Crossair AG took off yesterday as Switzerland's new flag carrier after adding 52 planes to its fleet from Swissair Group, the former national airline that filed for bankruptcy protection in October.
The airline is backed by the country's biggest companies including UBS AG, Nestle SA and Novartis AG, federal and regional governments and wealthy individuals, who together invested SF4.2 billion (US$3.3 billion) in the project. Switzerland's biggest-ever corporate failure had threatened tens of thousands of jobs and the country's reputation for quality and reliability.
In six months, Chief Executive Officer Andre Dose, 44, has doubled the size of Crossair's staff, renegotiated cheaper leases for the planes and cut Swissair pilots' pay by a third to increase the airline's chances of making a profit. Even so, the Basel-based carrier will struggle to make money, analysts said.
"There's a reasonable chance it will survive over the next 12 to 24 months," said Anthony Bor, an analyst at Merrill Lynch & Co. "The chances of survival beyond the medium term in its current form are limited. This is not a business I'd invest in."
Crossair's plan to operate 26 long-haul and 102 short-haul aircraft from Switzerland, with a domestic market of only 7.2 million people, means the airline is too dependent on transfer passengers to fill the planes, Bor said.
To overcome that handicap, Dose wants to join the Oneworld alliance to sell tickets to other airlines' passengers. The size of Crossair's fleet is holding up negotiations as potential partners fear Crossair may steal too many customers.
The fleet includes Boeing Co MD-11 and Airbus SAS A330 planes from Swissair, adding to its own mix of 76 Boeing, Saab AB, BAE Systems Plc and Empresa Brasileira de Aeronautica SA jets. It will be simplified to 52 Airbus and 82 Embraer by 2005.
The carrier, whose planes will fly under the brand name "Swiss," also has a marketing problem linked to Swissair's collapse, analysts said. At the time, the airline grounded its fleet for two days, leaving tens of thousands of passengers stranded at airports around the world. Zurich airport opened nuclear-war fallout shelters as makeshift hotel rooms.
It's a particular risk given the airline's ambition of running the best first, business and economy classes in the industry, analysts said.
The brand concept is based on the idea that Swiss is "accepted shorthand for excellence around the world," said Tyler Brule, editor of London-based lifestyle magazine Wallpaper, who was hired to oversee the redesign.
"The challenge is to create a quality airline and make it profitable," said Patrik Schwendimann, an analyst at Zuercher Kantonalbank. "Often these are opposites. The critical question is what premium passengers are willing to pay for a quality airline ticket."
Crossair expects to post a loss of SF1.1 billion this year on the cost of taking over Swissair's planes, renaming itself Swiss Air Lines Ltd later in the year and changing its corporate identity. It aims to be profitable in 2003.
The loss could be smaller if business continues as it has in the first two months of the year, Dose said in an interview, because Crossair has been carrying more passengers than set out in the business plan approved by its investors.
Air traffic has recovered faster than expected after the terrorist hijackings Sept. 11. European airlines' international traffic fell 3.8 percent in the week through March 17, after falling by as much as a third after the attacks.
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