swiss

QUO VADIS?Tal DroriMartin GerhardtTaro HondaJung SuArindam ThakurManuel Villabona

Swissair - the good years

Best quality and service (best

service award,1998-2001 successively)

Strong and consistent balance

sheet – “flying bank”

Swiss national pride and flag

carrier

Strong brand name and reputation

4th biggest airline in Europe

Crash of Swissair

Stranded! The Sun (03/10/2001)

National pride driving Swissair deal

CNN (23/10/2001)A nation in shock:

Swissair crisis

BBC News (28/10/2001)

Collapse shatters Swiss image

BBC News (18/10/2001)

Swissair future on

knife-edgeBBC News (15/10/2001)

Reasons for Swissair’s failure

1) Air Littoral, AOM France, Crossair, LOT, Portugalia, TAP, Volare, Austrian Airlines, Balair, Cargolux, LTU, South African Airways, Ukraine International Airlines

Swiss veto against joining the European Economic Area

Small country as home base

Numerous small alliances 1)

Aggressive acquisition of second tier carriers in Europe

Mix of low-cost and high quality carriers

Management hubris

Discounts for journalists

Complex bilateral agreements with all EU-countries

Saturated home-market

No alliance focus

Accumulation of losses

Cannibalization, dilution of brand name

Weak strategy implementation, defection of alliance partners

Uncritical media coverage, shocking end

Tim

e

Main causes Main effects

SWISS International Air Lines today

210 70

Number of aircrafts

138 81

Passengers in mil.

13.9 10.6

Revenue in bn. CHF

Staff in 1000’

16 10.7

5.3 4

Number of destinations

2001 2003

Strategy

• Divestiture of non-aviation assets

• Joined Oneworld alliance Sep. 2003

• Recapturing reputation on service (best service award 2004)

1) SWISS Company information, financial reports

-3000

-2000

-1000

0

1000

1999

2000 2001 2002 2003

273

-2.885

-909-498

Economic performance 1)

Developing a new strategy for Swiss

STRATEGY

HUMAN RESOURCES

VALUE

COST

SPEED

Long-term

Short-term/ turnaround

STRATEGY

HUMAN RESOURCES

VALUE

COST

SPEED

Strategic options for airlines

Service Level

Price Level

High

Low

HighLowLow-price strategy

Airline-in-an-airline strategy

Full servicestrategy

LufthansaSWISS

KLM

Air France

Singapore Airlines

BA

Ryanair

EasyJet

Quantas/Jet Star

Option 1: Low Cost Airline

Offer low fares

Focus on short-haul

routes that generate

maximum revenue

Maximize air-time

No comfort services

No alliances

Strategy

Overhead

Lower general administrative costs

Lower maintenance costs

Direct Sales over internet

No commission on ticket sales

No 3rd party fees

Distribution

No catering

No in-flight amenities

Passenger ServicesSwitch to Secondary airports

Reduce number of planes to have only 1 type

Airport Costs

15% more seats / aircraft

One plane – one class

Seats

Lower compensation

Reduced complement

Performance incentive

Crew Costs

Low-Cost

Strategy

Implementation

Reduction of complexity

Cost reduction (maintenance

and administrative cost)

Higher degree of automation

(e.g. Internet)

Attract more customers

Lower competition in

Continental Europe

Opportunities

Option 1: Low Cost Airline

Quality-driven instead of cost- driven

Target long-haul operation

Keep hub-and-spoke network

Orient towards business travellers

Continuous invest into infrastructure, facilities and HR

Aggressively build brand

Strategy

Leverage OneWorld alliance partners’ resources

Invest mainly in HR training rather than physical facilities to save cost

Implement new short-haul concept “SWISS in Europe”

Build brand mainly by word of mouth

Launch more long-haul operations Invest more in physical assets Build brand through marketing initiatives

Short-term

Long-term

Implementation

Option 2: Full-service airline

Reduction of complexity

Cost reduction (maintenance

and administrative cost)

Higher degree of automation

(e.g. Internet)

Attract more customers

Lower competition in

Continental Europe

Opportunities

Option 2: Full-service airline

Investing money in

acquiring an existing low

cost airline.

“The Greenfield

approach” -Establish a

separate subsidiary with

its own name and logo

(which can be related to

Swiss) and possibly with

a separate management.

“Airline in an airline” :

Maintaining the full service

and creating a low cost

channel

Combining the advantages

of parallel but differentiated

operations.

Targeting two market

segments in the same time.

