Oneworld entry gives Swiss room to manoeuvre

Politicians in Bern following news of the deal with Oneworld Keystone

The decision by the national carrier, Swiss, to join the Oneworld aviation alliance has been hailed as a fresh start for the troubled airline.

But questions remain over whether Swiss is still too big or has the financial strength to survive in an overcrowded, highly competitive industry.

Swiss announced on Tuesday that it had opted to join Oneworld. The other alternative was a link-up with the German carrier, Lufthansa, which would have amounted to a takeover of Swiss.

Membership of the nine-strong Oneworld club is expected to bring benefits of around SFr100 million ($74 million) a year for the cash-strapped carrier.

Swiss also struck a separate deal with British Airways, paving the way for cooperation in a number of areas.

This includes giving the British carrier access to eight of the 14 daily landing and take-off slots that Swiss has at London’s Heathrow airport.

Credit

In return, British Airways has agreed to a credit facility worth SFr50 million for Swiss.

“It’s certainly a step in the right direction, but it does not solve the major problems facing this airline,” aviation analyst Sepp Moser told swissinfo.

Trade unions were also sceptical that the new arrangements would pull Swiss out of its financial doldrums.

“SFr100 million of commercial benefits is peanuts,” said Daniel Vischer, head of the air transport division of the Transport Union.

The Swiss government – which helped Swiss get off the ground with a SFr2.2 billion cash injection – said it was happy with the solution because it secured jobs and the aviation industry in Switzerland.

The transport minister, Moritz Leuenberger, said the deal with Oneworld was preferable to one with Lufthansa because it meant Swiss would preserve its independence.

But he gave no indication that the government was considering helping the airline financially – something Bern has already ruled out.

Financial woes

Since taking to the skies last April, Swiss has been struggling to survive. During its first year of business, it lost SFr980 million, and the carrier has said it needs around SFr500 million ($368 million) in cash to stay airborne.

The airline said on Tuesday that it was in talks with Swiss banks, UBS and Credit Suisse, for more funding.

For their part, the banks said they were assessing the risk involved. They would not comment on negotiations with Swiss except to say that they would take “a certain amount of time”.

Aviation analyst Sepp Moser says the deal with Oneworld and Swiss’s plan to cut its staff and fleet by third is not enough for the airline to turn a profit.

“Cost is not yet under control – it’s too high in some areas and rising. Capital is still a long way away and the schedule is still too large,” he said.

Swiss is in the process of dramatically scaling back the size of its operations. Last week, it cut its flights to Washington DC, and in October it is due to cut a quarter of its destinations.

The carrier has also repositioned itself, launching a new low-cost fare structure across its European network.

Uncertain future

Three of the four parties in government – the Social Democrats, Christian Democrats and Radicals – welcomed the Oneworld deal. Only the rightwing Swiss People’s Party viewed the alliance with scepticism.

“The future of Swiss remains uncertain,” it said, warning the government to hold back from giving the carrier any more financial aid.

But Swiss says it is confident it can solve its financial troubles in 2004. Chief executive André Dosé said on Tuesday that he expects the company to return to profitability by 2005.

“We make no secret of it: there are some challenges ahead for Swiss,” Rod Eddington, British Airways’ chief executive, told swissinfo.

“But Swiss, as it’s now constituted, is a better fit for its natural market in Switzerland and its surrounding catchments area.”

“I think Swiss have been through a painful restructuring process, but they have put themselves in a position where they do have a viable business,” he continued.

swissinfo, Samantha Tonkin and Jacob Greber

In brief

Analysts and politicians in Switzerland have cautiously welcomed Swiss’s decision to join the Oneworld alliance.

The national carrier opted out of linking up with Lufthansa, a deal that would have amounted to a takeover.

The alliance with Oneworld will provide Swiss with direct benefits of SFr100million.

Analysts said the deal would do little to help Swiss solve its liquidity crisis.

The airline is looking for SFr500 million to help keep it airborne.

Swiss CEO André Dosé said he is confident Swiss can turn itself around in 2004 and return to profit in 2005.