Swiss overheating: fuel cost surges & board member resigns

[ettore]

21.06.2004
Fuel and maintenance costs burden SWISS results
The steep rise in fuel costs since the beginning of the year and the absence to date of cost concessions from its prime aircraft maintenance partner have prompted SWISS to adjust its EBIT objective for 2004. Current projections suggest that the company’s business performance for the year could fall short of a breakeven operating result. Additional measures to improve results have already been introduced.
The SWISS Board of Directors noted the revised projections for the year when it met today. The meeting was also informed by Board member André Kudelski that he would be relinquishing his seat, in view of differences of opinion on the alliance issue.
The latest developments in the price of crude oil and the associated steep increase in aviation fuel costs are having an adverse impact on SWISS’s business results. If the price of kerosene remains at its current level of USD 360 per tonne, the company will incur unplanned additional costs of approximately CHF 85 million for this expenditure item.
If SWISS had retained the fuel hedges which it sold earlier in the year, these unplanned additional costs would have amounted to CHF 65 million. SWISS sold these hedges in the first quarter to add CHF 20 million to its liquidity position. The sale, coupled with further actions on the cash management front, has provided the company with sufficient liquidity. This is substantially above the CHF 250 million originally projected, and remains unendangered by the current fuel price situation and excessively high maintenance costs.
SWISS may be unable to achieve its previously-declared EBIT objective for 2004 also in view of its inability to date to achieve cost savings with maintenance, repair and overhaul provider SR Technics, its most important partner in expenditure terms. Under its “Foundation for Winning” restructuring programme, SWISS successfully negotiated cost reductions with all other partners and suppliers. Only with SR Technics has an acceptable result not yet been achieved, despite nine months of tough negotiations.
SWISS is taking appropriate action in the light of these developments; and the company will continue to do its utmost to ensure that, despite these adversities, its operating result for 2004 is as close as possible to breakeven.

Board member resigns
André Kudelski (44) has offered his resignation as member of the SWISS Board of Directors. His resignation follows a divergence on the assessment of the consequences of the entry into oneworld under the conditions imposed by British Airways. The Board of Directors has accepted the resignation with great regret, and thanks André Kudelski for his involvement and contribution in his function as a Board member since December 2001.

Swiss Corporate Com
Ettore..Im not clear about what your point is..please have a look at the "sticky" above. Thanks H.

[ettore]

Nothing but making the flying community aware of the latest problem Swiss is encountering. Swiss clashed with BA at the beginning of June over the transfer of Frequent Flyer datas and cancelled its candidature to Oneworld. The resigning boardmember, Kudelski, who supported the deal in which Swiss lost 8 precious slots at Heathrow to BA and some high-yield routes (Lagos, LDN-City, a. o.) could not stand to this change of mood, paving the way for a takeover through Lufthansa, although she would get the Swiss market shares for free if she simply waits for the company to collapse.

I thought it would be interesting for an english speaking aviation forum. But if you feel like erasing this topic, please do so: Swiss won't fly much longer anyway. 7'500 jobless will have plenty of time reading on pprune about other airlines who survived. :sad:

[redfred]

i used to work for them in LON looks like I got out just intime, got a lot of friends who are still there and things dont look good

[Robert Vesco]

Ettore..Im not clear about what your point is..please have a look at the "sticky" above. Thanks H. Sad that when thousands of (non-UK) jobs are threatened, this seems to be clasified as a non-event. :sad:

Any more news regarding Swiss, I´m a bit out of the loop?

[ettore]

Hi Studi,

Here some clarifications:


I don't believe LH wants to see Swiss sink. Longhaul air travel is still a highly political business, you just cannot fly wherever you want like in Europe, so LH could not provide any direct longhaul routes from ZRH.


First, I do not believe either that LH wants to let LX down. It would be clevier to take it over to refrain AF-KLM and BA from a costly dog fight over Swiss market shares that would follow a Swiss collapse.

