A Smooth Takeoff for Swiss International
It was a spectacular collapse of one of the world's best-known airlines, and plenty of industry execs believed that Switzerland would end up without a flag carrier. But surprisingly, the successor to Swissair is up and flying--and producing numbers better than planned. Swiss International Air Lines has been operating just two months, but it's filling almost 70% of its seats. The new boss, Pieter Bouw, thinks he can hold down losses to $450 million this year, on revenues of $2 billion. Not bad, considering he originally thought the red ink would come to $700 million. Analysts even foresee a profit next year.
If Swiss, as the new carrier is known, has any chance at all, it's thanks to the determination and skill of Bouw, the ex-boss of KLM Royal Dutch Airlines. Bouw kept KLM largely profitable during the bruising wars for transatlantic traffic. Now he and CEO Andre Dose, the former head of Swissair's successful regional carrier Crossair, aim to run a leaner airline, one without the delusions of grandeur that brought down Swissair. "It's gone better than people expected," says Chris Tarry, airline analyst at Commerzbank Securities in London.
Bouw is determined not to repeat past mistakes. Should anyone ever write a primer on how to destroy an airline, Swissair will surely merit its own chapter. To compete head-on with British Airways, Air France, and Lufthansa, and their global partnerships, Swissair set up its own network, the Qualiflyer alliance. Its big mistake was to take equity stakes in several of its troubled partners--Belgium's Sabena, LOT Polish Airlines, and France's Air Liberté. The result: $8 billion in debts, a rapid descent into bankruptcy, and a trauma for Switzerland.
This crisis created an opening for the 60-year-old Bouw to set up a carrier with Swissair's existing assets but not its lofty ambitions. Swiss's 128-strong fleet is made up of 26 of Swissair's long-haul jets and 102 of Crossair's short-haul planes. Swiss now flies mostly to European cities, and it hopes to enlist in the BA-led oneworld alliance. Its overall capacity is one-third less than Swissair's, which is a plus since traffic has shrunk since September 11. Taking advantage of the downturn, Bouw has renegotiated plane leases, extracting 30% to 40% discounts from banks and leasing companies. He has also slashed the cushy salaries of the former Swissair pilots by up to 35%.
Some of the savings from restructuring will go toward the touches that make flying a little less dehumanizing--no middle seats in business class, and real china, even in coach. "We wanted to free funds to be able to offer our clients the best services of all the European airlines," Bouw says. Yet some analysts doubt business travelers will pay more for the extras. "They may expect to charge more, but it's not clear whether people will pay more," Tarry says.
So far, the airline is off to a smooth start. Its big advantage: $1.7 billion in fresh capital from Swiss investors, including Nestlé and Swisscom. That capital provides a needed cushion. But what Bouw needs next is a clear, long-term flight plan. The new carrier still has to contend with the fundamental problem that plagued its 70-year-old predecessor: a tiny home market of 7 million people in a region crowded with some 130 rivals. With Lufthansa, British Airways, and Air France fiercely guarding their turf, and discounters such as Ryanair and easyJet coming on strong, it's hard to see how in the long term there's room for Swiss.
If Bouw finds himself in a squeeze, more economies will be needed. "Down the line, they may have to decrease capacity," says Patrik Schwendimann, an analyst at Zurcher Kantonalbank. At some point, Switzerland may have to give up on the idea of a long-haul carrier. For now, Swiss International is lucky it has seats to fill.
By Christine Tierney in Frankfurt