SWISS goes to Oneworld

Today, SWISS International Air Lines Ltd. has announced its plans for the future. The airline voted against a takeover by Lufthansa. Instead, the Swiss carrier will accept the invitation from Oneworld to join the alliance.

To reach membership in a global alliance, preferably Oneworld, has been a key target since the first presentation of the new airline, which has been founded out of Crossair after the breakdown of Swissair (see our report) in 2001.

SWISS becomes the ninth member of the Oneworld partnership, joining reputed carriers American Airlines, British Airways, Qantas, Cathay Pacific, Iberia, LanChile, Finnair and Aer Lingus. SWISS's customers will benefit from new connections and more frequencies: Oneworld operates over 8 600 flights a day to more than 570 destinations in 136 countries. SWISS customers can earn and redeem frequent flyer miles on all Oneworld services. They will also enjoy access to the 380 airport lounges on all six continents provided by Oneworld's members.

SWISS did already have a lot of code shares with members of the Oneworld alliance, to be exact, each airline expect of British Airways was partnering with SWISS. This has changed today, when SWISS and British Airways signed a memorandum of understanding which will lead the two airlines into a strategic alliance.

André Dosé presented a gift to the Onworld's member executives (Picture: Newscast/British Airways)

The SWISS frequent flyer scheme "SWISS Travel Club" will be gradually integrated into the British Airways' Executive Club. Miles already earned with SWISS will retain their current validity.

The membership in the Oneworld group and the agreement with British Airways significantly enhance SWISS's business prospects and perspectives. The Oneworld members also aim to make greater use of Zurich Airport as a hub for the Central European market. Currently, Zurich Airport has a lot of potential for expansions. A new dock has recently completed and the infrastructure has been refurbished and extended during the last years. However, due to the slowdown in the industry and the failure of Swissair, the new buildings at Zurich have much free capacity now.

Slot Changes in Heathrow

Zurich could also gain new traffic due to the problems at British Airways' main hub London Heathrow. To get slots for new flight is almost impossible. The airport is running at full capacity. It is therefore now surprise that British Airways was also interested in SWISS' slots at Heathrow.

British Airways will enter into a slot exchange agreement for eight Heathrow daily slot pairs from SWISS. Obviously, the airline was willing to sell the slot pairs in exchange of gaining access to the alliance. Due to the combination of flights from LHR to Zurich, Geneva and Basle, SWISS would probably have some spare slots. Under the agreement, British Airways will get 8 out of the 14 slot pairs from the Swiss carrier.

Already strong partners, SWISS and American Airlines . (Picture: Celway Group/Michael Meier)

SWISS to continue on its chosen business course

The membership of Oneworld and the alliance with British Airways will enhance SWISS's business prospects and perspectives in a number of key respects. This in turn will put the current SWISS business plan on an even firmer foundation.

While Oneworld membership marks a key strategic milestone for the company, SWISS will continue its current programme towards sounder business health. These efforts will focus in particular on bringing cost down to (and maintaining them at) highly competitive levels.
SWISS has already successfully introduced a number of cost-cutting measures over the past few months. The implementation of the new business plan is well on track:

• Some 80 per cent of the company's "Foundation for Winning" restructuring programme has already been put into effect. SWISS expects the programme to generate total bottom-line improvements of CHF 1.6 billion a year.
• The SWISS network and fleet have been resized, with capacity lowered by 35 per cent and fleet size reduced from 137 to 79 aircraft. The associated workforce downsizing will be completed by the end of the year.
• Negations with supplier brought cost reductions over target.
• The proportion of overhead has been sizably reduced.

The new "SWISS in Europe" product launched at the end of August has got off to a strong start. The concept of permanently low fares to all European destinations, improved online booking facilities and an enhanced inflight service (for a fee) in Economy Class has been very well received, and bookings were up 50 per cent in the product's first month.

SWISS will continue to maintain its successful premium product on its long-haul services, which will in future be performed by a fleet of nine Airbus A340 and nine Airbus A330 aircraft.

Zurich Airport. Much place for Oneworld's expansion. (Picture: Celway Group/Michael Meier)

Provision of adequate liquidity reserves

SWISS has been conducting intensive and constructive discussions with the major banks and a number of its main shareholders over the last few days. These discussions have centred on SWISS's desire to secure sufficient liquidity reserves to cushion the company against the impact of any unforeseen events.

In the course of these consultations, UBS and Credit Suisse have had the opportunity to examine the business plan presented by SWISS and the collateral which the company would be able to offer. On the strength of their current findings, both banks see possibilities of financing part of the liquidity reserves desired on terms which are customary for such activities within the banking sector. They would be prepared, subject to certain conditions, to jointly assume a certain amount thereof against securities. SWISS is also in discussion with further possible sources of the credit facilities it requires, including certain major shareholders. In addition to this, British Airways, its new alliance partner, has agreed to provide a guarantee for CHF 50 million, secured against slots at London Heathrow. The Swiss Confederation is also considering possible means of enhancing certain framework conditions.

SWISS is confident of bringing its current negotiations with possible financing partners and the Swiss Confederation to a successful conclusion. And this, together with the contribution to its bottom-line results which is expected to derive from its membership of the Oneworld alliance, should ensure that the company can retain adequate liquidity reserves in the longer term.

A SWISS Airbus on approach to Zurich Airport. (Picture: Celway Group/Michael Meier)

Bright Future?

And now, with todays news, is SWISS back on the winning track? Well, today's decision was an important milestone, a main target of the original business plan. But there's much more to do for the managers at SWISS. There are many more problems to be solved. But with the recent steps, SWISS is going in the right direction.

The management has voted against a takeover by Lufthansa. That means that the company is willing to survive on it own. To sell the airline to Lufthansa would have been the easier move, but with Oneworld, the future of the airline looks much better. Sure, Lufthansa has agreed to keep the Swiss identity and the hub in Zurich, but for how long? Now, the airline can still decide on their own, with less influence from a foreign shareholder.

Michael Meier

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