Swissair's new president and CEO, Jeffrey Katz, thinks leadership is vital - both within the airline and among its alliance partners.
Since his arrival in the president's office at Swissair this January, Jeffrey G Katz has been trying not to make too many waves. But a change in corporate culture is in the air, and he forms an essential part of it.
Swissair staff say that the 42-year old former head of Sabre Travel Information Network and vice president of American Airlines has a 'very different way' of communicating with staff than his predecessor. He has an 'open ear and open door', says a union representative.
American born, educated and trained, the new CEO has earned a reputation for speaking German 'fairly well', even though it is the 'high' variety of teutonic tongue rather than the Swiss. Above all, however, he speaks the language of the deregulated, competitive marketplace.
Katz himself is modest about his abilities and his role at Swissair and prefers to emphasise that others are responsible for introducing most of the change.
Neither does he indulge in triumphalism about Swissair's return to financial health. Last year the carrier moved into the black for the first time since 1991, with an operating profit of SFr199 million (US$130 million)on revenues of SFr4.9 billion.
This helped the parent company, SAirGroup, to make a net profit of SFr324 million after two years of net losses. All four operating divisions - SAirLines, incorporating Swissair, Crossair and Balair/CTA, along with SAirServices, SAirLogistics and SAirRelations - all recorded positive results.
Swissair's Zurich hub is now in full swing, and last year a 5.9 point rise in passenger load factor to 70.5 per cent contributed to the result. So did higher labour productivity - the airline carried 22 per cent more passengers with roughly the same number of full-time staff, and wage costs fell from 32 per cent of total costs to 26 per cent. Still, Katz makes it clear that Swissair must not sacrifice its reputation for quality in the rush for cost-cutting.
Katz has taken the helm of an airline suffering from restricted access to European Union routes due to Switzerland's non-EU status, and he points out that the Qualiflyer Group, created this April, is intended to overcome this obstacle as well as satisfying Swissair's desire to manage its own destiny. In this interview, he strongly defends Swissair's alliance strategy and its choice of partners.
The grouping brings together the Swissair's existing European partners with Turkish Airlines, AOM and TAP Air Portugal in a common frequent flyer programme and involves wide-ranging cooperation, including codeshares and common lounges.
To seal the alliance with TAP Air Portugal, Swissair is set to take a minority stake in the carrier when it is privatised, probably starting before year-end. And Air One may emerge as a new low-cost partner, possibly part-owned.
Collectively the Qualiflyer Group partners turned over more than $14 billion last year, when they flew 47.5 million passengers on 401 aircraft to 294 destinations in 125 countries. But, like Swissair's Atlantic Excellence alliance with Delta Air Lines, it pales alongside Star and the proposed AA/BA tie-up.
Although Swissair wants and needs to make Qualiflyer into a bigger Atlantic Excellence, there are many obstacles. The lack of open skies deals between the US and Turkey and Portugal is a barrier to bringing Delta closer to Qualiflyer, but Katz admits that Swissair has not yet sold Delta the idea of building a closer relationship with Qualiflyer.
Katz denies that Delta's recently announced tie-ups with United Airlines and Air France signal a weakening of Delta's commitment to Atlantic Excellence.
He also concludes that the failure of Swissair's tie-up with Singapore Airlines, which deserted the Global Excellence alliance last November, shows that Asian carriers prefer bilateral agreements, and this is what Swissair will pursue.
Closer to home, EasyJet is starting to operate out of Zurich and Basle this year. Believing no-frills travel will be as successful in Europe as is it has become in the US, Katz sees low-cost operators having a growing impact on Swissair's business and does not rule out the possibility of Swissair launching its own low-cost subsidiary.
Airline Business: As one of a number of US airline executives at the helm of a European airline, what do you bring to Swissair?
Thinking about liberal and competitive situations is one of the biggest areas where the organisation [Swissair] needs to adjust, and frankly I think it is adjusting.
We want to grow, we want to manage our own destiny. Clearly the bigger the partner the bigger the brother, and let's face it there's an imbalance of benefits and there's an issue of whether you can have the right leadership balance.
The market and growth benefits we get and the benefits our partners get are very balanced. Qualiflyer is a group of quality orientated smaller airlines looking by being together for strength and a multi-hub European network.
We look forward in the future to having an improved network to South American destinations, by utilising Lisbon as an access or a gateway. We can also do a few things together to Africa.
In France we have AOM, and there we do different things. They have a strong domestic network, they get quality ratings that are quite high. With AOM we are able to begin feeding [from] not only Charles de Gaulle to Switzerland and our hub, but now Orly. There's no long-haul overlap with AOM and yet they have local market strength. But they're not huge, let's face it.
