Swiss on hunt for new investors

Swiss will struggle to survive without further cash injections from its banks. Swiss

Switzerland's troubled national carrier has launched a hunt for new investors in a bid to secure SFr500 million ($370 million) needed to keep the airline in the sky.

British bank, Barclays, last week confirmed it had been hired to help Swiss win new lines of credit as it restructures itself over the coming months.

André Dosé, the airline’s CEO, last week announced plans to reduce the carrier’s capacity and sack one in three of its 9,000-strong workforce.

Dosé said he planned to overhaul the way Swiss does business, intensifying its focus on the low-cost market and downgrading its emphasis on the market for premium passengers.

Swiss will also slash the number of destinations on offer from 99 to 61 cities and ground around a third of its fleet.

The struggling airline – which saw its shares fall 16 per cent following the announcement – remains in urgent need of more cash to ensure its long-term survival.

“I think people will be wary of lending more money [and] throwing good money after bad,” Lloyd Brown, a London-based analyst at Ernst and Young told swissinfo.

“They will struggle to raise additional funds from the private market,” he added.

Looking for money

Many investors are nervous about the airline’s cash levels, which under Swiss law must remain above SFr500 million for the company to remain solvent.

The current daily “cash-burn rate” is estimated at between SFr2 million to SFr3 million. Swiss reportedly has around SFr1 billion in liquid reserves.

“If you look at the cash position of Swiss and their current rates of using cash, they’ve got less than a year to make the necessary turnaround work,” Brown said.

“That isn’t very long in the context of an airline the size of Swiss.”

The refinancing will also depend on whether the Swiss government grants the airline fresh export guarantees – seen as a way of boosting investor confidence.

New strategy?

Analysts have also expressed concerns at the airline’s strategy.

By jettisoning its commitment to providing a premium service on a global network, Swiss is being forced to start from scratch in the budget market.

With the start of the winter timetable, Swiss plans to tackle competition from low-cost carriers such as EasyJet by selling cut-price tickets for its economy-class seats on flights within Europe.

As with EasyJet and its rival Ryanair, passengers will be able to buy snacks and drinks on board.

William Meaney, chief commercial officer at Swiss, said the new strategy was about giving customers more choice.

“Historically, we gave them free newspapers and food. Now, they are saying ‘we would rather choose on board…and if we don’t want to eat, we don’t want that built into our ticket price’,” Meaney told swissinfo.

Expatriate Swiss businessman, Marc Faber, better known as “Dr Doom” for his stock market predictions, questions the airline’s goal of snaring both high and low-paying passengers.

“In general, you can have a luxury airline that has premium prices like Singapore Airlines, or you have a budget airline…I’m not sure the concept will work very well,” Faber told swissinfo.

Champagne or thirst

Even Switzerland’s transport minister, Moritz Leuenberger, poked fun at the idea of mixing premium and budget travellers on the same flight.

“You’ll have those at the front paying between SFr500 and SFr1000, amid all the comfort associated with the former Swissair, while those at the back get nothing,” he quipped.

“In other words, champagne up front, while those at the back go thirsty. At least those flying for SFr50 will arrive at their destinations sober.”

Aviation analyst Oliver Sutton said that Swiss had been forced to act to ensure its survival.

“I think the measures they are taking will enable them to survive. If they hadn’t taken these measures, I don’t think they would still be here at the end of the year,” the editor-in-chief of Interavia magazine told swissinfo.

Union woes

Along with the hunt for fresh investors, Swiss needs to resolve tough union negotiations before it can start implementing its turnaround plan.

An ongoing dispute between the airline’s two pilots’ unions is one of the most pressing concerns.

A recent court decision forced Swiss to sack one former Swissair pilot for every former Crossair pilot on its books.

Dosé said the decision threatens the existence of Swiss because it limits management’s ability to restructure the airline.

He has given the pilots until the middle of July to resolve the dispute.

swissinfo, Jacob Greber in Zurich

Key facts

Swiss last week said it would sack one in three staff, reduce its destinations from 99 to 61 cities, and reduce its fleet by a third.
The airline will also convert its pan-European economy service to a low-cost carrier.
Swiss is estimated to be losing between SFr2million to SFr3 million per day.
The airline needs at least SFr500 million in fresh capital.
It has appointed UK bank Barclays to help find new investors.