'Some guys talk about the Star Alliance; well, we have our own new born star.' The star Crossair's president and CEO Moritz Suter is hailing is a new subsidiary named Crossair Europe, which started flying to Milan/ Malpensa this March out of the French part of the Basle-Mulhouse-Freiberg EuroAirport on the French-Swiss border.
The launch of this carrier, which is set to expand its fleet from one to three Saab 340s this year for use on direct flights to destinations in Italy and France, marks the expansion of Europe's largest regional airline into markets hitherto out of reach to it.
Major headaches
For Crossair, an 80 per cent owned subsidiary of Swissair, this is another reason to be pleased with its performance.
Last year the company boosted operating revenues by 21 per cent to SFr883 million (US$589.3 million) and passenger numbers by 19 per cent to 4.7 million, while net profit rose 88 per cent to SFr43.2 million. Capacity was expanded by 5 per cent, while the total number of scheduled flights rose by 4 per cent to 120,040 and charter services rose to 17,105, or 12.5 per cent of the total.
Between January and March this year scheduled services grew by 25 per cent over the same period last year, capacity rose 11 per cent and load factors were up by 12 percentage points. Over the whole year flights are projected to grow by 5 per cent to 144,000, passengers numbers by 10 per cent to 5 million, and revenues by 8 per cent. To cope with these volumes Crossair plans to add four new Saab 2000 'Concordinos', two Avro RJ100 'Jumbolinos', and two MD-83s at a total cost of SFr200 million.
Despite these impressive results, boosted by the operation of numerous charters and short-haul and wet lease services on Swissair's behalf, Crossair badly needs its new 'star' to end its exclusion from the single EU aviation market. Although access has not been a problem everywhere, Suter says getting into the Greek, Portuguese and Italian markets has caused major headaches.
Talks over a treaty on transport between the EU and Switzerland have made little progress and remain stalled over road transit rights, and Suter believes agreement is 'doubtful'.
The new carrier, however, is majority owned by EU investors so Crossair can get round the problem of rights. A 60 per cent holding is split between French and German investors - Lindon Holding (25 per cent), Baron Friedrich von Bohlon und Halbach (25 per cent), Foch Finances Investissements (5 per cent) and Endress and Hauser (5 per cent)- with just 40 per cent owned by Crossair. Named Crossair Europe, the airline has its own brand, code, and aircraft - dry leased from Crossair for ease of maintenance - and 34 French staff, says director general Phillipe Perrin de Nelle. Crossair Europe will be the first airline to base itself on the French side of Basle-Mulhouse-Freiburg airport.
Crossair currently guarantees its clients direct travel from the French side of Basle airport to Lisbon and Paris via blocked seat arrangements with Portugalia and Air France, although the company says it was not the question of rights but rather profitability which forced it to go in for codeshares with former competitors.
'There is no French airline based on the French side of the airport,' says Perrin de Nelle. 'We said to ourselves, if we don't base one there, someone else will.' The airline is mainly targeting business passengers, as well as upmarket leisure travellers, and will 'complement' Crossair's services. After launching Milan in March, Venice in May, Corsica in June and Rome in September, Crossair Europe aims to expand in the Mediterranean, to destinations in Morocco, Greece and Egypt, and even in eastern Europe.
Crossair Europe will not compete with Crossair in its core markets of England, Spain and Germany, although there could be a 'little' competition in other markets, says Perrin de Nelle.
'We will go where the traffic is. The European shareholders and Crossair don't want a company that is losing money,' he states, pointing out that the airline is already drawing passengers away from Swissair/Crossair's Basle-Zurich-Malpensa route.
Perrin de Nelle predicts passenger numbers will rise from 44,241 this year to 67,836 passengers in 1999. He says the airline will not be profitable this year but 'hopes' it will make a profit in 1999.
EuroCross hub
With a French-based airline, Crossair will be able to take part in the single EU market like any other EU regional airline and develop its own hub - dubbed EuroCross. By flying out of French territory, it will also avoid higher air traffic control and landing charges.
'This is an intelligent way for Crossair to develop EuroCross because we now have a partner that does not have the market restrictions we have,' says Suter.
