Swiss International Air Lines Ltd. Business Information, Profile, and History

Company Perspectives:

Our Swissness: The proud brand heritage of the new airline is also the key to the future. The intrinsic values of Switzerland--quality, prestige, tradition in care, service, efficiency, security, reliability, and cleanliness--are also essential to creating a superior travel experience. Our belief in these values differentiates us from other air carriers.

History of Swiss International Air Lines Ltd.

Swiss International Air Lines Ltd. (SWISS) is Switzerland's national airline. The Swissair Group's regional subsidiary, Crossair AG, was made the legal basis for this new airline following collapse of the Swissair (Swiss Air Transport Company, Ltd.) in late 2001. After taking over much of the operations of the former Swissair Group, the new SWISS connects 126 destinations in 59 countries.

Origins

Swiss International Air Lines Ltd.'s legal predecessor, Crossair AG, was launched in February 1975 as Business Flyers Basel by Moritz Suter. The airline began with just three routes. Crossair was based in French territory at the "Euro-Airport" at Basel/Mulhouse. This unique bi-national location freed Crossair from having to obtain work permits for its non-Swiss employees.

Then a DC-9 captain for Swissair, Suter continued to fly for that company. He was not the only pilot doing double duty at the new airline: co-pilots served drinks and sandwiches. This in-flight service would soon evolve into hot meals service in business class to cater to Crossair's high percentage (80 percent) of business travelers.

Crossair practiced a policy of cooperating with large airlines, particularly Swissair, rather than competing directly, reported Air Transport World. An agreement with the Swiss flag carrier limited Crossair to aircraft of 50 seats, while Swissair agreed not to fly planes with less than 100 seats. Under a Swiss law dating back to 1948, Swissair had first pick of routes. Crossair was also listed on Swissair's computer reservation system and operated some routes for both Swissair and Lufthansa.

Crossair's original equipment consisted of Fairchild Metro regional airliners. In October 1980, Crossair placed an order for ten Saab-Fairchild SF-340s, becoming the launch customer for the 35-seat commuter airliner. Technical problems with the SF-340 plagued the type following its somewhat delayed introduction in September 1984. The first three planes were soon taken out of service due to problems with the General Electric CT7 engine. Crossair leased old Fokker F27s, Caravelles, and McDonnell Douglas MD-81s to fill out its fleet. These problems were worked out eventually, and Crossair became an enthusiastic Saab owner. In the mid-1980s, Crossair, seeking to diversify, became the world's first certified CT7 engine service center.

Turnover was CHF 82 million in 1985, up a third from the previous year, producing profit of CHF 3.1 million, up about 25 percent. Passenger traffic accounted for 82 percent of income, with charter flying accounting for most of the remainder. The route network then stretched beyond Switzerland to Austria, France, Luxembourg, Italy, West Germany, Belgium, Holland, and Albania. The company had 320 employees, including 105 pilots.

Net profits were CHF 9.8 million ($7.5 million) in 1989. In 1988, Swissair had taken a 38 percent stake in Crossair, which became the group's only low-cost component. The new ownership produced some changes in Crossair's fleet. While still devoted to the Saab 340, the company ordered a few Fokker 50 turboprops to cover a shortage of capacity. In May 1990, the airline stepped up to the 83-seat British Aerospace BAe 146 jet, which the carrier dubbed "Jumbolino," for use on trunk routes.

Passenger count topped one million in 1990. The airline connected 31 points in ten countries. Crossair was considered among the top European regional airlines, known for its responsive and creative management (who had an average age of just 36). However, after a decade of profit growth, the carrier posted a CHF 2.9 million loss in 1990. During the year, Crossair built a new hanger/office building that included a Chez Moritz staff restaurant featuring a glass-bottom floor with a view of the hangar below.

Dealing with Deregulation in the 1990s

Crossair met the challenge of European deregulation with expansion. This was sometimes complicated by the fact that Switzerland was not a member of the European Community (EC), and nearly all of Crossair's international destinations were EC cities. Service between Lugano and Florence was cancelled by Italian authorities due to Crossair's competition with airlines there. Crossair also suffered when Switzerland's ban on 40-ton tractor-trailers miffed EC transport officials, who saw it as a protectionist policy.

The carrier was quick to capitalize upon opportunities in Eastern Europe, taking a third share Bratislava-based Tatra Air in collaboration with Slov-Air of Czechoslovakia. Crossair also owned shares in Delta Air and Alsavia, registered in France and Germany, respectively. It took a 15 percent share of Scotland's Business Air in 1990.

Limited access to the Italian market, competition, higher financing fees, and increased airport fees conspired to produce Crossair's second annual loss in a row in 1991. Suter soon launched a cost-cutting program, and the company's one-third share in unprofitable Tatra Air was sold in July 1992.

By this time, Swissair had increased its share in Crossair to 51.9 percent. In 1993, Swissair joined KLM, SAS, and Austrian Airlines in the pan-European "Alcazar" alliance to compete against larger rivals British Airways, Air France, and Lufthansa. However, after less than a year of negotiations, the grouping fell apart over the choice of a U.S. partner.

Swissair then set out to expand by acquiring holdings in EC airlines, such as Sabena. In 1995, Swissair paid CHF 267 million for a 49.5 percent holding (EC law limited it to a minority interest) in the notoriously unprofitable Belgian carrier. The next year, after failing to win reductions in labor costs, Swissair wrote off its equity in the company as it posted a CHF 497 million loss. However, in 1998, when Swissair posted a CHF 361 million profit, the strategy seemed to be working.