We are adding flights; our networks can now feed over Istanbul. We are working together in the CIS countries via Istanbul and we look to do more in other markets.
The open thing for us is how the Qualiflyer group fits with Delta. We have an interest to encourage and nurture Delta to bring as much of the Qualiflyer group into the Delta relationship as we can. There are lots of issues - open skies, anti-trust [between Turkey and Portugal and the US] - that prevent that happening right away.
The United-Delta agreement begins clearly as a domestic United States relationship, with nearer term possibility to expand into other regions like South America. But Europe is an express carve-out.
There is no agreement that the Qualiflyer group and Delta become a bigger Atlantic Excellence. That's something we would like to see move forward, but it is clearly something upon which there is not an agreement. For right now the Delta, Swissair, Sabena, and Austrian alliance is strong and continues to deepen.
Swissair needs Qualiflyer Group to be stronger in Europe. How the two come together, we will have to see. In fairness, that's something for Delta to decide.
We have to keep in mind that there are substantial hurdles in front of the Delta-United agreement in the regulatory sense. There is a mood in the US towards regulation. It's hard for us to put any concrete planning initiatives together until we have a better sense of where the regulatory process goes in the US.
Right now, the Air France-Delta alliance is clearly very focused on France, and we understand the need for Delta to be able to have access and a strong relationship with a partner in that market. And Air France is clearly the king of France.
[In the Delta-Air France alliance] there also includes some codeshare to Africa. Here again we need to see how that develops.
[The Delta-Air France tie-up] is quite France-centric, and as long as that continues to be the case it's not a huge issue for us.
In the technology world you would see Mitsubishi and IBM build a factory together to produce screens for laptops and then beat each other to death, selling the laptops in separate machines. In technology, it's called 'cooper-tition', a very complicated mix of cooperation in some areas and competition in others.
I think Air France and Swissair working with Delta is that kind of issue. We compete like hell in the European environment but we are side by side in the relationship with Delta. They coexist. They don't really impose upon one another.
Now that Singapore has joined with Lufthansa everybody speculates that they're going into Star, but that's not what they say and that would be consistent with what we have been told by many potential Asian partners.
Turkish Airlines is privatising and it's not really seeking an investment from us. It doesn't need it and it doesn't need it as a sign of this sort of commercial partnership.
Air Portugal has a different need from a partnership and it does include an equity stake. Its board feels more comfortable with an economic binding between the two carriers.
Some partners request and require that if we are going to be serious then we will take a stake, as potentially they would take a stake in our company. That's the way Atlantic Excellence began with Delta.
Sabena is working on the quality of the service it provides, it is working on the cost structure, as is Swissair, and it's working on its image in the market. So far, I think it is making progress.
As for image, we know from research that Swissair has the best brand image in the whole European marketplace. It doesn't matter who we match up with.
Sabena has improved its standards, we hear that from customers. I've flown on Turkish Airlines and it has better business class pitch than not only Swissair but every other airline in Europe. It is modernising its fleet. Like a lot of carriers it is going to have to work on improving image. But if a customer flies us and flies Turkish they are going to have satisfactory experience.
And there's work been done even in the CRS on codes for the Qualiflyer Group, or for Star. But think about what's going to happen. A customer is going to get a ticket on Star and is going to show up and see an airplane with a Varig livery. There's 50 years' brand equity built up in this marketplace. It cost billions of dollars, and to think that the customer is going to ignore that within two to three generations is more of a hallucination than a vision.
If we didn't have the Qualiflyer group we might not be able to compete as effectively against some of the other alliances. That kind of competition expands the options for consumers and keeps the marketplace healthy.
At a certain point you say this is where the consolidation process, the cosiness, should end. And I think you can see that on the horizon, certainly in the US. In Europe we feel that Brussels is becoming more attentive to European consolidation.
A large part of our cost structure is driven by length of haul. The more we push our network to be long-haul, the more our costs per unit come down. In engineering the network, you'll see us push more to longer hauls and get more utilisation out of the airplanes.
We will still be forced to do a lot of work with productivity. In addition, we are doing a lot more with our partners. We now have a group [Qualiflyer] which can invest in the same concept. So what in the past cost us a dollar might cost us a fraction of that now, especially where it requires a fixed investment or a fixed operation.
