Switzerland's troubled national carrier, Swiss, has announced it is to create a new regional subsidiary in a bid to cut costs by 20 per cent.
The company's new business strategy comes as Swiss fights for survival in an increasingly tough aviation market.
The new entity, to be known as Swiss Express, will offer low-cost air connections, especially within Europe, Swiss said on Friday.
The subsidiary is expected to commence operations with the start of the 2003/2004 winter timetable.
Swiss said its move was "in response to new market conditions".
"Swiss Express will offer a competitively-priced product that is carefully tailored to the regional air travel market by reducing the costs of these regional operations by some 20 per cent from their current levels."
William Meaney, the airline's chief commercial officer, said that Swiss had no choice but to pursue a dual airline strategy.
"I'm not going to lie that this is extremely tough. I didn't expect Sars and I didn't expect the economy to get as bad as quickly as it did, but we're confident we can put this together," he said.
Analysts said the separation of the regional operation from the rest of Swiss's business marked a return to the model previously employed by the SAirGroup, parent company of Swissair and the regional airline Crossair, which was absorbed into Swiss.
But some doubt whether the new strategy can help save Swiss, among them aviation expert Sepp Moser.
"It is difficult, if not impossible, to create a low-cost arm within a high cost airline and that basically is what has happened," he told swissinfo.
"The new Swiss Express is not a new airline, it's just a department within Swiss charged with the same overheads, the same organisational structure, the same company culture and all those factors which influence the high costs of Swiss," he added.
Moser, who predicted the downfall of Swissair, says if the global economic slump doesn't reverse soon Swiss may run out of money as early as this summer.
The airline said it had resolved a series of tactical and strategic measures to ensure its survival but would make no further network reductions with the approach of the "high-revenue" summer months.
But it said additional savings were planned in its mainline business and it hinted at the possibility of job cuts.
It said personnel costs would be reduced "in close collaboration" with the unions.
"We are striving to achieve a ten per cent reduction in salary costs," the airline said.
In a statement, the finance ministry said the government welcomed the announcement by Swiss.
It said the decisions were in line with its expectations.
On Wednesday the government ruled out financial support for the airline saying that further public money or debt guarantees were out of the question.
Despite that, Swiss expressed continuing confidence in its ability to keep going.
There was a mixed reaction from pilots unions to the announcement.
Swiss Pilots, representing pilots from the former regional airline, Crossair, said the move was "completely crazy", while pilots from the former national airline, Swissair, said the decision had been a necessary one.
The union added that it proved that the initial business plan had been totally wrong.
Swiss said its liquidity at the end of the first quarter amounted to SFr861 million ($640 million) and it expected to have liquidity of SFr500 million by the end of the year, "even without additional measures or new credit facilities.
The national carrier quashed suggestions that the state of the economy, combined with the effects of Sars and the war in Iraq, could mean the end of Swiss.
"Let me be quite clear, grounding is out of the question," chairman of the board, Pieter Bouw, said in a statement. "Swiss has sufficient liquidity."
Swiss was founded a year ago following the collapse of the former national airline, Swissair. Since its formation it has been bedevilled by problems and has struggled to blend its long-haul and short-haul divisions into one operation.
The company, which made a loss of SFr980 million last year, has already axed around 1,000 jobs and cut 20 aircraft from its fleet.
swissinfo with agencies
Swiss Express is due to start operating at the end of this year.
The airline had SFr861 million in cash at the end of the first quarter.
Swiss expects to have liquidity of SFr500 million by the end of this year.
The company, formed last year, has already axed around 1,000 jobs and cut 20 aircraft from its fleet.