27 August 2008

Swiss Air Sees Storm Clouds Ahead but Continues to Shine

Switzerland, one again earning itÃ¢â¬â¢s place as one of the happiest places on earth, may carry that bit of bliss wherever they or their brand may be, in and of the world or in flight.

Swiss Air sees storm clouds ahead, but continues to shine in the market. Their total operating income was a tangible improvement on the same period last year.

In this increasingly difficult economic climate, Swiss International Air Lines (Group) reports earnings before interest and taxes (EBIT) of CHF 262 million for the first six months (prior-year period: CHF 311 million). With its fuel hedges partly offsetting substantially higher jet fuel prices, SWISS achieved a solid result for the first half of 2008.

SWISS generated total income from operating activities of CHF 2 556 million for the first half of 2008, a 10.9% increase on the CHF 2 304 million of the prior-year period.

The additional revenue did little to raise earnings, however: higher fuel prices had a severely negative impact on EBIT levels, despite the mitigating effects of the fuel hedges held. As a result, EBIT for the first half-year amounted to CHF 262 million (compared to CHF 311 million for the same period in 2007), of which CHF 171 million (2007: CHF 193 million) was generated in the second-quarter period. Thus, while remaining solid, EBIT developments showed a downward year-on-year trend.

"Strong efforts from our sales teams helped keep our flights well utilized in both passenger and cargo terms," comments CEO Christoph Franz. "But the increases in our fuel surcharges did not translate into higher yields to the extent required. Despite this, however, and despite the year-on-year decline, we have posted a solid EBIT result for the first half of 2008 that lies within our expectations."

"We do see storm clouds on the horizon, though," Franz continues. "The record price of jet fuel and the international financial crisis, which is now having a growing impact on the business economies in some of our foreign markets, are a major burden that poses a particular challenge to the entire air transport sector. But SWISS is not unprepared for the turbulence ahead. Our company today is solid to the core. And we will continue to make the strategic investments we have planned in our fleet and our product, to ensure that we can further maintain our market position."

The price of crude oil has more than doubled in the past 12 months raising jet fuel prices to new record levels. As a result, fuel costs now account for around 30% of SWISS' total expenses (compared to 12% back in 2003). SWISS is currently still deriving substantial benefit from its fuel-hedging programme. But SWISS, too, will have to increasingly pay current market prices for its fuel from 2009 onwards.

"The latest record prices of aviation fuel will have their - if delayed - impact on our costs," Chief Financial Officer Marcel Klaus concedes. "That's why we are currently taking action on a number of fronts, to optimize our processes and further enhance our cost structure. The burden of higher fuel costs cannot be borne by the airlines alone, though, and we will also have to talk to our suppliers about how the cost savings needed can be achieved."

SWISS carried 6.45 million passengers in the first half of 2008, more than in any previous first-half period (January-June 2007: 5.76 million). Total first-half capacity was a 12.5% increase on the prior-year period in available seat-kilometer terms.

The additional capacity was fully absorbed by market demand: system wide seat load factor for the period remained unchanged from 2007 at 78.8%. Swiss World Cargo also largely maintained its high cargo load factor, thanks in no small part to its successful focusing on transporting goods in high-value niche markets: first-half cargo load factor by volume amounted to 84.0% (prior-year period: 84.7%).

SWISS bucked the general industry wide trend of downsizing to create over 240 new jobs (in full-time-equivalent or FTE terms) in the first half of 2008. The worldwide company workforce amounted to 6 266 FTEs on June 30, 2008, shared among 7 469 personnel (compared to 7 277 personnel at the end of 2007).

SWISS continues to cement its position as a top tier quality airline. The new Business Class seat, which will be successively installed aboard all long-haul aircraft from spring 2009 onwards will set new benchmarks in in-flight comfort.
Their standards have not gone unnoticed. SWISS was also named joint number-one classic scheduled airline for Europe - together with Lufthansa - in April's "Airline of the Year" survey of the readers of Germany's Capital magazine.

The award follows the further first places which the carriers earned in January, when the readers of Business Traveler magazine (also of Germany) voted SWISS "Best Airline for Europe" in the Cabin Comfort category.

Their top quality brand and message continues to spread as May saw the introduction of a new daily SWISS service between Zurich and Shanghai. Together with its Hong Kong route, SWISS now offers 14 frequencies a week to and from China.

The main innovations in Europe in the SWISS 2008 summer schedules were new daily flights from Zurich to St. Petersburg and Sofia, and a new thrice-daily service between Zurich and Florence.

A further Airbus A340 was integrated into SwissÃ¢â¬â¢s operations this month, concluding the recent expansion of the intercontinental fleet, which now consists of 15 Airbus A340s and ten Airbus A330-200s. The first of nine brand-new Airbus A330-300s, which will gradually supersede the present A330-200s, will enter SWISS service next spring.

The cutover to the more advanced and more efficient A330-300s should be completed by 2011.

For the high-end business traveler, SWISS acquired Zurich-based Servair Private Charter AG on July 17. Servair will be operated as Swiss Private Aviation AG, a fully owned subsidiary of Swiss International Air Lines AG. The new acquisition should establish the SWISS Group in the business aviation sector and provide a platform for operating the Lufthansa Private Jet fleet.

By Karen Loftus