Crossair does 20 airplanes' worth of flying for us on the short-haul network, in addition to 34 Airbuses of our own. On a per-airplane basis Crossair carries out nearly two-thirds of the flying. It is doing quite a lot of the short-haul flying for us but not all of it, not even 25 per cent. Will Crossair do more short haul for us? Our people [the Swissair staff ] would like us to find a way to fly the short-haul for ourselves. They don't want to see the short-haul go to some other entity, whether it is Crossair or anybody else. And we are talking to them about how to make that happen.
That's still short of the European norm so we think we've still got some more upside on load factor, which is all about having competitive prices into the market and being able to manage it. But now that we've come up towards the norm we are more focused on having good revenue management.
When we bring in the A330s this year we know we will see some productivity problems because we will still have a couple of units of the old fleet type.
Swissair has a certain product quality customers demand and expect. It is an artful job to take down the costs and still deliver what the customers want.
The information flow is improving among labour in our alliances, just as among other airlines. They are globally well informed.The Swiss pilots are no longer isolated.
Labour unions are among the vehicles that constrain how far the alliances meld together. American backed off some codesharing with Canadian because its pilots said, 'You are outsourcing routes to Canadians'.
But we are keeping our eye on the existing low-cost carriers and the startups.
In a market like Geneva-London where EasyJet flies, we compete and we see an impact. The more that [low-cost air travel] spreads, the more we will feel it.
short-term entrance to the EU transport marketplace.
And this all points to partnerships, so we can have access to markets. In a way, Qualiflyer Group shows that we are worried.
Because of our non-EU status and small market size the [strength of the other divisions] really gives us a flexibility that we must have.
How does Swissair fit into SAirGroup? I like to say that it is like Coca Cola, which is a huge company and has many brands like Fanta, Sprite and Diet Coke, but the key brand is still Coke. And so I like being Coke in the SAirGroup.
Swissair has a certain product quality . . . It is an artful job to take down the costs and still deliver what the customers want.Since his arrival in the president's office at Swissair this January, Jeffrey G Katz has been trying not to make too many waves. But a change in corporate culture is in the air, and he forms an essentiual part of it.
Swissair staff say the 42-year old former head of Sabre Travel Information Network and vice-president of American Airlines has a 'very different way' of communicating with staff than his predecessor. He has an 'open ear and open door', says a union representative.
American born, educated and trained, the new CEO has earned a reputation for speaking German 'fairly well', even though it is the 'high' variety of teutonic tongue rather than the Swiss. Above all, however, he speaks the language of the deregulated, competitive marketplace.
Katz himself is modest about his abilities and his role at Swissair and prefers to emphasise that others are responsible for introducing most of the change.
Neither does he indulge in triumphalism about Swissair's return to financial health. Last year the carrier moved into the black for the first time since 1991, with an operating profit of SFr199 million (US$130 million)on revenues of SFr4.9 billion.
This helped the parent company, SAirGroup, to make a net profit of SFr324 million after two years of net losses. All four operating divisions - SAirLines, incorporating Swissair, Crossair and Balair/CTA, along with SAirServices, SAirLogistics and SAirRelations - all recorded positive results.
Swissair's Zurich hub is now in full swing, and last year a 5.9 point rise in passenger load factor to 70.5 per cent contributed to the result. So did higher labour productivity - the airline carried 22 per cent more passengers with roughly the same number of full-time staff, and wage costs fell from 32 per cent of total costs to 26 per cent. Still, Katz makes it clear that Swissair must not sacrifice its reputation for quality in the rush for cost-cutting.
Katz has taken the helm of an airline suffering from restricted access to European Union routes due to Switzerland's non-EU status, and he points out that the Qualiflyer Group, created this April, is intended to overcome this obstacle as well as satisfying Swissair's desire to manage its own destiny. In this interview, he strongly defends Swissair's alliance strategy and its choice of partners.
The grouping brings together the Swissair's existing European partners with Turkish Airlines, AOM and TAP Air Portugal in a common frequent flyer programme and involves wide-ranging cooperation, including codeshares and common lounges.
To seal the alliance with TAP Air Portugal, Swissair is set to take a minority stake in the carrier when it is privatised, probably starting before year-end. And Air One may emerge as a new low-cost partner, possibly part-owned.
Collectively the Qualiflyer Group partners turned over more than $14 billion last year, when they flew 47.5 million passengers on 401 aircraft to 294 destinations in 125 countries. But, like Swissair's Atlantic Excellence alliance with Delta Air Lines, it pales alongside Star and the proposed AA/BA tie-up.
Although Swissair wants and needs to make Qualiflyer into a bigger Atlantic Excellence, there are many obstacles. The lack of open skies deals between the US and Turkey and Portugal is a barrier to bringing Delta closer to Qualiflyer, but Katz admits that Swissair has not sold Delta the idea of building a closer relationship with Qualiflyer.
