The collective sigh of relief breathed by Sabena's unions following the departure of chairman, president and chief executive Pierre Godfroid could quickly turn in to a moan, once his successor from Swissair settles in.

The Swiss carrier has finally acted over concerns that the labour unrest at Sabena, in which it holds a 49.5 per cent stake, was starting to damage its own reputation. Former Swissair EVP marketing and Sabena board member Paul Reutlinger replaces Godfroid as president and chief executive and Belgian banker Jan Huyghebaert becomes interim chairman. Reutlinger's main challenge is to extract concessions from the unions, without creating further unrest, to allow the struggling carrier to capitalise on its exceptional traffic growth - 17.4 per cent last year. Sabena claims its yields are in the 'top three' of the Association of European Airlines' members, despite the absence of a yield management system.

The group reported consolidated losses of BFr530 million ($18 million) in 1995 before extraordinary provisions, compared to a deficit of BFr1.23 billion in 1994. Preliminary results for the airline show a loss of BFr1.99 billion, but this includes a provision of BFr1.1 billion to standardise the long-haul fleet.

On the plus side for the unions, Reutlinger's 'personality will go down better than Godfroid's', observes one London-based analyst. But he warns the new CEO's financial targets could be tougher than those of his predecessor. Philippe Bruggisser, the chief executive of Swissair, has set group targets of 8 per cent return on capital and will want a similar return from his Belgium investment. Bruggisser replaces Reutlinger on Sabena's board.

Reutlinger has acted fast since his appointment at the end of February. He has cut the management board by four to eight members and brought in an experienced union negotiator to head the management team. Talks with unions were due to start in mid-March.

This follows an outline of his restructuring programme, Horizon '98, to employees, although the carrier says most targets 'still have to be quantified.' It is understood the plan sets five main objectives, including attaining breakeven by 1998. 'Sabena's strategy won't change much but the approach will be different,' says the analyst. 'The targets will be outlined in black and white, unlike before, and the timescale will have to be met.'

Reutlinger will need to achieve a turnaround without significant job losses or even wage concessions. Sabena's wage costs are not as high as other European carriers, nor are they out of line with the Belgian average. Moreover, the outlook for the Belgian economy looks bleak, according to official statistics. GDP will grow by 1.6 per cent in 1996 against a rise in the consumer price index of 2.2 per cent, while the unemployment rate will rise to 13.2 per cent from 12.9 per cent in 1995. Even more forbidding is the unemployment rate in the Brussels region, which is running at 20 per cent.

In keeping with Swissair's management style, Reutlinger is unlikely to consider redundancies anyway and will instead focus on increasing unit revenue by raising productivity. Other areas Reutlinger will focus on include cost control by benchmarking against competitors, product development and integrity and the introduction of proper yield management. He will also create a 'flat' organisation to speed up decision-making.

Mark Odell

Source: Airline Business