Second, the Seventh Freedom is implemented in Switzerland. I.e. LH could fly from FRA, pick up pax in ZRH, and fly them in a third country. It's basically what LH is interested in, within a mutli-hub concept FRA-MUN-ZRH. ZRH would be the LH-Base for Southern Europe, Middle-East and Africa, according to plans made last September.

Third, the political dimension of the play do exist, but not as far as long-haul destinatations are politically important for the Swiss economy or diplomacy. It is politcally relevant because the long-haul pilots and former Swissair managers now working for Swiss have managed to build a powerful pressure group within the confederation and the medias, especially within the Ringier publishing house and its yellow paper Blick.

A recent study brought by the Neue Zurcher Zeitung shows that a Swiss collapse would not have a significant impact on the connectivity of Switzerland with the rest of the world.


If all longhaul direct connections from ZRH into the world would be cancelled, LH would compete against the two other alliances. From a customer point of view it's not obvious whether you would fly via LHR, CDG or FRA/MUC.

However, if Swiss stays alive and keeps the standalone profitable direct longhaul routes, LH as a potential new owner could take the profit and beat the other two alliances with the argument of direct flights from ZRH.


Fully agreed. See above.


How many of this routes really would be profitable is a thing for the network managers, they will figure it out. But I'm pretty sure a living (maybe again resized) Swiss under LH ownership is of more benefit for LH than a dead Swiss.


For the sake of the remaining 7'500 workers at Swiss, I do hope this opinion will be heard. It's been now over three years of fear and job cuts at Swiss...

[ettore]

Actually, our discussion over this 5th or 7th (it's the 7th, I checked) is relatively pointless, since a Swiss controlled by Lufthansa would keep its swiss AOC and flight code.

For the rest of your analysis, I do share you view.

Regards,
Ettore

[ettore]

Well, they do see where the problem lies, but apparently they do not know how to solve it.

It mainly lies with shrinking yields, a phenomena which is not a Swiss exception, but which strikes the company harder, since its overall costs remain high.

I heard from a manager of the company who has a precise knowledge of the figures that in contrast to other comparable airlines in Europe, which are also affected, the Swiss slump looks pretty gloomy. He did not quote his figures but said that he just doesn't know how Swiss could make it over the worst months of the year (next Dec-Jan) if the trend remains as it is.

It's highly probable that more cuts will be done until the next WTT, but the management is stucked with agreements it signed last year with the Long haul and continental pilots corps.

If Swiss wants to reduce more capacity, it would have to fire on an even basis one former SR-Pilot for one former CRX-Pilot or denounce last year agreements, which would certainly lead to another crisis.

The company is trying to put the blame for its high costs on SR Technics, but it's simply ludicrous.

[Robert Vesco]

The company is trying to put the blame for its high costs on SR Technics, but it's simply ludicrous. Yeah, they tried the same trick last year with ex-Crossair and it didn´t help much. :(

The only problem? You mentioned it: all the groups who have power in Swiss and who would loose it in such a deal. Spot on! Now ask yourself the following question: "who has all the power in Swiss?" Answer: Aeropers! :hmm:

Long haul has no future in Switzerland with the proximity of MUC, VIE and FRA. If it comes to a deal with Lufthansa you will see that what will be left of Swiss will be a downsized version of the former Crossair, feeding pax into Lufti´s 747´s and A340´s.

Back to square one, back to October 2001. ;)

[ettore]

The first "victim" of this system was City Line. They just had the choice to either keep their high costs and give all the future growth to the other members of LH Regional or reduce their cost base. The same will apply to the regional part of Swiss which is known to be pretty expensive.

Dear Studi,
This assumption is not true. It all depends on how you calculate the costs. The Long-haul network is said to be rentable but the calculation does not take into account the charges to feed the very same long-haul routes with transfer-pax coming from the continental network.

The continental network is structurally more expensive because the legs are shorter and frequencies higher. In the meantine, the continental network is more disputed, both by the LCCs and
major FSC, who have far more means than Swiss to compete (I mean far more money to afford dumping prices) and a much better yield management, always prompt to react, thanks to the size and variety of their fleet.

