Andrew Doyle/ZURICH

SAirGroup plans to consolidate its French airline interests into two distinct units covering the mainline and regional markets. The new "operators" will be formed through the merger of Air Liberté, AOM and Air Littoral, but will share a common brand, says SAirGroup chief executive Philippe Bruggisser.

The Swiss company, which has seen its first half results ravaged by high fuel costs, has meanwhile completed a deal with Germany's Rewe Touristik aimed at restoring the fortunes of struggling 49.9%-owned subsidiary LTU.

The French restructuring remains subject to ongoing union negotiations and other "legal issues" but Bruggisser says he envisages the mainline operation taking over aircraft with more than 100 seats, while the regional would operate smaller types from bases at Nice and Montpellier. SAir owns 49% of AOM - which recently acquired Air Liberté - and Air Littoral, giving it effective control of the new airline.

It aims to finalise the revamp by year-end, but a planned rebranding will not be introduced "until all the problems are fixed", says Bruggisser. Targets call for the merged entity - which will account for around 30% of the French domestic market - to begin delivering profits by the second quarter of 2002.

SAir hopes its deal with Rewe to restructure the LTU Group will help eliminate crippling losses at the German tour operator and airline, which may reach c130 million this year. Under the agreement Rewe, which operates some 1,300 travel agencies in Germany, is taking 100% of tour operator LTU Touristik, reducing SAir's exposure to a 49.9% stake in the group's airline LTU International Airways.

Bruggisser believes LTU's performance will improve with the elimination of overcapacity in the German holiday market, Europe's largest. "LTU will make another loss next year but should break even and begin producing profits as of 2002," he says.

SAir is to take one-off charges of SFr360 million ($207million)and SFr347 million this year to cover the restructuring costs associated with its French airline and LTU interests, respectively. It says these will be offset by a SFr150 million provision set aside in 1996, and a SFr557 million contribution from the revaluation of holdings in Delta Air Lines, Galileo and Equant.

The SAirLines division posted an operating loss of SFr155 million for the first half of 2000, compared with an SFr84 million surplus a year earlier, with fuel price rises resulting in a SFr170 million increase in costs.

Swissair, Crossair and Balair accounted for SFr81 million of the deficit. Minority holdings in Sabena, LOT, Volare, Air Littoral, AOM and South African Airways combined contributed the remaining SFr74 million loss. SAir as a whole managed an operating profit of SFr143 million thanks to the strong performance of airline-related businesses such as cargo, maintenance, ground handling and catering. Net profit was SFr3 million, but Bruggisser predicts a stronger second half will enable SAir to post a net result of more than SFr200 million.

n Sabena, 49%-owned by SAir, itself posted a disastrous BFr2.4 billion ($53 million)first half operating loss. But the carrier's chief executive, Paul Reutlinger, who is leaving to head up SAir's French airline, says he is "leaving behind an airline in working order".

Successor Christoph Müller says the "alarming" result was caused by fuel costs, dollar rates and high labour costs, and has reacted with an "investment stop", a capacity freeze and the grounding of two Airbus Industrie A340-200s. Two groups, 'Blue Sky' and 'Clean Slate', have been set up to reduce costs in Sabena and Airline Management Partnership operations with Swissair. Sabena will also attempt to negotiate slower delivery rates for its 34 Airbus aircraft still on order.

n Large fuel price increases and the weakness of the Swiss Franc against the dollar are also being blamed by SAir Group regional Crossair for its loss of SFr 6.1 million - the first half year deficit since 1992. Revenue rose 11% to SFr564.8 million, which was short of expectations. Load factors slipped 2% to 51% as five new aircraft were added to the fleet.

Source: Flight International