Interview with Swiss boss Thomas Klühr

Swiss management waives up to a fifth of the basic salary in the crisis. Airline boss Thomas Klühr puts the obligations towards the location in the foreground in the conversation and clearly distinguishes itself from Ryanair, which come and go.

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Mr. Klühr, the Corona period is a challenge for all of us. Your fleet has been largely on the ground for weeks. How can you keep the troops’ morale high?

It’s difficult, but I’m happy with what I hear. Because I see only a few employees on site at the moment. We cannot ignore the difficult situation. We provide information promptly and openly, but the uncertainty can be clearly felt.

Swiss has been very successful in recent years. Now you had to ask the Federal Council for financial aid. Aren’t you embarrassed?

It was a very difficult step. Aviation business suddenly came to a worldwide standstill and earnings failed to materialize. We were no longer able to do it alone. We quickly realized that we had to bridge a long time because of the pandemic and the resulting travel restrictions.

Zurich finance director Ernst Stocker has criticized that Swiss was on the mat after only two weeks with the state. Do you understand his displeasure?

I said in an interview in mid-March that if travel restrictions continued to spread, almost all airlines would need government aid. This then became the headline that Swiss hoped for state aid. I described a scenario early on, which then happened.

Michael O’Leary says his Ryanair has enough liquidity to keep going without sales until the end of the year. Why not the Swiss?

Most airlines have asked for or have received state aid. And I emphasize: We are asking for a loan that we will pay interest on and repay. Unlike Ryanair, we operate a hub. Our offer is aimed at the Swiss economy. Ryanair comes and goes. And we aspire to get through this crisis with the whole team.

They want to cut costs by 20%, but want to prevent layoffs. Does this still apply, although capacity cuts are inevitable?

We can compensate for a lot with the hiring freeze, the exploitation of the high fluctuation, especially in the cabin, and retirement.

Swiss draws short-time allowance and has very little to spend on kerosene. Why are the running costs still high?

With regard to kerosene, there are nevertheless high costs due to the hedging transactions. There are also fixed costs such as rents and IT, and we have to bear part of the personnel costs ourselves. Then the maintenance of the decommissioned aircraft costs. At the same time, we have practically zero income. We lose more than CHF 3 million in liquidity every day. In addition, the gradual resumption of flight operations is very expensive.

The number of CHF 300 million is mentioned as the first payment from the state loan at the end of May. Does this mean that the loans are drawn in tranches?

Yes, a graduation is planned.

It was heard from Bern that signing would only take place if Lufthansa had reached a deal with the German government. Is there this joint?

No, there is no joint. It was never part of the talks with the federal government. It was recognized that Swiss is of great importance to Switzerland, which makes me happy. Over the years it has become clear that the success also came about because we are part of the Lufthansa Group. And I feel great trust in Lufthansa in Bern.

At the beginning of April, conditions for a loan were announced by federal officials. The company and its owner should first mobilize all of their own resources. What has Swiss done for this?

The Federal Council made it clear very early on what the order was: Swiss had to deliver first. And the owner has to make contributions. We reduced production very quickly in March. We have suspended projects, postponed investments, made a hiring freeze and applied for short-time work. Lufthansa gave us a loan of CHF 200 million and waived the dividend of CHF 300 million for the very profitable year 2019.

How much interest does the loan have? Is 2 to 3% a good estimate?

Yes, that’s right.

Does management waive wages and what is expected of employees?

Employees’ wages remain unchanged until the end of June despite short-time work, but pilots and flight attendants lose contributions, which is not entirely irrelevant to them. We are negotiating a reduction from July with our social partners. In addition, all personnel groups have shifted wage components backwards.

And the managers?

The management and all managers will waive up to 20% of their salary for the next few months. The wage bill including variable remuneration will decrease by up to 50% in 2020, depending on the management level.

The government repeatedly points out the great importance of the hubs and the long-haul fleet. How can you guarantee a certain connection?

