Swiss reports SFr333 million first-half loss

Getting closer? Lufthansa is seen as a potential partner for Swiss Keystone

Switzerland's troubled national airline Swiss has reported a first-half net loss of SFr333 million ($239 million), down from SFr447 million a year ago.

The figures confirm that the carrier is battling to survive after some of the toughest months ever for the commercial airline business.

Battered by falling passenger numbers, the war in Iraq, the Sars outbreak, competition from low-cost carriers and the economic downturn, Swiss also suffered because of its cumbersome business structure.

The airline’s management is currently in the midst of an aggressive reduction in capacity, which will see Swiss cut its fleet and staff by a third.

In its first-half report released on Tuesday, Swiss said the measures are already beginning to show fruit, even though most will only take effect in the second half of the year.

The airline’s high rate of “cash burn” appears to be easing, from around SFr3 million per day during the first quarter to SFr1.1 million in the three months to June 30.

Liquidity stands at SFr811 million compared to SFr913 million at the end of March. Swiss’s cash reserves cannot fall below the SFr500 million mark, without risking bankruptcy under Switzerland’s corporate laws.

“These figures clearly show that the cash drain slowed down in the second three months of the year,” Swiss said.

However, CEO André Dosé said the lower loss was no cause for comfort.

“As long as there is a minus in front of our figures, I’ll remain unhappy,” Dosé said.

In search of cash

British bank Barclays has been appointed to help the carrier find another SFr500 million in cash to continue operating into next year.

The second-quarter loss was SFr133 million, which Swiss said “was an improvement on the SFr200 million net loss sustained in the first three months”.

“The better performance helped produce a first-half result which was also an improvement on the SFr447 million net loss sustained for the first six months of 2002,” it said in a statement.

Swiss carried 5.5 million passengers during the first half of 2003, generating revenue of SFr1.715 billion. The seat load factor was 68.7 per cent and the “gross yield per revenue seat-kilometre” totalled SFr0.14.

“The yield is slightly worse than our competitors,” Dosé said, adding that he believed passenger volumes are “slowly returning to normal” after the shocks of this year.

The airline again admitted that competition from low-frills carriers was eroding its profitability.

SFr200 million recovery plan

The first-half results do not include expenses associated with the carrier’s restructuring plan, although Swiss estimated they would reach SFr200 million.

“This amount includes the leaving settlements associated with the out-of-court agreement recently concluded with a section of the pilot corps… severance packages and early retirement,” said Swiss.

Swiss said the costs would be fully declared during the second half of 2003.

The restructuring plan, announced in June, includes slashing staff by around 3,000 from the current level of 9,000, and withdrawing around 34 aircraft from service.

A wide-range of flights on Swiss’s intercontinental, European and regional network are to be cut, starting from October.

The cutbacks are a major setback for the airline, which was launched in late March 2002, following the collapse of Swissair in late 2001.

Alliance decision “within weeks”

Alongside the difficult business environment, Swiss’s attempts to join an airline alliance – a move seen as critical to the carrier’s survival chances – have yet to bear fruit.

However, during the last few weeks, unconfirmed rumours have continued to be published in Switzerland’s media of a possible merger with the German carrier Lufthansa and a potential alliance deal with British Airways.

Dosé said both options were being considered, adding that a decision would be based on what was best for the long-term interests of Swiss.

“[An alliance] is about building stability and trust in the market,” he said.

A final decision on whether Swiss will join either BA, Lufthansa or continue operating alone will be made in coming weeks, Dosé said.

swissinfo, Jacob Greber in Zurich

Key facts

Swiss reported a first-half net loss of SFr447 million for the corresponding period last year.
Swiss is currently slashing a third of its fleet and staff, as well as reducing its route network by a quarter.
Swiss says the restructuring will cost SFr200 million.
First-half revenues were SFr2.05 billion.
Liquidity has fallen to SFr811 million (at the end of June) from SFr913 million at the end of March.