Katz denies that Delta's recently announced tie-ups with United Airlines and Air France signal a weakening of Delta's committment to Atlantic Excellence.
He also concludes that the failure of Swissair's tie-up with Singapore Airlines, which deserted the Global Excellence alliance last November, shows that Asian carriers prefer bilateral agreements, and this is what Swissair will pursue.
Closer to home, EasyJet is starting to operate out of Zurich and Basle this year. Believing no-frills travel will be as successful in Europe as is it has become in the US, Katz sees low-cost operators having a growing impact on Swissair's business and does not rule the possibility of Swissair launching its own low-cost subsidiary.
Airline Business: As one of a number of US airline executives at the helm of a European airline, what do you bring to Swissair from the competitive US environment?
Thinking about liberal and competitive situations is one of the biggest areas where the organisation [Swissair] needs to adjust, and frankly Ithink it is adjusting.
We want to grow, we want to manage our own destiny. Clearly the bigger the partner the bigger the brother, and let's face it there's an imbalance of benefits and there's an issue of whether you can have the right leadership balance.
The market and growth benefits we get and the benefits our partners get are very balanced. Qualiflyer is a group of quality orientated smaller airlines looking by being together for strength and a multi-hub European network.
TAP Air Portugal has a leading market position. Portugal is a growth market - business is booming and both leisure and commercial traffic has a high growth rate. There is an opportunity to take a market that we are in and grow quite fast.
We look in the future to have an improved network to South American destinations, by utilising Lisbon as an access or a gateway. We can also do a few things together to Africa with Air Portugal.
In France we have AOM, and there we do different things. They have a strong domestic network, they get quality ratings that are quite high. With AOM we are able to begin feeding [from] not only Charles de Gaulle to Switzerland and our hub, but now Orly.
There we use a carrier where there is only a mutual fit. There's no long-haul overlap with AOM and yet they have local market strength. But they're not huge, let's face it.
We are adding flights; our networks can now feed over Istanbul. We are working together in the CIS countries via Istanbul and we look to do more in other markets.
The open thing for us is how does the Qualiflyer group fit with Delta. We have an interest to encourage and nurture Delta to bring as much of the Qualiflyer group into the Delta relationship as we can. There are lots of issues - open skies, anti-trust [between Turkey and Portugal and the US] - that prevent that happening right away.
The United-Delta agreement begins clearly as a domestic United States relationship, with nearer term possibility to expand into other regions like South America. But Europe is an express carve-out.
There is no agreement that the Qualiflyer group and Delta become a bigger Atlantic Excellence. That's something we would like to see move forward, but it is clearly something upon which there is not an agreement.
For right now the Delta, Swissair, Sabena, and Austrian alliance is strong and continues to grow deeper. Swissair needs Qualiflyer Group to be stronger in Europe. How the two come together, we will have to see. In fairness, that's something for Delta to decide.
We have to keep in mind that there are substantial hurdles in front of the Delta-United agreement in the regulatory sense. There is a mood in the United States towards regulation, and so it's hard for us to put any concrete planning initiatives together until we have a better sense of where the regulatory process goes in the US.
Right now, the Air France-Delta alliance is clearly very focused on France, and we understand the need for Delta to be able to have access and a strong relationship with a partner in that market. And Air France is clearly the king of France.
[In the Delta-Air France alliance] there also includes some codeshare to Africa. Here again we need to see how that develops.
[The Delta-Air France tie-up] is quite France-centric, and as long as that continues to be the case it's not a huge issue for us.
In the technology world you would see Mitsubishi and IBM build a factory together to produce screens for laptops and then beat each other to death, selling the laptops in separate machines.
In technology, it's called 'cooper-tition', a very complicated mix of cooperation in some areas and competition in others.
I think Air France and Swissair working with Delta is that kind of issue. We compete like hell in the European environment but we are side by side with the relationship with Delta. They coexist. They don't really impose upon one another.
But more than this, our experience is that many of the Asian carriers don't want that. They want bilateral agreements. That necessarily says you must have multiple partners and that they will be bilateral in nature.
Now that Singapore has joined with Lufthansa everybody speculates that they're going into Star, but that's not what they say and that would be consistent with what we have been told by many potential Asian partners. A bilateral relationship is still part of what they think they want and have to do.
But I think it shows a couple of things. First, a partnership is a partnership and not a merger and it has got to work for both parties. And second, our relationship with Singapore never got very deep.
Turkish Airlines are privatising and they're not really seeking an investment from us. They don't need it and they don't need it as a sign of this sort of commercial partnership.
