Prospect of further cost-cutting looms at Swiss

Swiss is looking for even more ways to save money Keystone

Swiss is examining how to cut costs, one day after the national airline revealed it may not reach its target of breaking even by the end of the year.

Aviation analyst Dieter Schneiderbauer told swissinfo the profit warning meant the airline’s search for a business partner was now more urgent than ever.

In a statement, Swiss admitted that it “could fall short of a breakeven operating result” in 2004 and blamed the “steep increase in aviation fuel costs”.

Swiss spokesman Jean-Claude Donzel said the company was examining what “immediate measures” could be taken to reduce operating costs.

But he refused to be drawn on speculation that the airline was considering another round of job cuts.

Since it took to the skies in April 2002, Swiss has shed a third of its fleet and axed hundreds of jobs in a bid to stem multi-million franc losses.

News of the profit warning sent the Swiss share price falling by more than six per cent to SFr10.55 during early trading on Tuesday.

It recovered slightly to end the day on SFr10.65, down just over five per cent on Monday’s close.

The airline recently appointed a new Chief Executive Officer, Christoph Franz, who officially takes up his post on July 1.

But Schneiderbauer forecasts that Franz will struggle to steer his airline out of the red before the middle of 2005.

swissinfo: Are you surprised by the timing of the profit warning?

Dieter Schneiderbauer: No, because it’s fair to say that the high fuel prices have had a negative impact on all major European and North American airlines. But I am surprised in the sense that Swiss always told the public and its shareholders that they were doing better than they had planned in 2004.

So one could conclude that Swiss’s new CEO has done a serious review of the company’s performance and discovered a risk which was not factored into the profit forecast for the year.

swissinfo: This week’s profit warning comes months after Swiss sold a series of fuel hedges which would have offered the carrier some relief from rising oil prices. Was that a mistake?

D.S.: You could say that, but the first quarter is the most difficult period for any airline, and Swiss was certainly under considerable pressure to deal with liquidity shortages during that period. So selling its hedges may have been the only way to raise some funds immediately – but now they are paying the price for this.

swissinfo: Does the revised forecast have any impact on Swiss’s search for an alliance partner?

D.S.: Since Swiss has indicated that the turnaround will be delayed, discussions about entering an alliance – which appear to have been put on hold – are now more important and more urgent than before.

A tie-up with [Germany’s] Lufthansa is probably the only major option left for Swiss, given that its recent efforts to link up with British Airways failed. So I wouldn’t be surprised to hear [in the future] that Swiss is in negotiations with Lufthansa and that they have agreed terms.

swissinfo: Swiss is currently negotiating with the banks on securing an additional credit line. Will the profit warning affect its chances of getting fresh capital?

D.S.: This is hard to tell, because you can bet that the banks will have examined all the risks connected with giving additional credit to Swiss. So I don’t believe this profit warning will change the banks’ very cautious assessment of whether to offer the airline fresh capital.

swissinfo: Will Swiss ever break even?

D.S.: That’s a tough question. We need to see what the management’s decision will be on the next restructuring plan. Before we know what steps they plan to take it is very difficult to tell if and when they will turn a profit.

If they are not able to post a profit for the full year of 2004, we cannot expect that they will do so for the first half of 2005. That’s because the first two quarters are the most difficult periods of the year for the airline industry. So it will not be easy for them to achieve a turnaround before the second half of 2005.

swissinfo-interview: Ramsey Zarifeh

In brief

Swiss is looking for new ways to cut costs after it disclosed that higher kerosene charges were hurting its financial plan.

A working group has been set up to establish where savings can be made.

The airline had earlier said that it might not meet its target of breaking even by the end of the year.