Swiss airline “well placed” to weather crisis

The economic downturn is not expected to clip Swiss's wings Keystone

The global airline industry is currently suffering from the effects of the recession, but experts believe Switzerland's national carrier can withstand the pressure.

Profits and passenger numbers have recently declined for Swiss International Air Lines but it appears in better shape than many rivals and has added destinations while investing in new aircraft, premium seats and lounges.

Swiss has all but buried the bad memories of the collapse of its predecessor, Swissair, since it was saved by a takeover from Lufthansa in 2005. Despite facing difficulties of its own, the airline now looks on firmer ground than Austrian Airlines, Scandinavian Airlines, Alitalia, British Airways and others.

Observers believe an operating income of nearly SFr1.1 billion ($1 billion) for the first quarter of 2009 – although 7.4 per cent down on the same period last year – is a more than acceptable performance considering the woes surrounding the industry.

“It’s tough for all airlines at the moment especially on the business traffic side. Swiss’s recent re-emergence and success suggests that the brand is still strong,” Peter Morrell, an aviation economist at Cranfield University in Britain told swissinfo.ch.

“I would tend towards the argument that Swiss still has a future, but there will be some tough times in the short term,” he concluded.

Tough times

Those tough times particularly include a substantial reduction in the number of business and first class passengers as companies tighten their belts. Swiss is heavily reliant on the finance sector, including UBS and Credit Suisse banks, for a significant proportion of its corporate trade.

Freight traffic has also dropped off alarmingly as demand for goods dried up around the world. Swiss recently placed around 100 staff in its cargo division on part-time hours as loads dropped 20 per cent in April compared to a year before.

The airline has also had to tighten its belt in other respects by cutting back on the frequency of flights to some destinations, cutting staff overtime and asking some employees to take unpaid leave.

However, Morrell is confident that Swiss will safely cruise through the current troubles. This is thanks in no small measure to falling oil prices and the efficient fuel hedging practices of parent company Lufthansa.

“Some of the smaller low cost or charter airlines are most at risk. Some based in eastern Europe are looking particularly shaky,” he said. “Most of the network carriers are in groups which makes it less likely they will disappear.”

Merger benefits

The takeover by German national carrier Lufthansa came at a good time for Swiss in more ways than one, according to Professor Thomas Bieger, an aviation strategy expert from the St Gallen University.

The airline was forced to take tough cost cutting decisions four years ago in order to make that happen, including a reduction of staff and renegotiation of collective labour agreements and contracts with suppliers. The coordination of timetables between the two airlines has also handed Swiss more transfer passenger through its Zurich hub, Bieger said.

This has allowed the airline to improve its financial position, enabling it to invest heavily in a new business class seat, premium passenger lounges at airports and the ongoing replacement of short haul aircraft with newer models.

Lufthansa wants to attract customers though its own hubs of Frankfurt and Munich which could be to the detriment of Zurich. On the other hand, Lufthansa has pumped a lot of money into Swiss so has a vested interest in making a success of the airline.

“It was a bad time to execute the decision but it was a success that it was done at all, and if you look at the long-term situation rather than business cycles this could be quite promising,” he said. “The extension of the route system (including Shanghai and Delhi) was also a long-term strategic decision.”

Outgoing Swiss chief executive Christoph Franz said earlier this year that the airline faced a difficult year in 2009. But not as difficult as many rivals, observers think.

Matthew Allen, swissinfo.ch

Out of the ashes

Swiss International Air Lines was born in 2002 from the remains of bankrupt Swissair and the regional carrier Crossair.

The struggling Swiss was in turn taken over by Germany’s Lufthansa in 2005.

Lufthansa initially bought an 11% stake in Swiss in March 2005 and increased this share to 49% in 2006 once regulatory approval had been granted. It took over all the shares in July 2007.

Swiss finally turned in a full year profit in 2006 and remains financially sound despite the ongoing global recession.

In 2008, operating income increased 7.6% to SFr5.27billion ($4.85) but profits dipped 6.5% to SFr507 million. In the first quarter of 2009, operating income declined 7.4% to SFr1.08 billion while profits feel to Sfr63 million from SFr66 million in the corresponding period the year before.

Passenger numbers have also been declining. In May of this year, seat load factor fell 4.1% to 75.2%.

Swiss operates a fleet of 77 aircraft flying to 90 destinations in 42 countries. As of the end of 2008, it employed 7,337 staff.

Swiss’s Chief Network and Distribution Officer Harry Hohmeister will take over from CEO Christoph Franz on July 1.