Kevin O'Toole/Basel Moritz Suter has seen through his vision of building a thriving regional airline market in Europe with Crossair, the airline that he founded 25 years ago, as its leading player. Now the task is to keep that pioneering spirit alive.

Crossair has come a long way in the past 25 years, and no-one could be more proud than its founder and president Moritz Suter. Characteristically, he does little to hide the fact. Taking centre stage in his ample office at the company headquarters is a grand, although gently deflating, array of balloons left over from the company's recent anniversary celebrations. He is perhaps right to be proud.

The company, which began as fun in his Swiss home town of Basel with "no money, no business plan and no employees", has since emerged as Europe's largest regional carrier. Along the way it is credited with having pioneered the regional airline movement in Europe. Suter has certainly been an enthusiastic champion of the cause with his vision of a "Europe of the regions". In 1980, he was instrumental in setting up what is now the European Regions Airlines Association (ERA) to help the fledging sector "organise and speak up for itself". Then there were five members carrying less than 60,000 passengers a year. Now there are close to 80 ERA members and 70 million passengers.

Throughout, Suter has remained an entrepreneur, with a classic mix of business sense and a talent for showmanship, sometimes verging on the outrageous, but always entertaining. He once turned up at a financial results conference dressed in cowboy gear and commissioned a western ballad to sing Crossair's praises.

He clearly relishes the independent identity and culture built up at Crossair and wants others in the company to share his pride. "You can only make success with the people in a business, not against them," he says, turning to a diagram on his office flip-chart, where he has earlier been making the same point. It shows a classic "Mckinsey" triangle with shareholder profit on top, followed by cost and employee satisfaction. Crossair, he says, has turned that on its head. If staff are happy he reasons, then efficiency and profits will follow. His latest coffee-table book is a guide to inner happiness by the Dali Lama - although it is advice that Suter would hardly appear to need.

Suter's task now is to keep the culture in place as the business goes through another major expansion, without the deflation currently being suffered by his anniversary balloons.

The Crossair project owes its origins to some fun flying back in the 1970s. Suter was a full-time captain with Swissair, but, by his own confession, found himself restless, with too much free time. He decided to fill it by setting up a little air taxi business with an old friend. It began in 1975 with an ancient Piper L-4, flying under the grand name of Business Flyers Basel. The operation was more or less run out of Suter's apartment, with friends helping out for free. But from the start there was the germ of the Suter "vision".

As a Swissair captain, he had been flying a McDonnell Douglas DC-9 around some of the smaller regional destinations. At times, he says, the aircraft was pitifully empty and clearly losing a fortune and he barely felt that he deserved to be paid for the flying. This "unhappiness" had a constructive side. There was, he decided, a niche for a small-scale operator in markets too tiny for the flag carriers. And so came the idea of turning the fledgling taxi operation into a regional carrier, like those already growing across the Atlantic.

Eventually, Suter managed to convince a suspicious Swissair to give the feeder concept a chance and to persuade the authorities to grant a licence for scheduled services. So in July 1979, a Metroliner II set off in the new Crossair branding on the company's first scheduled service, flying the 1h stop from Zürich across the German border to Nuremburg. The only alternative was a 3h30m connection via Frankfurt.

The basic concept has remained the same ever since: either to take on unprofitable routes from the flag carriers or developing fast new routes that they could not hope to make work. "We're like the chickens under the table, living off the scraps that the giants drop," says Suter. "I don't think that Crossair has one route where we have competition from a major carrier. It doesn't make sense." When a market has grown to a size to attract a mainline competitor, with mainline aircraft, then Crossair has withdrawn.

The airline has evidently thrived on the scraps. Last year it carried close to 6 million passengers, including scheduled and charter services ceded a while ago by Swissair to its lower-cost regional sister company.

It is not all about cost. Suter's philosophy includes a typically Swiss insistence that quality pays - witness the airline's famous leather seat and its tally of awards. His argument is straightforward enough: you can still sell a good product even if you produce it inefficiently, but if you offer total rubbish then no-one will buy it at any price. "If we're taking an important decision, the test is: does it improve the product and does it at the same time increase our efficiency?" he says. If it does neither the project is thrown out.

The European vision

Growth has come against a tailwind of deregulation. As Suter was preparing to launch Crossair, the US Government was in the throes of deregulating its domestic market. In Europe, politicians were starting out on the grand project to forge a borderless Europe. He believes that the liberalisation of infrastructure, air transport included, was a necessary condition to achieve that vision. By 1987, Brussels had indeed set about creating a single aviation market and Crossair has not looked back.

