Swiss – how long will German guarantees last?

It’s not just Swiss flights that may be leaving the country Keystone

Switzerland’s struggling national airline seems to have secured its short-term future, after agreeing in principle to a "friendly" takeover by Germany’s Lufthansa.

But German aviation consultant Dieter Schneiderbauer says Lufthansa’s assurances that Swiss can keep its brand and its “hub” at Zurich airport provide no guarantees in the longer term.

In an interview with swissinfo, Schneiderbauer says the takeover agreement is good news for Swiss and represents the only real strategic option under current market circumstances.

However, he adds that it must be seen in the context of ongoing consolidation and fierce competition in the European aviation sector – and is unlikely to offer any long-term guarantees for either shareholders or employees.

Schneiderbauer, of Mercer Management Consulting, draws parallels with the recent takeover of Dutch national airline KLM by Air France, another of the “big three” European players.

swissinfo: So the “strategy that dared not speak its name” has finally done so. Are you surprised?

Dieter Schneiderbauer: Not really. The decision is almost certainly the best one given current market and competitive conditions in the European airline sector.

For Swiss, I believe this is very good news, because all the question marks – about their continued independence, about the future of the Zurich hub, about their cash situation – have now disappeared. That should also be good news for customers, particularly on intercontinental flights.

For Lufthansa, this is an expected strategic move. It was one of their few remaining options in Europe in terms of integrating another carrier after Air France took over KLM and now that Iberia seems bound for a merger with British Airways.

swissinfo: On Friday, CEO Christoph Franz said there was “no room at the table” for a partner. Two days later, both sides confirmed takeover talks. What is going on?

D.S.: I think it was just unfortunate that the news leaked out on the same day as the annual results conference. Franz therefore found himself in the awkward position of trying to avoid discussion of this subject during the conference. However, that is just the way it is – as long as there is no agreement, you cannot make any statement.

swissinfo: Is there any indication of the timetable – how fast are things likely to go?

D.S.: The integration would be a gradual business. In network terms, changes can only really be made when schedules change, so a first step could come with the change to the summer schedule, then further changes in the winter and so on.

swissinfo: Swiss is setting certain conditions for a takeover, in particular protecting its brand name and guarantees of the independence of Zurich airport as a “hub”. Do you think it can get any realistic guarantees?

D.S.: For the time being, Lufthansa will guarantee both. For the time being, at least, it has to continue the brand name, otherwise it would jeopardise landing rights at third party airports outside the EU.

However, I would not expect that Swiss will get more long-term guarantees of independence and brand identity than KLM got from Air France – namely, a promise that the Schipol hub [in Amsterdam] would keep its regional importance and KLM its separate identity for about four to five years. It is not possible to give longer-term guarantees than that.

What will happen to the Swiss regional network in the long term also remains to be seen, as Lufthansa already has some regional carriers of its own. But it is clear that there will, one day, be just one Europe-wide solution for this market segment.

swissinfo: What about Swiss jobs – what are the longer-term prospects?

D.S.: The announced cost-cutting plan will have to be implemented and to produce the expected results. They will have to be very careful that no commitments are made that could prevent management carrying out necessary cost-cutting measures or reacting to market changes.

Some jobs will almost certainly be shifted to Lufthansa corporate headquarters in Frankfurt. Allocation of headquarters jobs is largely driven by responsibility. For instance, if network management is moved to Frankfurt, then jobs in Zurich and Basel will also go there. Parts of marketing and distribution are also likely to move, for instance the frequent-flyer programme.

swissinfo: Does Swiss have any alternative – could it, for instance, still try to join another alliance as an independent player?

D.S.: I think they have no real options left. They tried British Airways and Oneworld, and obviously either they were not happy with what was offered or BA was not happy with their performance, so they went their different ways. Air France and SkyTeam don’t need Swiss as a partner, so Lufthansa [and the Star Alliance] is the only option left, at least in the short term.

swissinfo–interview: Chris Lewis

Key facts

The Star Alliance brings together 16 airlines worldwide, including Lufthansa, Austrian, SAS, LOT (Poland), Spanair and Varig (Brazil).
The Oneworld Alliance comprises eight international airlines, including BA, Finnair, Iberia and Aer Lingus.
The SkyTeam Alliance has nine members worldwide, including Air France/KLM, Alitalia and Czech Airlines.

In brief

Schneiderbauer says the takeover plan is good news in the short term, as it solves the mystery of how Swiss plans to survive competition.

However, joining an alliance will not make the competition go away.

And the German aviation expert warns that neither the Swiss brand name nor the Zurich airport “hub” can be guaranteed in the longer term.