'There are 4 million residents at a 60 minute drive from the airport,' says Suter. 'There is a direct motorway connection between Zurich and Basle. Many people drive from Basle to Zurich to get the plane - why can't the traffic go in both directions?'
To boost revenue, Crossair aims to encourage and take a greater share of connecting domestic, and particularly international, traffic out of Basle. Crossair's transfer passengers at the EuroAirport grew by 75 per cent to 35,000 in 1997 and the company predicts a rise to 60,000 this year and to 135,000 by 2000.
EU transfer passengers have grown from 5 per cent of the total in 1996 to 22 per cent last year and the company foresees at least an 8 per cent rise this year. Transfers will account for 8 per cent of the airline's total traffic out of the EuroAirport in 1998, according to Crossair, and should double by 2000, allowing a 200 per cent growth in revenue from the airline's connecting passengers at the EuroAirport to SFr36 million.
To achieve this rate of growth, Suter says he 'wants to offer a 20 minute guaranteed' transfer time for which infrastructure development is a 'prerequisite'. Crossair is extending a SFr48.9 million loan to the airport to expand its terminal.
While developing its own hub at Basle, Crossair is still very much caught up in the affairs of parent Swissair.
The carriers are planning to cooperate more closely on commercial matters such as their dealings with travel agents and key account customers. And a large proportion of Crossair's income - 23.8 per cent - is derived from wet-lease contracts with Swissair, an arrangement Swissair shows every intention of expanding. This month Swissair will fill out its Eastern European network using one of Crossair's MD-83 aircraft and its personnel.
Suter says the wet-leasing business has risen roughly in line with revenues, but it is not a business he wants to encourage. 'We are not interested in developing flying with Swissair too much,' says Suter. 'It is not good for profits. We are not allowed to make a profit on this business. We just get paid.'
According to a senior Swissair executive, Crossair was used in Eastern Europe and on other short-haul low-volume European routes because it has a 'lower cost of operation'. Crossair's labour costs, for example, account for 21 per cent of overall costs compared to Swissair's 26 per cent, while the company lays claim to one of the youngest aircraft fleets in Europe.
Suter says his airline's efficiency was a major factor in Swissair's return to the black in 1997. In 1996 Swissair's unprofitable charter operation and short-haul scheduled business - some 25 per cent of the flag carrier's mainline European network - were transferred to Crossair. Suter has made them 'profitable' and estimates that his management is saving Swissair SFr60 million a year in the process.
By taking over these operations, Crossair 'contributed a good part of the success of Swissair' claims Suter. 'Swissair made a very important decision because we are producing these services at a much cheaper cost than they did,' he says.
But Swissair wants more. Now that the Swissair airline has returned a profit for the first time since 1991, it is setting targets on cost reduction that Crossair says it can't achieve.
Swissair aims to reduce its costs per ASK from SFr0.09 to SFr0.07 by 1999. But despite a 44 per cent fall in unit costs from SFr0.36 to SFr0.20 between 1992 and 1996, Crossair has not been able to reduce its costs further and does not wish to set any targets now.
'Like everybody else we try and keep our costs as low as possible. But it is just not possible to reduce costs that much,' Suter says, arguing that Crossair's short-haul operations cannot be compared with Swissair's.
Despite being restricted to short-haul 'by the cooperation agreement we have with Swissair' Suter still entertains ideas of serving more exotic locations. 'Long-haul is an old dream of mine,' states Suter, who envisions services to secondary airports in the US.
Modest aspiration
If dreams of long-haul flying remain shelved for the moment, Suter still has the more modest aspiration of leading the development of regional jet aircraft into the 21st century.
With a signed letter of intent with Lufthansa CityLine - and a US carrier which has yet to be named - for the co-development and deployment of a new family of 70 to 100 seater aircraft, Suter now believes he can get Fairchild Dornier and his airline partners to sign a contract by the end of the year, for first deliveries by 2001-2. Not put off by being the launch customer of the ill-fated Saab 2000, with all the teething problems that brought, Suter refers to the new project as a concept 'the regional airline industry has long been looking for'.
As it develops its intra-EU network Crossair's managers will need to keep their wits about them for the airline to live up to its logo - 'clever and smart'.
Source: Airline Business
