For decades, Swissair was one of the most prestigious airlines globally. In many ways it was an emblem of Swiss qualities, being known for punctuality, reliability and excellent in-flight service. Due to its financial stability, it was called the “flying bank” .
The liberalization and deregulation of aviation markets, which began in the late 70’ in the United States, resulted in airlines being exposed to increasingly harsh competition. In 1992, the top executives of Swissair were confronted with a new challenge after 50.3% of the Swiss population voted against joining the European Economic Area (first step to joining the European Union). No longer facing the same conditions as other carriers in the European aviation market, Swissair was confronted with the risk of becoming an insignificant regional airline .
As a response to the new restrictions to operate in European countries, Swissair embarked on an ambitious equity-based alliance and acquisition strategy in late 1997. The “Hunter Strategy” aimed for 10% to 25% stakes in European partner airlines and an overall 20% market share in Europe as the stated objective. Between Q2 1998 and Q4 1999, Swissair spent USD 4.2bn to enter significant shares in a number of airlines as shown below. With hindsight, the “Hunter Strategy” clearly saw Swissair take stakes in carriers experiencing financial difficulties and operating in lower market segments .
No alignment of operating model to new business strategy
By continuing with the status quo operating model, Swissair was unable unlock expected synergies, as it ignored the basic economics driving profitability in the new environment and consequently failed to fulfill the promise of the new expansive business strategy. Essential route consolidation, aircraft fleet rationalization and purchasing benefits were not implemented . As a result, passenger numbers remained well behind expectations and the financial situation deteriorated. For the first time in its history, the company recorded a loss of USD 1. billion in 2000, which used up almost its entire capital reserves . The company’s debts exploded over the course of 2001, reaching USD 9.2 billion by the end of Q3, up from 4.2billion at the end of 2000.
The Swiss government offered to play a supporting role in a rescue, but Switzerland’s big banks, UBS and Credit Suisse, were reluctant to bail out the entire carrier. On October 2nd 2001, dozens of aircraft stood grounded at Zurich Unique Airport. Flights could not take off due to the simple lack of cash flow .
Later, Switzerland’s federal government supported by regional governments and some of the country’s biggest companies concluded that a national airline was required irrespective of cost. With heavy state-sponsorship (USD 2.6 billion), the new carrier “Swiss” rose from the ashes of bankrupt Swissair. Swiss has been formed by Crossair, a regional European carrier in which Swissair had a 70% stake. Most of Swissair’s international routes have been taken over, along with two-thirds of its more than 70 aircraft .