Suter's perspective on the European dream is not one forged by centralising politicians but created by commerce, with "millions of people crossing the continent to make business together" and not just running between the capital cities. "A happy Europe is not a centralised one, but a Europe of the regions," he says, prefacing the remark with an apology for being a Swiss national whose countrymen have so far declined to join the European Union. The grand project has decades yet to run, he believes. The "logical consequence" is a market where people think nothing of hopping on an aircraft to see friends and family across the continent, much as they do now in the USA.

If there has been one black stain on this vision, it comes from lingering state control over the market, a concept to which Suter is passionately opposed. His early skirmishes while breaking in to the heavily regulated aviation market of the 1970s have only confirmed a healthy distaste for the evils of monopoly.

Today, his strongest views are reserved for the commercialisation of air traffic and airport services, a crucial part of the business which he argues has unaccountably been allowed to remain in the hands of civil servants - largely untouched by the drive of cross-border competition that has swept away inefficiencies elsewhere. "It was a big mistake that the politicians forgot to liberalise the market for services and infrastructure."

Inefficient infrastructure notwithstanding, Suter is keen to continue Crossair's crusade. With the market for direct city pairs close to "saturation", the airline has turned its attention to connecting traffic. Two years ago it unveiled the EuroCross concept. The suitably pioneering plan has been to create a true intra-regional hub at the Basel EuroAirport, capable of linking the furthest reaches of Europe with a minimum connection time of only 20 minutes. Other such mini-hubs will have to be developed as Europe progresses, he believes, arguing that the big international gateways are simply not geared up for such traffic and will have to be "bypassed".

In contrast, the sole mission of EuroCross is to offer fast connections to the business travellers who make up some 80% of the Crossair customer base. "Air travel is a commodity business, we're selling a saving in time. That is our main objective, the same as it was in 1979," says Suter.

This year Crossair will have close to 1,500 daily connections from the EuroAirport and 50 destinations in place, shaving up to 2h off trips such as Amsterdam to Bilbao in Spain. By 2005 the plan is to link 88 destinations with over 3,500 connections.

Another two connecting waves are currently being added at the EuroAirport, which should allow business travellers to make a return even on the longer-range journeys. Since the introduction of the previous four-wave system load factors have risen by around five percentage points across the day and Crossair is expecting more as it moves to six waves.

The airline is also in the midst of a wholesale fleet renewal, which will replace all 80 of its aircraft. The Jumbolinos, Concordinos and Cityliners - Suter's pet names for the Avro RJ, Saab 2000 and 340 - will disappear by 2006. In their place will come a complete family of 50-108-seat regional jets from Embraer, the first of which has already touched down in Basel. A deal for 75 aircraft was signed in July, worth just short of $2 billion, with another 125 options in hand of which 10 have been taken up. A replacement for the 12-strong MD-83 fleet, inherited from Swissair, is also in train, although Suter does not plan to stray too far towards these larger types. "We live in the market niches where you have to have small airliners,"he says. "We're a little big airline."

"You have to take risks as an entrepreneur but you should never take an uncalculated risk," adds Suter, explaining that the business plan for the EuroCross concept was, if anything, overly conservative. Crossair has avoided relying on a "dangerous" level of connecting traffic, opting instead for a modest 15%. In fact the proportion of transfers through Basel had already hit 23% last year, out of an overall passenger throughput that swelled to 3.5 million. Around 35-40% transfers is probably a theoretical limit, believes Suter. Instead Crossair will continue to look for the bulk of its traffic from the local catchment area, which includes six million people within a 90 min journey. Half of the transfer traffic itself comes from other Swiss cities.

Suter argues that Switzerland should, in fact, be seen as "one big city", pointing to the similarities in market size and physical scale to other major conurbations such as London or Paris. Basel and Zürich, for example, are about as close together as London's Gatwick and Heathrow. This Swiss "conurbation", including its border areas, includes 8.7 million people and, more to the point for EuroCross, is geographically right at the heart of Europe's air traffic flows.

Basel has other unique claims to a place at the heart of Europe. To understand them, and some of Suter's personal passion for a borderless Europe, requires a step out on to the president's balcony for a brief recap on local history - something of a passion with Suter.

Although Basel is a Swiss town (and Crossair's recently revamped livery still bears a stylised version of the Swiss white cross) it is close up against the border with France and Germany. At points the French border virtually goes down the streets. So the EuroAirport itself is actually in France and equipped with two passport controls, one letting passengers out into Swiss Basel and the other to French Mulhouse. German Freiburg is just across the Rhine in the middle distance.

