Swissair – meltdown of a national icon

How an aggressive expansion plan led to the grounding of a 71 year old airline conglomerate

Changing environment

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” [1].

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 [2].

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 [3].


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 [4]. 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 [5]. 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 [2].


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 [6].












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Student comments on Swissair – meltdown of a national icon

  1. Fantastic article (especially as the article doesn’t mention McKinsey 🙂 )

    That said, I wonder if the problem was with the Hunter strategy itself or how they executed it. Your article seems to suggest the latter.

    Who needs national airlines?!?! Great job!

    1. Bankole, thanks for your comment… and reveiling the consulting firm involved 🙂

      You touched on a very good point. The main issue was the lack of adjustment in the operating model. However, Swissair could only hold minority stakes in European airlines due to regulatory restricitions. As a result, their influence in those airlines was limited and made it more difficult to implement changes to the operating side.

  2. With its financial issues behind and operating as part of the Lufthansa Group, are there any obstacles preventing Swissair today to achieve its former glory of delivering superb customer service? Aren’t start aligned for Swissair to become a crown jewel within Lufthansa’s portfolio or it will take a back seat, giving priority to Lufthansa’s flagship brand and low cost germanwings product?

  3. Interesting situation, I wonder what were the main issues behind their inability to update their operational model. It seems a little too bizarre that they simply would not implement the operational consolidation strategies you listed. You mentioned that they purchased mainly airlines in the low value segment and/or ones financially in trouble. Was there was a lack of planning on which airlines would complement them the most and that lack of initial planning was the main issue causing their inability to effectively consolidate?

  4. Really interesting article! I wonder what influence governmental interference had in Swissair’s inability to fully realize the planned synergies? We have had multiple examples of successful US airline mergers (United-Continental, Delta-Northwest, American-US Air), however they were working in a single large market with regional players. It seems like Swissair was investing heavily in other national flag carriers – such as TAP Portugal and Austrian Airlines – and may have met resistance to cost cutting in the countries they were based. It seems like market conditions have improved lately in Europe and airline mergers and partnerships are being warmly received, with BA’s successfully taking over Iberia and Aer Lingus. If Swissair attempted this strategy today, perhaps they would have been more successful?

  5. I agree – a very interesting situation and article; especially since I used the airline twice a week for 1.5 years.

    As to Spencer’s comment: I was also very surprised about the choice of acquisitions they have taken; low-cost carriers didn’t fit into their overall strategy in the first place. Besides that, do you have an explanation why they didn’t/couldn’t unlock synergies?

    Also, why did Swissair anticipate so many negative consequences from not being part of the European Union and did react with such a drastic strategic shift? I feel most other Swiss companies with high international exposure weren’t that anxious and had more of a wait-and-see approach.

    I wonder if it was right to pump so much public money into Swiss, especially since it is now a 100% subsidiary of Lufthansa? What is the government’s stand on it today? Why do many countries still subsidize national airlines heavily?

  6. Really interesting article and fascinating topic. Do you know how Swissair went about determining which airlines to invest in? It seems like it was a wild mix, so to echo some other comments, its not clear to me how they thought these were going to be in alignment. Could they have been thinking these would be the future winners and just wanted to bet on success? Also, given the current EU rules how do you see the prospects for SWISS (which I love, by the way, since they give you chocolate)? Could they JV with any other major EU carriers?

  7. Really interesting! I did not know about Swiss Air’s aggressive M&A and the resulting failure. Do you think the vote against joining the Eurozone really required such swift action by Swiss Air executives? Or that they used it as a reason to pursue a more aggressive strategy? I can see it both ways, but the resulting failure to successfully integrate makes me think there was an irrational appetite for expansion. It seems like they had not completely thought through the M&A from an operational standpoint regardless. Even without the Eurozone, Switzerland is still lovely!

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