SWISS resolves actions to create a profitable and competitive basis for growth

18.01.2005

With difficult overall operating parameters, still-rising competitive pressures (especially from the low-cost carriers) and continuing fare erosion in Europe, SWISS is being forced to focus more strongly than ever on profitable markets and competitive structures. In view of this, the company has taken a number of further far-reaching decisions. These include the planned downsizing of the fleet by at least 13 regional aircraft. The flights concerned should largely be taken over by partner airlines, so that customers continue to enjoy an attractive and comprehensive range of air transport services. This, together with further actions, is expected to reduce the SWISS workforce by 800 to 1 000 positions over the next 18 months. Cost savings are also expected through the imminent negotiation of the collective labour agreements and through contractual negotiations with suppliers. SWISS aims to achieve a recurring CHF 300 million improvement in its net annual costs, the full effect of which should be felt from 2007 onwards.

The SWISS Board of Directors and the Management Board want to make SWISS a sustainably competitive airline, and have agreed a further raft of measures designed to achieve this objective. The potential available to SWISS as Switzerland’s network airline must be fully exploited, and a further substantial cost reduction must be effected, if SWISS is to achieve the profitability it seeks in order to gain the entrepreneurial scope required for further investment and future business growth.Present indications suggest that, if the actions resolved are not swiftly implemented, SWISS will be unable to post a positive operating result for 2005.

Network and fleet restructuring

SWISS intends to strengthen its Zurich hub and transform its Geneva and Basel operations into cost-covering production systems. On top of this, the company aims to expand its Zurich-based network through codeshare collaborations with partner carriers. SWISS also intends to deploy larger equipment on certain routes, to offer customers greater inflight comfort and reduce its unit costs in response to the competition it faces from the low-cost carriers.

SWISS plans to transfer a large number of the routes currently operated from Basel to partner airlines’ operation in the course of 2006. The company intends to retain its presence in Basel, however, through co-branding agreements with airline partners: all these services should be operated as codeshares, ensuring that Basel-based customers can continue to enjoy the benefits of the Swiss TravelClub and book all their flights via SWISS. The present Basel maintenance operations will be realigned to the new operational arrangements. In Geneva, the routes which are currently unable to generate a profit will be analysed carefully and transferred to codeshare services operated by partner carriers where appropriate. The present service network should be maintained. Which aircraft will be affected by the fleet downsizing is currently the subject of ongoing negotiations with partner airlines and the potential purchasers of the equipment concerned.

This new project is connected with the intention to wind up Europe Continental Airways (ECA), SWISS’s French-based subsidiary. The ECA works council has been approached accordingly, at the instigation of ECA Executive Management.

Elimination of 800 to 1 000 positions by mid-2006

The present surpluses in personnel numbers in certain parts of the company, the planned fleet downsizing and other companywide actions envisaged to raise productivity will entail a further substantial reduction of the SWISS workforce by 800 to 1 000 positions. Partnerly solutions will be sought together with the company’s unions for the personnel affected. The reduction will be effected over an extended period, but will be completed by mid-2006. Around a third of the reductions are expected to be achieved through natural attrition.

Negotiations to be commenced on new collective labour agreements

It is SWISS’s declared goal to ensure the future of as many jobs as possible, and to create new ones again in the longer term. But all SWISS employees – in the cockpit, in the cabin, on the ground and among its management corps – must be consistently deployed more productively. In addition to efficiency and productivity improvements, the company will also be seeking to establish a salary structure that is aligned more closely to the competitive environment. SWISS intends to initiate negotiations with its unions immediately to this end. The company has already devised corresponding cornerstone papers for such discussions. And agreement will be sought on these cornerstones among the social partners over the next few weeks. Detailed negotiations will then be embarked upon once this has been achieved.

Further savings in materials costs

Further substantial economies should be achieved in SWISS’s materials costs, both within the company and with its various suppliers. Bought-in services will in future be handled centrally by a newly-created Chief Procurement Officer.

Positioning as a successful European quality airline

It remains the declared goal of Swiss International Air Lines to be a network carrier with a hub in Zurich which connects Switzerland with Europe and the world. With its new customer-focused user concept, SWISS’s Zurich base will be one of Europe’s most attractive hubs. Geneva will connect Western Switzerland with the Zurich hub and offer direct services of its own to international destinations. In Basel, SWISS will work with partner airlines to maintain a comprehensive range of services for its customers. Lugano will continue to be served via partner carriers. SWISS intends to further develop its position as a quality air carrier. The adoption of advanced new seats for the Airbus A320 fleet marks a further step in this direction. The new user concept for Zurich Airport will also deliver tangible added value for SWISS customers. And, with its new Boeing Business Jet service to Newark, SWISS is introducing a top-quality product for business travellers between Zurich and New York.

Buoyed by particularly encouraging results from its intercontinental services, SWISS reported an overall seat load factor for 2004 of 74.9%, an improvement of 2.5 percentage points on the previous year. But results for European services were less than satisfactory; and analyses show that SWISS’s European network cannot be operated profitably with the present production structures. “The progress we have achieved to date in improving our cost structures and tapping revenue potential is impressive, but is by no means enough given the present market trends,” says President & Chief Executive Officer Christoph Franz. “The additional actions we have now resolved are essential to make SWISS sustainably competitive and create prospects for growth.”