SWISS International Air Lines is forced to make deeper cuts in its organization and fleet, it announced on May 6. It confirms that the state of Europe’s airlines is still far from stable. Drastic actions are unavoidable as the national carrier of Switzerland counts on a structural decline in demand for the coming years of twenty percent. In response, it proposes the downsizing of the fleet by fifteen percent or fifteen aircraft and the reduction of up to 780 jobs.
SWISS, part of Lufthansa Group, has been hit hard by the effects of the pandemic since it began a year ago. For 2020, it reported an Adjusted EBIT of EUR -689 million compared to a EUR 558 million profit in 2019. Passenger numbers dropped by 74 percent to 5.6 million. The airline launched a number of large cost-cutting measures and introduced short-term working throughout the company while suspending all non-essential expenditures.
The Swiss government supported the SWISS and Edelweiss with a CHF 1.5 billion/EUR 1.4 billion in state-backed credit lines. In November, the airline and cabin crew unions agreed on a package of measures until 2023 to reduce staff numbers and costs. In total, some 1.000 jobs out of 9.500 employees were to be reduced until the end of 2021 through natural fluctuation, part-time work, or early retirement.
Evaluation needed after another weak quarter
After a weak Q4 followed another loss-making first quarter that produced an Adjusted EBIT of EUR -211 million, a 71 percent drop in revenues to EUR 270 million. Passengers carried were 89 percent down to 386.000 (including Edelweiss). Only cargo could slightly offset lost revenues, but SWISS operated at only 25 percent capacity, although it is expected this will increase to 50-55 percent in the peak summer months.
The airline’s newly appointed CEO Dieter Vranckx, who joined from Lufthansa subsidiary Brussels Airlines on January 1 as successor to Thomas Klühr, immediately concluded that the decline was structural and needed structural measures to maintain SWISS’ competitiveness. At the presentation of the Q1-results on April 29, he said: “With the continued absence of an industry recovery and the further delays to any business upturn, even the strictest cost discipline is no longer enough to ensure our future competitiveness. In view of this, we must now evaluate a substantial resizing of our company.” The result of this evaluation is the concept restructuring plan with deeper cuts than anticipated last year which has now entered consultation with employees and social partners.
Another 780 jobs to be lost
The strategic program, called reaCH, includes an additional reduction of staff by up to 780 employees, of which 200 are ground staff, 400 cabin crew, 120 pilots, and 60 technicians at SWISS Technik. This brings the overall reduction since 2019 to 1.700, or twenty percent. Vranckx said that these steps need to be taken regardless of any extension of the present short-time working arrangements agreed by unions. The airline says the intention of the consultation process is to keep forced reductions as low as possible. In particular sensitive is the plan to cut cockpit crew positions, as the airline and union AEROPERS have an agreement that protects pilots from dismissal.
Fleet reduced by 15 aircraft
The downsizing includes a fifteen percent reduction in fleet size from 100 to 85 aircraft, including aircraft operated under wet-lease arrangements. The short-haul fleet will be resized from 69 to 59 as a number of Airbus A320s and A321s will leave. The fleet currently counts 18 A320ceo’s and six A321ceos. Five Airbus aircraft will be withdrawn from the long-haul fleet to bring its size down from 31 to 26. There are fourteen A330-300s and five A340-300s in the fleet.
The impact of the restructuring on Helvetic is still unknown. (Richard Schuurman)
Impact on Helvetic unclear
A spokesperson is unable to quantify to Airinsight the exact numbers and types that will leave the fleet. The same applies to how the long-term wet-lease agreement with Swiss regional airline Helvetic will be affected: “The extent to which this would affect SWISS-owned aircraft or aircraft operated by Helvetic Airways has not yet been decided. We will only be able to communicate further details after the consultation process and after the evaluation phase has been completed.”
A Helvetic spokesperson adds that the decision on the fleet isn’t conclusive yet: “In view of the consultation procedure between SWISS and its social partners which has now been initiated and will continue until 25 May 2021, we at Helvetic Airways are unable to comment further on this issue at the present time. Detailed information will follow from our side in due course, but probably not until mid-June.” Since 2019, Helvetic has renewed its fleet and added eight Embraer E190-E2, with the first of four E195-E2s set to join in June.
The smaller SWISS will have to cut on its network too. Routes will be retained where possible but at lower frequencies. Other intercontinental services that were discontinued during the pandemic will not be reopened.
Collaboration with Lufthansa to be intensified
The restructuring plan should achieve structural cost savings of CHF 500 million per year. This should allow SWISS to repay its state-backed loans as quickly as possible. Collaboration with parent Lufthansa will be intensified and should produce further synergies while the collaboration with Edelweiss will be continued. SWISS says it remains also fully committed to its hubs in Zurich and Geneva.