It was here, a thousand years ago that a local lord, spotting a literal gap in the market, mortgaged himself up to the hilt and set about building a bridge across the Rhine. That soon attracted the caravans moving along the silk road to northern Europe. In turn, they helped to build a medieval trade fair and a local industry in silk dyes. When the railways and motorways swept across Germany and France centuries later, these too duly followed the well-trodden path to the crossing.

As a young man in Basel, Suter says that the local Swiss chemical corporations, born of the silk-dyeing trade, were just about the only true multinationals around. A good place, then, to pursue the dream of a borderless Europe. And if Crossair is heir to the heritage provided by the river crossing, then perhaps Suter would make a plausible latter-day local lord.

He is fiercely protective of Crossair's independence, despite the Swissair links - the parent SAirGroup holds a 69% stake. Responding to talk that SAir would like the business more tightly under its control, Suter quickly points out that Crossair still answers to a base of hundreds of other small shareholders. He is deeply sceptical that the regional cost base would anyway survive being absorbed by a major - "we cannot afford bureaucracy" - and is even more vehement in his belief that a business cannot thrive without its own identity. "A company needs a strong culture and a sense of its own identity."

Unsurprisingly, the prospect of joining the trend towards regional franchise operations is equally unappealing. "It is not an entrepreneurial task. You take all the risks and make all the investments, but you don't have control of your fate," he says. "Those who operate under someone else's name, don't have a market position. You're not really in business. And an airline that doesn't have its own hub doesn't have a future."

Strong identity

Crossair has kept its own self-contained operations in virtually everything from information technology to maintenance. Most are nested closely around the headquarters at Basel, with building works everywhere as the family grows.

Suter clearly worries about losing the spirit of adventure that has kept the staff happy and the business nimble over the years. "If you can only keep people because you pay them a lot, then you will never have enough money. The people in a company must love the company, that's why I'm so convinced that having a strong identity is so important." Today there is still almost a family feel about the company, but that is becoming no easier to maintain.

First there is the sheer size of the business, which employs over 3,000 people and posted revenues last year of SFr1.2 billion ($700 million). Suter admits that he has been contemplating ways to retain the small company culture as growth continues. "I don't know how we do it. It's still in the stars. But if it helps Crossair then we must," he says.

Then there are the harsh facts of economic life, including the double damage done by soaring fuel prices and a strong US dollar. "Regional airlines can only have a future if they stay profitable," argues Suter. If Crossair lost its cost advantage, then, as he is only too well aware, the majority owner would have little hesitation in swallowing it up and squeezing out what synergies it could find. "The independence that we enjoy today we only have because we're profitable. If we start making losses, then forget it," he says.

Earlier this year there were ominous signs of the strains facing the Crossair culture as the pilots went into dispute over pay. It is a warning that Suter takes seriously, even personally, but he maintains his insistence that the airline is lost unless it keeps its tight cost structure and entrepreneurial edge. Suter says that he is glad to reward employees "as much as possible" through the long-standing profit-sharing scheme, but the company would be crazy to jeopardise its flexibility or mortgage its future.

"I'm battling for people to be happy in this company as much as I can, but I have to respect certain economic rules," says Suter. Among those rules is to produce the profits with which to invest in the airline's future. So far Crossair has succeeded in developing both the investment and the culture, but it will take all of Suter's entrepreneurial flair to see that his "little big airline" can continue to steer its own distinctive course.

Flying for fun

September 1943: Moritz Suter is born in Basel. 1962-7: He gains a private pilot's licence and heads off for africa, before returning to europe for commercial pilot training. He joins Luxair in 1965 and Swissair two years later. July 1975: Suter, still a DC-9 captain, and longtime friend Peter Kalt, set up Business Flyers Basel with a 1943 Piper L-4 and Cessna 320. 1978-80: Suter presents his regional airline project to the board of Swissair. The name Crossair is chosen and the first scheduled flight is made in July 1979. A year later Suter helps found the ERA. 1987: Brussels embarks on liberalising Europe's air market. Crossair grows rapidly and swissair takes a 38% stake. 1990s: Crossair starts the decade with 1 million passengers, but ends it with 6 million. In 1995 Swissair hands over its 100-seat and short-haul charter fleets to crossair, in which it holds 69%. 1998-9: The EuroCross concept is unveiled for Basel and a year later a fleet renewal plan launched with a $2 billion order for 75 Embraer regional jets.

Source: Airline Business