in France.

Swiss said that without this income, it would have made a second-quarter operating loss of SFr18 million.

Commenting on the results, chief executive Christoph Franz refused to predict how big a loss the carrier was facing for 2004, or whether Swiss would break even next year.

“It is not prudent to give forecasts here and today,” he told a news conference. “And I will not give details of how next year will look in concrete terms.”

In a statement, the airline said it was evaluating the potential of all its routes, particularly in Europe, which are operated from its Zurich hub, as well as Basel and Geneva.

But Franz, who took over as CEO on July 1, said Swiss would remain a network carrier, offering a “substantial” number of intercontinental services, as well as direct connections with Europe’s major cities.

“We will not reinvent ourselves, but will keep and further develop our identity as a network carrier,” he said.

Lower costs

The media and markets had speculated about possible savings measures ranging from further route cuts to renewed job and pay reductions. But the airline made no specific announcements, saying only that productivity had to be further improved to lower costs.

Swiss reported on Tuesday that it made a first-half net loss of SFr33 million ($26.61 million) after a SFr78 million loss in the first quarter.

Swiss commented that its turnaround was being negatively influenced by insufficient cost reductions in aircraft maintenance and the high price of fuel, which had added SFr29 million to operating expenses in the first six months.

Significant improvement

Aviation analyst Dieter Schneiderbauer, who is based in Munich, told swissinfo that the improved results had come as no great surprise.

“Most importantly, Swiss has improved operational results quite significantly compared with the first half of 2003, which was expected given the significant restructuring measures taken in mid-year 2003. [These are] now having their full impact on the airline’s performance,” he said.

“Overall Swiss is doing much better, but it still needs cash to finance its operations.”

Analyst Patrik Schwendimann at the Zurich Cantonal Bank was cautious in his assessment.

“Thanks to the extraordinary gain, Swiss managed to avert a [half-year] three-digit million loss. Swiss’s health is still anything but good,” he commented.

CEO Franz admitted that the airline was “out of the emergency ward, but it is still in hospital”.

Still too large?

Formed around the regional carrier Crossair and the rump of the collapsed Swissair, Swiss has already reduced its fleet and personnel by about a third.

But analysts say the airline is still too large for its tiny home market of fewer than eight million people.

Swiss said its net liquidity stood at SFr353 million at the end of June, above the SFr250 million below which it said liquidity would not fall. At the end of March, the company had SFr419 million in the bank.

In the statement, Swiss said that cash and cash equivalents had developed more favourably than originally expected.

As a result, the company continued to negotiate with the major banks and financial institutions with the aim of securing additional cash, it added.

Swiss complained that its punctuality at Zurich airport was suffering because of flight restrictions imposed by the German authorities on approaches to the airport from the north.

swissinfo with agencies

Key facts

The Swiss group operated 85 aircraft at the end of June.
The fleet had an average age of 5.7 years.
Swiss had a total of 7,252 employees in full-time employment at the end of June – 820 fewer than at the end of December.
Of these, 6,571 were with the parent company and 681 with various subsidies.

In brief

Financial results:

First-half net loss: SFr33 million (SFr333 million in 2003);
First-half operating loss: SFr19 million (SFr346 in 2003);

Second-quarter net profit: SFr45 million (SFr133 million loss in 2003);
Second-quarter operating profit: SFr50 million (SFr147 million loss in 2003).