In 1995, Swissair closed its unprofitable Balair/CTA charter unit, transferring responsibility for its short-haul flights to Crossair, which also received its eight MD-80 airliners. The parent company decided that Crossair would handle all flights involving aircraft of 100 seats or less; Crossair soon ordered a dozen Avro regional jets for CHF 350 million. At the same time, Swissair was increasing its holdings in Crossair from 60 percent to 67 percent.

These changes--dubbed "Project ZGB"--also increased Crossair's workforce from 1,500 to 2,000 as its annual revenues nearly doubled in two years from CHF 430 million ($375 million) in 1994. Profits continued to rise even as these changes were taking place.

In early 1996, a unique cross-branding experiment with the Hotelplan travel agency and McDonald's restaurants had the hamburger giant catering a specially painted "McPlane" on package tour operations. Crossair set up a French airline, Europe Continental Airways (ECA), in 1997, taking a 35 percent holding in the company (French travel agency owner Foch Finances Investissement held the remainder). Based near Crossair at the EuroAirport Basel-Mulhouse-Freiburg, the new company was registered in France, allowing for the benefits of membership in the European Union, which was liberalizing the air traffic markets of member countries. ECA was renamed EuroCross by the time it started flight operations in late March 1998.

Crossair posted record profits of CHF 63.5 million in 1998 as operating revenues passed CHF 1 billion ($1.46 billion). It had 2,800 employees at the end of the year. However, while Crossair was thriving, Swissair, saddled with several loss-making subsidiaries outside Switzerland, was on a course for bankruptcy. Besides Sabena, it had acquired 49 percent stakes in German charter carrier LTU International Airways and three French regional airlines: Air Littoral, AOM French Airlines, and Air Liberté. It also acquired smaller stakes in LOT Polish Airlines, South African Airways, and Italy's Volate Airlines and Air Europe. Swissair posted a colossal CHF 2.89 billion loss in 2000. In March 2001, the board brought in Nestlé veteran Mario Corti as CEO. Nevertheless, the debts continued to mount.

A New Flag Carrier in 2001

In September 2001, Swissair sold its 70.35 percent stake in Crossair to a group of investors led by Credit Suisse and UBS (Union de Banques Suisses) for around CHF 1.5 billion ($850 million), which accounted for a little more than half of the total new capital raised from government, banks, and industry.

The September 11 attacks on the World Trade Center in New York City depressed the airline business worldwide and multiplied insurance premiums. This situation was aggravated for Crossair when one of its Avro regional jets crashed in late November 2001, killing 24 people.

Swissair's planes were grounded in October 2001, stranding 18,000 passengers worldwide, until emergency financing--CHF 450 million from the Swiss government--could be arranged to keep the airline flying for the rest of the month. Some of Swissair's routes were already being assigned to Crossair.

Project Phoenix, approved on October 22, outlined the financial structure of the new Swiss flag carrier. The federal government provided another CHF 1 billion to keep Swissair going through March. It also bought a 19.2 percent stake in Crossair for CHF 600 million. UBS and Credit Suisse together invested CHF 350 million for a 19.5 percent stake. Regional governments and business interests invested another CHF 2.1 billion.

Two-thirds of Swissair's routes, including 36 international destinations, were transferred to Crossair. Under the Phoenix Business Plan, Crossair was to add 52 planes to its fleet of 75 in the next two years. Utilizing its lower cost structure, Crossair was hoping to break even in 2003 with revenues of CHF 5 billion ($3 billion). The company now had about 10,000 employees, versus the 5,500 it employed before taking over Swissair's operations.

Crossair was restructured as Swissair's successor, but company founder Moritz Suter was not able to oversee the transition. He and the entire Crossair board resigned at an emotional, six-hour board meeting on December 6, 2001. The bankers and bureaucrats appointed former KLM chief Pieter Bouw chairman in Suter's place, while André Dose was named CEO. Crossair itself posted a loss of CHF 314 million ($188 million) on revenues of CHF 1.39 billion ($834 million) in 2001, mostly due to restructuring charges.

Sabena Belgian World Airlines, 49 percent owned by Swissair, itself collapsed in the wake of Swissair's bankruptcy. Lawsuits ensued over alleged broken aid agreements on behalf of Air Liberté and TAP Air Portugal. As Air Transport World reported, the transition was complex and contentious. None of the shareholders, creditors, employees, or government officials could be 100 percent satisfied after such a collapse, but Switzerland still had an intercontinental airline. One of the biggest challenges would certainly be cultural, mixing the staff at entrepreneurial Crossair with their more conservative Swissair counterparts, mostly based in the banking center of Zurich.

Crossair began using the SWISS brand name in April 2002. Swiss International Air Lines Ltd. became the company's official new name effective July 1, 2002. SWISS was updating its fleet with 13 Airbus 340 aircraft due for delivery in 2003 and was aiming to join the United States-led Oneworld global airline alliance.

Principal Subsidiaries: EuroCross; Mindpearl.

Principal Competitors: Société Air France; Austrian Airlines; British Airways plc; Deutsche Lufthansa AG; KLM Royal Dutch Airlines; SAS AB.

Chronology

• Key Dates:
• 1975: Crossair AG is formed by a Swissair DC-9 captain.
• 1988: Swissair acquires a minority holding in Crossair.
• 1990: Crossair's passenger count exceeds one million.
• 1995: Swissair shifts more flights and planes to Crossair as it closes its Balair/CTA charter unit.
• 2001: Crossair takes over the operations of grounded Swissair.
• 2002: Crossair is renamed Swiss International Air Lines Ltd.