Swissair takes a financial nose dive -- after years of high-flying profits

Why is Swissair taking a sudden nose dive after decades of profits?

Regularly voted favorite airline by globe-trotting businessmen and well-heeled passengers (No. 1 this year for the London-based 110,000-member International Airline Passengers Association), with a net profit of $28 million in 1981, Switzerland's aristocratic airline was seen as one of the few companies that would weather the economic storm causing International Air Transport Association (IATA) members a projected $1.8 billion accumulated loss this year.

The announcement that Swissair dropped 71 million Swiss francs ($34 million) in the first half of 1982 came as yet another indication of an industry in deep trouble.

''The economic climate is to blame,'' Swissair spokesman Hans Hautle said.

Hitting the Swiss airline hard is the slowdown in full-paying businessmen traveling as a persistent world recession pushes more firms into cutting expenses.

Swissair steered clear of the price-cutting sky battle for cheap passengers that disarrayed the industry over the last fewyears. It bet on travelers willing to pay a bit more for cuisine served on china not plastic, multilingual air hostesses, more than the average legroom, and planes that arrived on time.

The policy paid off. Cheap fare airlines flew a stormy course. Swissair stayed in the sun.

But now an increasing number of airlines are setting their sights on the lucrative businessman. Special business classes lure the man with the briefcase at a time when many companies are tightening their belts.

But the Swissair loss is not all to do with fewer passengers and cut-throat competition to fill an oversupply of planes. On the currency front, Swissair was hit on both flanks. The US dollar's strength pushed up fuel prices at the same time that the Swiss franc's strength against European currencies such as the French franc, German mark, and British pound sterling depressed translated earnings.

Then came an added thorn. Swiss inflation, usually among the lowest in the world, jumped last year to an annual 6.5 percent.

That might sound like a reasonable rate in comparison with many countries, but Switzerland already has one of the highest cost home bases in the world, and employees expect an automatic inflation adjustment. Swissair was stuck with a substantial boost in personnel costs.

Traditionally, Swissair makes a tidy profit out of peddling second-hand planes. In 1981, surplus machines contributed a neat $26 million to gross earnings.

Getting rid of the ''birds'' is not so easy this year. As Swissair's man in charge of surplus sales points out, there are more than 600 such planes looking for a buyer (including 60 jumbo jets, 40 DC-10s, and several Airbus A300s) as hard-pressed airlines try to brighten the profit picture.

''The second-hand market is flooded,'' Swissair's Walter Fuchs says.

Despite the gloom, Swissair is optimistic on a profit for the year. The best summer months are not included in the half-year figures (Swissair made a first six month loss last year of 11 million Swiss francs). The dollar could weaken.

Fares are set to rise 4 percent across the board at Swissair (7 percent for IATA members as a whole). Planes will be leased that Swissair cannot use itself with crew. Personnel will be reduced.

Swissair managing director, Robert Staubli, declares plans well under way to reduce the ''fat.''

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.