Swiss is cutting 20 aircraft and 700 jobs as its ambitious attempt to maintain Zurich's position as an intercontinental hub comes under pressure.

Some 17 regional aircraft, two Boeing/McDonnell Douglas MD-83s and one Airbus A321 will be cut from the fleet for the summer season. At Zurich, frequencies will be reduced on 11 routes and another 11 destinations cut altogether. The number of available seat kilometres from Basle EuroAirport will be reduced by 31% on the back of an average January load factor of just 35% at the former Crossair mini-hub. There is a corresponding cut of 11% at Geneva.

Ever since Swiss was launched in early 2002 out of Swissair's ashes, there have been doubts over its ability to maintain Zurich's position as an intercontinental hub through the so-called 26/26 strategy of 26 long-haul and 26 short-haul aircraft. "I would not say this is the end of that strategy, but it is the beginning of the end," says Dr Christoph Brützel, principal at consultancy AT Kearney.

Brützel sees a reduction in the long-haul fleet as "the next logical step" - possibly for the winter season. Patrick Schwendimann, financial analyst at Zurich Cantonal Bank, says while the 26/26 policy "is in real difficulty", the Swiss management team "is still fighting for the old strategy" in the hope the difficult economic and geopolitical environment will improve. "This is a big political issue for the Zurich region," he notes. The Swiss government, regional cantons (including Zurich) and Swiss companies pumped SFr2.7 billion ($1.9 billion) into Swiss after the collapse of Swissair.

Swiss claims that its long-haul traffic has held up, although analysts point out that these routes rely on a high volume of connections via Zurich, on which yields are inherently tight. Swiss concedes that it is the short-haul routes where the losses are being felt most, with fierce low-cost competition from the likes of easyJet. Short-haul traffic was 5% below budget in December, 10% down in January and still falling. Swiss chief executive André Dosé adds that London, the "most important" short-haul segment, has also shrunk dramatically because of the economic downturn.

The Swiss long-haul fleet is based around 13 Airbus A330-200s and 13 MD-11s, with 12 A340-300s on order to replace the MD-11s. Schwendimann says that if Swiss were to jettison the 26/26 strategy, the fleet could be cut by as much as 50% and warns this would place question marks over the A340 order, given that Swiss would only need "half or less" of the 12 aircraft. He adds that a postponement of the order is likely to have been discussed by the Swiss board.

Swiss warns that it will not meet its goal of breaking even in 2003. "Given the uncertainty of future developments, no forecast of this year's results can be given for the time being," says the carrier. Schwendimann estimates the carrier lost around SFr750 million in the 2002 financial year, and warns his estimate of a SFr250 million loss for 2003 is looking "ambitious". He says that net debt was SFr1.5 billion in 2002 including off-balance sheet operating leases and estimates a figure of SFr2.1 billion for 2003.

In the longer term, a scaling down by Swiss may make the carrier more attractive as an alliance partner. Swiss has been pushing to join oneworld but has been frustrated, partly over concern about the airline's excess capacity. "Swiss still has a strong brand, it is a high-yield market and could be a valuable partner for an alliance," says Brützel, predicting that SkyTeam as well as oneworld could be interested in a slimmed down Swiss.

However, it will be difficult for Swiss to develop a niche market in eastern Europe to compete with Austrian Airlines in Vienna, warns Brützel. In addition, SN Brussels and Air France have increased their presence in Africa. He adds that long-haul services could still be operated to major hubs on a codeshare basis where partners have higher unit costs. Swiss has recently agreed codeshares with Japan Airlines and Qantas.


Source: Airline Business