This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ Travel Slump Imperils Swissair's Successor April 16, 2003 By ALISON LANGLEY ZURICH, April 15 - Swiss International Air Lines, the "phoenix" carrier that Switzerland's government, banks and corporate leaders assembled last year from the remains of the bankrupt Swissair, may itself be running out of sky. The airline said today that like many other carriers, it had been hit hard by the travel slump that has been attributed to the Iraq war and to the outbreak of a respiratory disease in Asia. Swiss International said some flights would be suspended at least through May to eight cities, including Boston, Washington, Beijing and Hong Kong. It will also use smaller planes on some European routes and cut back on flights originating in Basel. But analysts said Swiss International's problems run deeper than the immediate industrywide slump, and they wondered whether the suspended flights would ever be restored. Only a few weeks past the carrier's first birthday, Swiss International executives are already working on radical changes in its business plan to stave off a new bankruptcy. The company lost 980 million Swiss francs ($273.15 million) in 2002. "We have a difficult situation," said Andre Dose, chief executive of Swiss International, in a recent interview. "All the others do, too. But it is clear we have to change; we have to lower our costs." Swiss International started life with a staff of former Swissair workers, a fleet of former Swissair planes and 2.7 billion Swiss francs ($1.94 billion) raised from the government and major Swiss companies and banks. Knowing that they cannot go back to the public purse for more money, the airline's executives are asking for concessions from large creditors like Unique, which runs the Zurich airport, and Skyguide, the privatized air traffic control system, in the form of lower fees. Mr. Dose said he hoped Swiss International could carve out a future by attracting cost-conscious travelers to its short-haul European flights, like the competitive Zurich-to-London route, in competition with budget carriers. But aviation experts said the only way it could survive would be to accept that it cannot be a major independent European carrier like Lufthansa, and settle instead for a niche role like Finnair or Austrian Airlines - both of them are profitable - and an alliance with one of the major carriers. Scaling back ambitions has been the order of the day at Swiss International at least since November. It has announced 1,000 job cuts, a reduction of 20 planes from its fleet and cancellation of an order of 30 jets from Embraer. The fleet is down to 84 aircraft, 40 percent fewer than the combined fleets of its predecessors, Swissair and its Crossair regional subsidiary. Even so, the airline's auditors have warned that the company's liquidity will be "seriously affected" by 2004 if the company does not quickly take drastic measures. Mr. Dose acknowledged that there was no joy in working "in an industry where you basically destroy value every day." But the company's straits have obliged him to to do something that Swiss International had vowed to avoid: move down market. First-class and business travelers were the target market when the airline started a year ago. It hired Tyler Brule, publisher of Wallpaper magazine in London, as a consultant to give its name, logo and cabin interiors the requisite style. But the high-quality, high-price air travel market is evaporating, Mr. Dose said. "There is a clear shift from business to economy, and we have to clearly adapt to this fact." His approach has been to continue selling premium service to those who can afford it, but to fill unsold seats with deep-discount fares offered only over the Internet to avoiding paying commissions to travel agents. "That's not a strategy, it's a tactic," one analyst said. "You can only have success being either a premium airline or a low-budget." Airlines around the world have lost some $30 billion since the terror attacks of Sept. 11, 2001, according to the International Air Transport Association in Geneva, and another $10 billion may be lost this year because of the war in Iraq. The figure may rise much higher when the effects of severe acute respiratory syndrome and the disruptions it has caused in travel are taken into account. The disease has taken its toll on Swiss International's Asian routes, but the war in Iraq has had less effect on the airline than on many of its peers. Just as in 1991 during the Persian Gulf war, many people who had to travel anyway preferred to fly on an airline from a neutral country. Still, overall demand for flights to the Middle East has been so weak that Swiss International has suspended its flights to Abu Dhabi, in the United Arab Emirates. The airline has also had trouble joining a marketing alliance - opposition from British Airways has kept it out of OneWorld - and has struggled to win pay concessions from its former Swissair pilots, among the highest paid in the industry. The Swiss multinationals that the government corralled to help support the start-up of Swiss International have been writing off much of their investments, most recently Nestlé, which slashed its book value by two-thirds. The problem for Mr. Dose is to prevent any repeat of the embarrassing spectacle of October 2001, when Swissair abruptly ran out of cash and stranded passengers at airports all over its route map. "They have a very small chance" of surviving in their present form, said Sepp Moser, an aviation consultant who has tracked Swissair, and now Swiss International, for decades. But Mr. Dose said the country could not afford to let his company fail. "Switzerland needs its own airline," he said. "It's important to the Swiss economy that we have our own intercontinental service." http://www.nytimes.com/2003/04/16/business/worldbusiness/16SWIS.html?ex=1051524979&ei=1&en=628ea86f648517db HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2003 The New York Times Company