SAirGroup has begun to dismantle its tangle of airline and non-airline investments after reporting the biggest net loss in the history of the airline industry.
The Swissair parent has ceased funding French carrier Air Littoral. It is selling the Swissotel chain, diluting its stake in the Italian Volare Group and reviewing its interests in Sabena and AOM/Air Liberté. And though new chairman and chief executive Mario Corti claims SAir's all-European Qualiflyer grouping will be retained, he says the future lies "in global alliances".
SAir, to be renamed Swissair Group, took a net loss of SFr2.885 billion ($1.7 billion) last year, far worse than airline losses suffered in the wake of the Asian downturn and even greater than those reported in the wake of the 1991 Gulf War, with Air France losing $1.5 billion in 1993, although inflation and accounting changes mean the results cannot be directly compared.
The net figure includes SAir's SFr777 million share of losses sustained by other carriers in which it has a stake (including SFr498 million from German charter carrier LTU, SFr237 million from AOM/Air Liberté, SFr51 million from Sabena, SFr30 million from Volare and SFr3 million from Air Littoral), plus a SFr2.21 billion charge to cover liabilities "expected to arise" from those carriers, and a SFr506 million writedown on loans.
Without these charges, and depreciation costs of SFr991 million, SAir's pre-tax profit was SFr603 million, down only 11%, with SAirRelations (catering and hotels) and SAirServices (ground handling and maintenance arm SR Technics) buoyant on profits of SFr300 million and SFr162 million, respectively; cargo unit SAir Logistics improving to SFr99 million; and even airline arm SAirLines in the black with profits of SFr35 million, despite a 60% increase in its fuel costs.
Group turnover was SFr16.23 billion, up 25%, with SAirlines contributing 39%, SAirRelations 34%, SAirServices 17% and SAirLogistics 9%.
Corti, previously chief financial officer with Nestle, has responded to the losses by signalling the end of SAir's isolationist policy, which has seen it stand aloof from global alliances while building its Qualiflyer grouping around equity investments.
"We took huge risks by going alone and we tried to compensate the risk by adopting a strategy of trying to create some sort of additional player in Europe which was a cross-border player," he says. "But the resources needed to implement this policy successfully were not available and therefore this strategy needs to be changed."
Corti hints that this could see SAir join a global alliance, or pursue a merger with another European major, although he admits that his initial moves centre on damage limitation. "If your house is not in order you are not attractive as an alliance partner. My priority this year is to get the house in order," he says.
His plan means an uncertain future for many SAir businesses:Air Littoral: SAir has ceased funding the French regional, in which it has a 49% stake, and says it has sufficient funds to survive for two months. A buyer is being sought with Swiss sources saying Star Alliance leader Lufthansa has been approached. Air Liberté-AOM: restructuring plans are being prepared, with SAir set to decide on the future of the French carriers, which they previously planned to merge into a single unit with Air Littoral by the 25 April shareholders meeting. Air France has been touted as a buyer for the pair. Together the SAir French operations are losing SFr80 million a month. Sabena: SAir is to finalise a new business plan for the Belgian carrier by the end of this month, but may still decide to pull out. A decision on this is to be taken this summer, says Corti. Volare (including Air Europe): SAir has secured a deal with Alitalia pulling together Volare's charter operations with that of the Italian flag carrier. Balair: the charter carrier is set to disappear as an operating entity, with its short-haul operations folded into Crossair and long haul (if profitable) into Swissair. LTU: the REWE group has taken a 40% stake in the German charter airline with the SAirGroup retaining 49.9%. Breakeven is targeted by 2003. Swissotel: has been declared "non-core" and will be sold off. Avireal: half of the real estate units assets, worth SFr700 million, are to be sold off. Panalpina: SAir's 10% stake in the Basle-based freight forwarder, and its 45% stake in the pair's Swiss Global Cargo Express venture, will be sold back to Panalpina. SAir Logistics will focus on freight. SAir has agreed a 5% pay cut with its pilots, while extending their contracts through to 2005.
Source: Flight International