Swiss CEO Christoph Franz on consolidation

By Graham Dunn

Amid the surge in merger activity and airline consolidation in Europe over the last six months, much has been made of the successful integrations of Air France with KLM and Lufthansa with Swiss International Air Lines.

The German Star Alliance carrier completed its acquisition of Swiss in the summer of 2007, since when it has continued to grow and prosper.

Now a number of other carriers are joining the Lufthansa family. Deals with Brussels Airlines, Austrian Airlines and bmi were all agreed last year. So does Swiss chief executive Christoph Franz see the airline's integration into the Lufthansa Group as a model for others to follow?

"I'm very cautious talking about it as a model," he says. "Every airline has its own requirements. The needs of those restructuring are very different. So everyone [airlines] will have their own requirements. But the relationship of trust in the management of the airline can hopefully serve as a model."

"We don't feel there is one corporate HQ. We are very much following a decentralised management approach at Lufthansa Group," he says. "I think we have been able to maintain a very big level of autonomy. It doesn't mean we don't interact, but we are managing the airline in quite an autonomous way."

Franz remains upbeat about the carrier's fortunes, despite weakening global demand. "What I can say is Swiss has been profitable, is profitable and will continue to be profitable in 2009," he says.

"To master the crisis will be the major challenge for every airline. We are looking at the advance developments [bookings] on a weekly basis. But we are very flexible as far as capacity adjustments, and on things on the price and revenue management side. And we are trying to keep a grip on our cost structure. We've concentrated on getting larger parts of our cost base to be flexible," he says, citing its labour agreement as an example.

"I think the drop in demand was under-estimated [initially]," he says of the sector as a whole. "Everyone was just relieved because of the drop in fuel costs. Now many companies believe the drop in demand will hurt them just as much.

"The market needs consolidation. But it's been waiting for 15, 20 years now. We always predict in the next three years and its always pushed out."

He says he was surprised more consolidation did not follow sooner after Air France/KLM and Lufthansa/Swiss, but adds: "I am convinced consolidation in Europe, the US and within these economic areas, will continue."

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