Strategy Implementation

Option 3: Airline-in-an-airline

Enables competition with low

budget airlines

Positive impact of Swiss

brand name

Switch to Swiss for long hauls

The no frills sector is still

dominated by operations

involving UK point

Increase range of customers

Opportunities

Option 3: Airline-in-an-airline

Strategy decision

Financial investment required

Massive restructuring of fleet and operations

Impact on corporate culture

Impact on brand and current customer base

Risk of canibalization

Impact on current alliance membership status

1 – lowest impact/risk 5 – highest impact/risk

5 2

3

4

1

2

5

5 31

5 3

11 5

415

Option 1 Option 2 Option 3Main impacts

Managing the turnaround of SWISS

STRATEGY

HUMAN RESOURCES

VALUE

COST

SPEED

Long-term

Short-term/ turnaround

“If the Wright brothers were alive today, Wilbur have to fire Orville to reduce costs“

Herb Kelleher, Southwest Airlines

STRATEGY

HUMAN RESOURCES

VALUE

COST

SPEED

Agenda

“Many companies in crisis mode will just change the CEO. The approach is like changing only the lead husky on a

sled-dog team. Four dogs back, the look and smell

stays the same“G.

Bethune CEO

Motivating and aligning the workforce

New vision and new corporate culture (honesty, trust, dignity,

mutual respect)

Introduce performance incentives

Management changes at all layers

Enhance teamwork and identification

Measures

Heterogeneous organization and culture as legacy from

Swissair and Crossair

Above average personnel cost

People are tensed due to insecure future and layoffs

Lack of trust in management

SWISS today

STRATEGY

HUMAN RESOURCES

VALUE COST

SPEED

Agenda

Service performance

9284,1

79,8 78,7 78,3

0

20

40

60

80

100

0,5

12,1

15,1

18,7 18,8

0

5

10

15

20

25

30 Missing baggage per 1000 passengers 2003

% on time arrivals 2003

Ryanair SWISSLuft-hansa

BA Air France

Ryanair SWISS Luft-hansa

BA Air France

• Little tangible product dimensions

• No time on short flights to demonstrate a wide service range

• Consistency is more important than absolute value

• Negative feedback spreads faster than positive

Difficulties in providing service

Transform service into a competitive advantage

Reasons for choosing an airline other than price

Availability of direct flightsAirport proximity to

city center

Safety

Baggage handling

Punctuality

Involuntary denied boardings

Friendliness of staffCleanliness

AirmilesExpand theworkforce

More investment

projects

Higher profits

Higherproductivity

Eliminate non-value-adding

work

Continuousimprovement

Satisfiedcustomers

Satisfiedemployees

Create a virtuous cycle

C.C. Kong ex-

CEO

“Our passengers are our raison d’être. If Singapore Airlines is

successful, it is largely because we have never allowed ourselves to

forget that important fact“

STRATEGY

HUMAN RESOURCES

VALUE

COST

SPEED

Agenda

9%

16%

7%

12%

10%5%

18%

13%

10%

General & Administrative

Sales, marketing & dis-tribution

Crew cost

MaintenanceFuel

Ground handling

Airport charges, traffic control

Aircraft ownership

Average cost composition per available-seat-kilometer1)

1) Association of European Airlines, Civil Aviation Authority, McKinsey Quarterly

Passenger services

17

12

10

7,87,1

4,5

0

5

10

15

20

Average cost per available-seat-kilometer in €ct 2003 1)

Luft-hansa

SWISS Air France

BAEasy

JetRyanair

Cost performance

Sales agents Callcenter Internet

Airline model

Withdraw from unprofitable routes, redefined hub strategy

Reduce number of airplane types, decrease average age

Increase role of Internet-sales

Divest non-core assets

Offer repair, maintenance, and catering services

“We started Internet booking 2 years

ago... resulting in a cut of 56% in sales

cost!“

W.Walsh CEO

Restructuring fleet & operations to reduce complexity

STRATEGY

HUMAN RESOURCES

VALUE

COST

SPEED

Agenda

Flexibility as key competency

Cater to customer needs quickly

"The key word is flexibility. As a result of our employees' commitment to low costs,

low fares and high quality customer services, the future for Southwest is

bright " Jim Parker

CEO

Seize opportunities for improving service quality

Manage finance effectively and reduce

cash-to-cash cycle

React quickly to the volatile business demands

Be flexible – improve service quality continuously and fast

Synchronize the entire business process through

effective IT systems

Recommendations

FULL SERVICE STRATEGY

•Target long-haul and business travelers•Build brand on service excellence•Continuous investment in infrastructure, IT, and HR

•Provide more destinations by using hub-and-spoke network

HUMAN RESOURCES

VALUE

COST

SPEED

•Work closely with alliance partners and leverage their resources

•Remove management hubris and change organizational culture to better respond changing consumer needs

Questions?

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