Swiss International Air Lines is being forced to demerge its regional operations barely a year after combining the former Crossair with the rump of the bankrupt Swissair mainline operation.

The carrier is to launch a regional division in the third quarter of this year in an attempt to control personnel costs. Swiss is finalising plans for the Swiss Express brand, but the division is expected to operate the carrier's BAE Systems Avro RJs, Embraer regional jets and Saab 2000s on European routes from Basle, Geneva and Zurich.

Swiss says the move is in response to "market conditions" and expects Swiss Express to have operating costs about one-fifth lower than the mainline carrier. Swiss says it needs to reduce its SFr1 billion ($750 million) salary costs by around SFr100 million this year "in close collaboration with the unions". Swiss executive board members are to take a 14% pay cut as "an example".

Swiss says it is still financially sound, despite suffering big losses in the first quarter of this year and there is "no question of the airline being grounded". Swiss has seen a "collapse" in passenger volumes due to the Iraq war and the outbreak of the SARS virus, which have forced it to cut capacity by 6%.

Swiss Express is being launched to offer lower-cost connections to Switzerland, in the face of the entrance of no-frills carriers to its home market. EasyJet established in 2000 its own Swiss-owned joint venture, EasyJet Switzerland, and German carrier Air Berlin says it is interested in establishing routes from Zurich. The new carrier will operate as a separate division, and will take over several feeder flights for Swiss's long-haul routes.

Crossair was Europe's largest regional airline before the creation of Swiss in early 2002.

Source: Flight International