We remembered early on an instrument in the Swiss takeover in 2005, namely the establishment of an aviation foundation. Its task was to ensure that after the Swiss takeover, Switzerland and Swiss did not fall behind within the Lufthansa Group. The new foundation, which is still to be established, will closely monitor how the establishment of the long-haul route in Frankfurt, Munich and Zurich gets under way so that there are no imbalances.

What will this aviation foundation look like?

The board of trustees consists of five members. The Confederation appoints the President and two members, Swiss and Lufthansa appoint one member each.

Finance Minister Ueli Maurer said that Lufthansa and Swiss are ready to recognize the climate protection goals. What does that mean?

Climate protection has moved somewhat into the background because of the Corona crisis, but the debate will come back. As of today, there are still no climate targets broken down into aviation. There are goals of the Federal Council and we are obliged to follow them.

And what about the ticket fee?

It is not anchored in the contract. The issue is important, but climate change mitigation and the location requirements associated with the loan are two separate issues.

There is great resentment that Swiss does not immediately pay for canceled flights. Travel agencies fear for their existence. What can customers expect?

There is a requirement from the contract with the federal government that we organizers must refund the money for flights that have not taken place by the end of September within the framework of the package travel law.

And what about private customers?

I am aware that we put a lot of pressure on our customers. As with many other airlines, shutting down operations has also resulted in a massive repayment volume. If the aviation industry had reimbursed everything immediately, many airlines would have become illiquid. We do not question the claim. But what we cannot meet is the deadlines. With attractive voucher solutions, we also try to persuade customers to forego the refund.

According to the industry association Iata, tickets for flights that have not yet taken place total $ 35 billion. Shouldn’t the industry think of a solution to keep more cash in such cases?

No crisis plan envisaged that aviation all over the world would come to a standstill. But it is clear that we need to think about securing liquidity in order to be better equipped next time.

How long would Swiss’s liquidity have lasted?

Three to four months.

Why can’t a competitor simply serve the routes after an airline’s bankruptcy?

All airlines have currently massively reduced their capacities or completely suspended flight operations. Everyone knows that there will only be a gradual build-up. The national airlines will initially reactivate their home market. If the federal government had not given guarantees, the risk of an interruption would have been very high. No airline is currently attempting to set up a new network in another country. If it started again, Switzerland would have been there without a functioning hub.

Couldn’t you connect Switzerland from the outside?

You can do that, but then the added value does not take place in Switzerland. There would also be only a few long-haul flights that are so important for the attractiveness of the location. The supply would shrink enormously.

Let’s take a look. Where is Swiss flying first?

From Zurich we will offer 140 flights a week to 30 European destinations from June. There are also 40 flights a week from Geneva to 14 European destinations. The Swiss continues to fly three times a week to Newark in the USA. Some non-European destinations will be added in June, but the locations are not yet ready to be decided. When it comes to tourist destinations, islands will be ready first because they are less affected by infections.

Roche boss Severin Schwan has just said that there will be far fewer business trips after the crisis. Does that have to hit you?

The recession will slow down the build-up. In addition, behavior patterns will change due to the corona crisis. We have to be prepared for the fact that there will be less business travel. But that doesn’t change my basic belief, people want to travel again.

What do you have to be prepared for as a passenger?

Flying will change because of travel and hygiene regulations. Although the air quality on board is good, masks will be worn. At the same time, there will be no overcrowded airports like before the crisis. So it will be more complicated, but also more relaxed.

Are plexiglass partitions drawn in between the seats?

This is an exciting idea, but changes in the cabin require intensive approval procedures by the authorities. Something will develop there, but a lot of time will pass before we see that.

What is your startup scenario?

In June we expect 15% to 20% of last year’s level. We expect 50% at the end of the year and around 70% in summer 2021.

If only a few destinations are served: What are the pilots doing?

Everyone is happy when they are assigned to work. The teams were particularly enthusiastic about the repatriation flights. We also have to make sure that we keep the licenses for the different types of aircraft. That is why we sometimes fly with larger planes than would be necessary. Of course, the pilots train on flight simulators. But it is and remains a big challenge.