Air Portugal have a different need from a partnership and it does include an equity stake. Their board feels more comfortable with an economic binding between the two carriers.
Some partners request and require that if we are going to be serious then we will take a stake, as potentially they would take a stake in our company. That's the way Atlantic Excellence began with Delta.
Sabena are working on the quality of the service they provide, they are working on the cost structure, as is Swissair, and they're working on their image in the market, but so far I think they are making progress.
As for image, we know from research that Swissair has the best brand image in the whole European marketplace. It doesn't matter who we match up with.
Sabena have improved their standards, we hear that from customers. I've flown on Turkish Airlines and they have better business class pitch than not only Swissair but every other airline in Europe. They are modernising their fleet. And they are going to have to work like a lot of carriers on improving image. They know that, we know that. We will work at it.
But if a customer flies us and flies Turkish they are going to have satisfactory experience, and for me personally I think the consumer today is not buying alliances.
And there's work been done even in the CRS on codes for the Qualiflyer Group, or for Star. But think about what's going to happen. A customer is going to get a ticket on Star and they are going to show up and see airplane with a Varig livery. There's 50 years' brand equity built up in this marketplace. It cost billions of dollars, and to think that the customer is going to ignore that within two to three generations is more of a hallucination than a vision.
If we didn't have the Qualiflyer group we might not be able to compete as effectively against some of the other alliances.
That kind of competition expands the options for consumers and keeps the marketplace healthy. At a certain point you say this is where the consolidation process, the cosiness, should end.
And I think you can see that on the horizon, certainly in the US. In Europe we feel that Brussels is becoming more attentive to European consolidation.
A large part of our cost structure is driven by length of haul. The more we push our network to be long-haul, the more our costs per unit come down. In rebuilding, or in engineering the network, what you'll see us do is push more to longer hauls, get more utilisation out of the airplanes.
We will still be forced to do a lot of work with productivity. In addition to that, we are doing a lot more with our partners.
We now have a group [Qualiflyer] which can invest in the same concept. So what in the past cost us a dollar might cost us a fraction of that now, especially where it requires a fixed investment or a fixed operation.
Crossair does 20 airplanes' worth of flying for us on the short-haul network, so we have 34 of our own Airbuses and in addition we fly on a wet-lease basis 20 regional aircraft below 100 seats. On a per-airplane basis Crossair carries out nearly two-thirds of the flying. They are doing quite a lot of the short-haul flying for us but not all of it, not even 25 per cent.
Will they do more short haul for us? Our people [the Swissair staff ] would like us to find a way to fly the short-haul for ourselves. They don't want to see the short-haul go to some other entity, whether it is Crossair or anybody else. And we are talking to them about how to make that happen.
Having said that, that's still short of the European norm so we think we've still got some more upside on load factor, which is all about having competitive prices into the market and being able to manage it.
But now that we've come up towards the norm we are more focused on having a good revenue balance, a good revenue management.
When we bring in the A330s this year we know we will see some productivity problems because we are bringing in a new fleet type and still have a couple of units of the old fleet type.
Swissair has a certain product quality customers demand and expect. It is an artful job to take down the costs and still deliver what the customers want.
The information flow is improving among labour in our alliances, just as among other airlines. They are globally well informed.The Swiss pilots are no longer isolated.
So far labour unions are among the vehicles that rather constrain just how far the alliances meld together. American backed off some codesharing with Canadian because their pilots said, 'You are outsourcing routes to Canadians'.
There is going to be a lot of solidarity to make sure that nobody's interests are compromised overly.
But we are keeping our eye on the existing low-cost carriers and the startups.
In a market like Geneva-London where EasyJet flies, we compete and we see an impact. The more that [low-cost air travel] spreads, the more we will feel it.
They are different markets. It's clear to us that the EasyJets and the Virgin Express' are making a new market happen, just as happened in the United States.
United Shuttle, for example, has been successful not as a big money maker but from a customer perspective and as a defensive strategy. Delta Express is successful, and continues to grow.
I think you'll see Go be successful, and EasyJet and Lufthansa Lite [the German carrier's yet to be realised low-cost operation].
And this all points to partnerships, so we can have access to markets. Qualiflyer Group in a way shows that we are worried.
Because of our non-EU status and small market size the [strength of the other divisions] really gives us a flexibility that we must have.
How does Swissair fit into SAirGroup? I like to say that it is like Coca Cola. They are a huge company and have many brands like Fanta, like Sprite, like Diet Coke, but the key brand is still Coke. And so I like being Coke in the SAirGroup.
Source: Airline Business