Splitting rentability between long-haul and continental network is simply not relevant to the rentability of their respective operations. The said rentability also depends on how you split the overhead costs and how much cross-subsidies flow between different units of the group (Ask Bruggisser how he did within the SAirGroup!).

Splitting the rentability is also known as a political mean of pressure when negociating with the two pilot corps, amounting to lie and manipulation when used for the purpose of firing people or keeping them quite in a corner of the room.

The long-haul is in deer need of the continental network if it wants to survive. The question is not how much it costs to Swiss but how much Swiss can afford to keep both running.

If Lufthansa takes Swiss over, it is highly probable that the continental network will melt away within LH-Regional, do some cheap point-to-point from Zurich to fight the LCCs back and feed FRA and MUN for long-haul destinations not flown directly from Zurich. Around 9 to 12 long-haul destinations can be flown rentably from ZRH on a daily basis.

Other long-haul destinations would be flown from Zurich by Swiss, within the frame of a multi-hub concept Munich-Frankfurt-Zurich-Wien, Swiss being devoted to Premium service towards the Golfe Region, Middle East and Africa.

What a pax embarking at ZRH to Shangai would do in changing flight in Frankfurt, a pax embarking in Frankfurt to Johannesburg would do exactly the same in changing flight in ZRH.

[Robert Vesco]

it was not the case that City Line was too expensive in an overall manner, but they were much more expensive then all the other regional feeders, especially Eurowings (which flies the same A/C). And here you can easily compare costs. I guess this would also apply to "Swiss Regional", play the game or leave it. Hmmm don´t forget that Crossair (Swiss regional) was profitable, flying into niche markets and doing wet lease for Swissair, ala Eurowings. ;) Things started to go wrong when a top heavy managment structure was placed onto Crossair and it was transformed into Swissair #2. The results we can admire now. :(

Now let´s compare the profitability/costs of Swissair/Long Haul with Lufthansa/KLM/Air France/British Airways etc and you will see that long haul from ZRH is also simply too expensive. The problems in Swiss aviation have started way before October 2001 as Swissair has not been profitable since the mid 1990´s. Those 2 billion SFR which were needed to jumpstart Swiss had to go somewhere!

Like I said before, I predict that soon the clock will be reset to October 2001 for Swiss as the current (Swissair) strategy has clearly once again failed. Maximum 40 aircraft left in order to fit into an alliance with EasyJet Switzerland (TopSwiss) and Helvetic snapping up the remaining passengers.

If you want to see the future of Swiss Aviation, look at Belgium! Sabena is gone, DAT/SN Brussels Airlines (S-Tail) is a small feeder with ARJ´s and operates a few A330 long haul routes. The rest is flown by LoCo Virgin Express.

From a pilot´s point of view the (ex-Swissair versus ex-Crossair)battle within Swiss will be a dogfight over who gets to fly the E170/195 as this is the only aircraft which has a real future within Swiss. It's highly probable that more cuts will be done until the next WTT, but the management is stucked with agreements it signed last year with the Long haul and continental pilots corps. Will this be the straw that will break the camel´s back? Once again, Belgium/Sabena comes to mind... It will take a lot of money to buy off those agreements. Money Swiss does not have anymore. :eek:

[Robert Vesco]

Hi Studi, yeah, I moved on and have a good job now. THX 4 asking. :D

you still seem to live in your black and white scheme of SR/CRX. I think this is a pity, because they are both gone and we have now an interesting discussion about future aspects of the currently existing. As Ettore said before, with agreements in place between the 2 (!) pilot corps within Swiss and the still ongoing witch hunt against ex-Crossair pilots, it´s unfortunately very much a black and white situation. With the next round of cuts in sight, this ´us versus them´ mentality will not help get the company pointed in the right direction.

I agree that Swiss is worth more ´alive than dead´ to Lufthansa, but like I said before, it will be a slimmed down version of the old Crossair, feeding Lufthansa with a few long haul flights to keep the ZRH people and ex-Swissair managers happy.

Big enough to keep the competition out of ZRH, small enough not to interfere too much with LH´s own network.

