From today's FT:
Swiss makes U-turn and launches budget airline
By William Hall in Zurich
Published: May 2 2003 8:22 | Last Updated: May 2 2003 8:22
Swiss International Air Lines, Switzerland's struggling new national airline, has announced a major reversal of its strategy by deciding to spin off its regional operations as a low-cost European carrier in a make-or-break move to insure its own long-term survival.
Swiss will spin off its regional operations into a separate entity operating under the "Swiss Express" name which will commence operations with the start of the winter 2003/04 timetable.
Swiss said that the action was being taken in response to "new market conditions to offer low-cost air connections, especially within Europe."
Rumours have been circulating for weeks about the future of Swiss, which was hastily re-launched after the sudden collapse in 2001 of the 70-year-old Swissair.
The collapse in Swiss's share price and the refusal of UBS and Credit Suisse, Switzerland's two biggest banks, to lend more money has raised doubts about whether the airline could survive.
The Swiss government, the biggest single investor in the new airline, rebuffed Swiss's pleas for extra financial help at last Wednesday's regular government meeting.
Swiss stressed that there was "no question of the airline being grounded". It currently has SFr861m ($642m) of liquidity and expects to have SFr500m by the year end even if its bankers do not provide more loans.
The surprise announcement of the establishment of the new regional airline comes little more than a year after Switzerland's new national airline was re-launched by merging the remnants of the bankrupt Swissair with Crossair, Swissair's regional carrier, which had a lower cost base than its 70-year-old parent.
Swiss's decision to reverse its strategy of positioning itself as a quality airline appealing to business passengers, and start competing head-to-head with low-cost European regional carriers, is a high risk move. Many of its bigger rivals, such as British Airways, have found it near impossible to marry the culture of a low-cost airline with an inter-continental network.
However, Swiss has been forced into the decision because of the increasing competition of low-cost carriers on several of its busiest routes, and its failure to get former Crossair pilots to agree to new terms and conditions that are less beneficial than those of the former Swissair pilots.
The Swiss public and private sector have invested around SFr4bn in total in the bailout out of the old Swissair and the re-launch of the new airline, which is currently valued at around SFr150m on the stock market.
Most of Switzerland's top companies invested in the new airline in the belief that the Swiss economy, and the country's main airport at Zurich, would be seriously damaged if Switzerland did not continue to have a large inter-continental airline.
However, the sharp downturn in the world airline industry, combined with Swiss's own internal problems, have questioned the viability of a Swiss business plan which involves maintaining a large inter-continental network in direct competition with bigger carriers such as Air France, British Airways and Lufthansa.