New regional subsidiary and reduction in personnel costs

2 May 2003

The Swiss International Air Lines Board of Directors intends to spin off the airline’s regional operations into a separate subsidiary which will operate under the “SWISS Express” brand from the start of the 2003/04 winter timetable period. SWISS Express will offer a competitively-priced product that is carefully tailored to the regional air travel market by reducing the costs of these regional operations by some 20 per cent from their current levels. The action is being taken in response to new market conditions. Further savings are also planned in the company’s mainline business by reducing personnel costs in close collaboration with the unions. SWISS expects to see rising demand and load factors on its flights in the coming summer months. So any capacity modifications on the medium- and long-haul fronts will not be effected before the start of the 2003/04 winter schedules.

The SWISS Board of Directors and Executive Management have resolved a series of tactical and strategic measures to ensure the airline’s sustainable success. SWISS has already made extensive temporary adjustments to its schedules in view of the collapse in passenger volumes following the Iraq war and the outbreak of SARS, and has reduced its systemwide available seat-kilometre capacity by some six per cent. The airline has optimised its network for the high-revenue summer months, but is refraining from further network reductions in view of the higher load factors expected in this traditionally strong period. Any structural modifications required to the network and the aircraft fleet will thus be effected with the start of the 2003/04 winter timetable period.

SWISS basically intends to further pursue its current strategy of operating its own network. The company has the means and the basis to operate profitably once the temporary factors prompting the present industry crisis are removed. In doing so, SWISS will continue to provide Switzerland with its connections to the world airline network, thereby making a substantial contribution to the country’s further economic development.

SWISS also has sufficient liquidity, despite the sizable losses sustained in early 2003, and there is no question of the airline being grounded. Total liquidity amounted to CHF 861 million at the end of the first quarter of 2003; and the company expects to have liquidity of CHF 500 million by the end of the year, even without additional measures or new credit facilities.

SWISS Express for regional operations
The airline industry is in a state of flux. In view of this, SWISS is modifying its original business model to take account of the new market conditions. In Europe in particular, this means offering lower-cost connections. The SWISS Board of Directors has therefore resolved to create a separate subsidiary for its regional operations, to be known as SWISS Express.

The move is intended to provide a lean organisation whose costs are 20 per cent below those of the present airline. SWISS Express should commence its operation of niche and feeder flights for SWISS with the introduction of the 2003/04 winter schedules. In doing so, SWISS Express will act as an operator for SWISS.

The SWISS Express fleet is expected to consist of Saab 2000, Avro RJ 85/100, Embraer 145 and (later) the new Embraer 170 and 195 aircraft. The new company will be a fully-owned SWISS subsidiary with its own board of directors and executive management. A detailed business plan is being devised. The project is headed by Manfred Brennwald, SWISS Managing Director Operations. The new company’s CEO-designate is Björn Näf, currently Executive Vice President Product & Services at SWISS.

Reduction in personnel costsSWISS is already on course to save CHF 600 million with its Target Turnaround results-enhancement programme, with CHF 500 million of these savings to be achieved in 2003. But with revenues from flight operations expected to fall further in the foreseeable future while non-influenceable costs are likely to rise, the current erosion of bottom-line results can only be averted through an additional reduction in production costs. Further savings in personnel costs are therefore essential. The aim here is to effect a 10-per-cent reduction in the CHF 1 billion in total salary costs budgeted for 2003. This can only be achieved, however, in close collaboration with the unions. SWISS’s top management are setting an example here, agreeing to voluntarily reduce their own salaries by 14 per cent with immediate effect.

Reduction in personnel costs
SWISS is already on course to save CHF 600 million with its Target Turnaround results-enhancement programme, with CHF 500 million of these savings to be achieved in 2003. But with revenues from flight operations expected to fall further in the foreseeable future while non-influenceable costs are likely to rise, the current erosion of bottom-line results can only be averted through an additional reduction in production costs. Further savings in personnel costs are therefore essential. The aim here is to effect a 10-per-cent reduction in the CHF 1 billion in total salary costs budgeted for 2003. This can only be achieved, however, in close collaboration with the unions. SWISS’s top management are setting an example here, agreeing to voluntarily reduce their own salaries by 14 per cent with immediate effect.