That is if Lufthansa wants them in the first place... :confused:

[ettore]

Dear Robert,
I liked your analysis, especially the last part on how pilots disputes can cloud the sky of weak airlines already flying with a pretty poo visibility.

Allow me to correct you on one point: nobody can say if CRX was profitable or not, since its main overhead costs, sales & marketing, procurement and so on were a) not paid to the SAirGroup entities at market costs b) partly implemented by CRX, partly by SAir-entities. There never has been a true and fair acountability of thoses goods and services fot the very simple reason that nobody really knew what was going on, as well as for obvious internal political reason.

Just as reminder, and this is a fact: CRX was almost bankrupt in 1998, as SAirGroup bought 70% of its shares. I guess that the dear Mr. Suter knew enough about Bruggisser's business to convince him to rescue CRX without opening that soon a stinking pandora box.

I nevertheless do agree with the idea that CRX would have had a great future with a high-level point-to-point service for business people, but it's - halas - a little bit too late now to rewrite history.

The more I learn about the ongoing restructuring at Swiss, the more I wonder how the future Lufthansa-Swiss network and fleet will look like. Contrary to my first assumption, if everything goes quick and well, this new entity could be ready as soon as for this very next WTT ! Swiss is in a very bad shape, worse as I thought, and if the pilots do not oppose the deal, it's only way out is to agree with Lufthansa as soon as possible. Otherwise, Swiss will not make it until the end of the next WTT...

[Robert Vesco]

http://baz.ch/news/index.cfm?ObjectID=8F2A8DBE-60CF-2062-F406E43EE17A9F04

50...40...30...20..........

[flufdriver]

Gents,

I've been following your discourse about the future prospects of SWISS and while I am sure that your discussion is well intended, it strikes me that in your collective opinion a detoriation of the situation at/with SWISS is not only inevitable, but also unavoidable, which saddens me when I think of what "used to be".

I have to concur with what appears to be your assessment that SWISS has little chance of rising out of its misery, if what I experienced as a fare paying Pax on two recent flights between LHR & ZRH, is the standard of service that customers have to accept if they choose to fly on SWISS, or as in my case, purchase a ticket where a leg of the trip is serviced by SWISS as a code-share partner (to BA).

I have worked in the airline industry for pretty well the last 30 years and have seen and experienced many sad developements. However, often times when companies in financial straights made cuts in service, cabin and other personnell tried their best to compensate with friendliness and courtresy, because they knew they were saving their own jobs. No-one could accuse the cabin crew or the person manning the SWISS desk in the Terminal to which we had to transfer from the MIA-LHR flight, of that.

One of the F/A,s even had prespiration stains under her arms! and I doubt anyone had explained to those poor souls that passenger service, whilst not the primary reason for their presence on board, is nevertheless an important part of the F/A duties and can have a great impact on a passengers perception and feeling about an airline, especially one that needs all the help and goodwill it can get!

It did not bother me that we had to purchase whatever refreshments we wanted on the 85 - 90 minute flight, what did bother me was that even when I did purchase a beverage it was not even served with any kind of skill or care.

Nor would the treck that a SWISS passenger has to undergo after checking in at Terminal 1 in ZRH to reach the departure gate, cause anyone to choose that method and that carrier again to move between London and Zurich.

On the whole it seems, that with all their internal wrangling the SWISS management has totally forgotten about the customer and the art of customer service, which used to be one of the hallmarks of Swiss-run organisations.

The next time I'll take Easy or Ryan or one of those, it'll be cheaper and its pretty hard to be disappointed when you don't expect anything.

[ettore]

Dear Fluf,
It's sad to learn from an outsider about the deterioration of the service, even sader when one knows what the cabin personal has been through in the past three years.
It's also a not very surprising result of the on-going mismanagement of the company and my guess is that many other pax already made the choice of flying cheaper on airlines providing a minimal service but in a more cheering manner.
Those who nicknamed the "new" Swiss as "So what? It's still Swissair..." should have thought of "Such a weary insane Swiss sucks..." :(
See U flying elsewhere:hmm: