SWISS to join oneworld

23 September 2003

SWISS has accepted an invitation from the oneworld alliance to become a member of this global grouping of leading air carriers. SWISS’s customers will benefit from this development in the form of a substantially-expanded range of services. SWISS’s passengers will also enjoy the benefits of the frequent flyer programmes of all the oneworld partners and of better connections and easier transfer service.

In a parallel move, SWISS and British Airways signed a memorandum of understanding which will lead the two airlines into a strategic alliance. Its membership of oneworld and its agreement with British Airways significantly enhance SWISS’s business prospects and perspectives. The oneworld members also aim to make greater use of Zurich Airport as a hub for the Central European market.

After intensive negotiations, SWISS has achieved one of its most important strategic objectives: membership of a leading global airline alliance. SWISS becomes the ninth member of the oneworld partnership, joining reputed carriers Aer Lingus, American Airlines, British Airways, Cathay Pacific, Finnair, Iberia, LanChile and Qantas. SWISS’s customers will benefit from new connections and more frequencies: oneworld operates over 8 600 flights a day to more than 570 destinations in 136 countries. SWISS customers can earn and redeem frequent flyer miles on all oneworld services. They will also enjoy access to the 380 airport lounges on all six continents provided by oneworld’s members.

A new oneworld member

As a fully-fledged member of oneworld, SWISS can substantially enhance its existing collaborations with the various other members and expand these throughout the alliance. In extending their invitation to join the alliance, the current oneworld members have also confirmed their confidence in SWISS and its new business plan. SWISS expects its membership of oneworld to produce a direct commercial benefit of some CHF 100 million a year. The existing oneworld members have jointly generated additional revenues of more than USD 2 billion over the past three years through their membership of the alliance.

SWISS’s oneworld membership will benefit Zurich Airport: the airport is set to become a new hub in the global alliance’s network. The oneworld members intend to direct more of their services via Zurich, to make full use of the airport’s available capacity and high comfort levels.

Alliance with British Airways

SWISS and British Airways have also concluded a memorandum of understanding which will lead to a fully-fledged strategic alliance between the two partners. The memorandum outlines the content of a series of commercial agreements, including an Alliance Agreement, which the carriers will formally sign by October 24.

The Swiss TravelClub, SWISS’s current frequent flyer programme, will be gradually integrated into British Airways’ Executive Club. Miles already earned with SWISS will retain their current validity.

The parties will also establish joint-venture flight operations between Switzerland and the UK that will include extensive codesharing. British Airways will obtain the right to enter into slot-exchange agreements in respect of eight of the 14 daily slot pairs which SWISS currently holds at London’s Heathrow Airport.

SWISS to continue on its chosen business course

The membership of oneworld and the alliance with British Airways will enhance SWISS’s business prospects and perspectives in a number of key respects. This in turn will put the current SWISS business plan on an even firmer foundation.

While oneworld membership marks a key strategic milestone for the company, SWISS will continue its current programme towards sounder business health. These efforts will focus in particular on bringing cost down to (and maintaining them at) highly competitive levels.
SWISS has already successfully introduced a number of cost-cutting measures over the past few months. The implementation of the new business plan is well on track:
Some 80 per cent of the company’s “Foundation for Winning” restructuring programme has already been put into effect. SWISS expects the programme to generate total bottom-line improvements of CHF 1.6 billion a year.
The SWISS network and fleet have been resized, with capacity lowered by 35 per cent and fleet size reduced from 137 to 79 aircraft. The associated workforce downsizing will be completed by the end of the year.
Negations with supplier brought cost reductions over target.
The proportion of overhead has been sizably reduced.The new “SWISS in Europe” product launched at the end of August has got off to a strong start. The concept of permanently low fares to all European destinations, improved online booking facilities and an enhanced inflight service (for a fee) in Economy Class has been very well received, and bookings were up 50 per cent in the product’s first month.

SWISS will continue to maintain its successful premium product on its long-haul services, which will in future be performed by a fleet of nine Airbus A340 and nine Airbus A330 aircraft.

Provision of adequate liquidity reserves

SWISS has been conducting intensive and constructive discussions with the major banks and a number of its main shareholders (including the Swiss Confederation) over the last few days. These discussions have centred on SWISS’s desire to secure sufficient liquidity reserves to cushion the company against the impact of any unforeseen events.

In the course of these consultations, UBS and Credit Suisse have had the opportunity to examine the business plan presented by SWISS and the collateral which the company would be able to offer. On the strength of their current findings, both banks see possibilities of financing part of the liquidity reserves desired on terms which are customary for such activities within the banking sector. They would be prepared, subject to certain conditions, to jointly assume a certain amount thereof against securities. SWISS is also in discussion with further possible sources of the credit facilities it requires, including certain major shareholders. In addition to this, British Airways, its new alliance partner, has agreed to provide a guarantee for CHF 50 million, secured against slots at London Heathrow. The Swiss Confederation is also considering possible means of enhancing certain framework conditions.

SWISS is confident of bringing its current negotiations with possible financing partners and the Swiss Confederation to a successful conclusion. And this, together with the contribution to its bottom-line results which is expected to derive from its membership of the oneworld alliance, should ensure that the company can retain adequate liquidity reserves in the longer term.