Last week, I was in San Francisco for the Swiss launch of service, and I was given the unique opportunity to sit with Swiss CEO Harry Hohmeister on the ride down from his hotel to SFO. We talked about a broad range of topics and he was very upfront about his thoughts on the airline and the industry. Here’s the first part of our discussion. Part two covering the onboard product, Europe, and labor will come later this week.
Cranky: You’re here for the SFO launch and I know your background is in network planning, right?
Cranky: So what does this new route mean for you as an airline? It’s a Star Alliance hub. How important is this?
Harry: It’s a good destination for us. It’s a Star Alliance hub, can connect to bigger destinations in the US, like Las Vegas. That’s a second reason for us. A third reason is San Francisco as a region has a lot of future technology, biomedical engineering, also technology media, which is also very much based in Zurich, Switzerland, so there is common ground.
Cranky: How important is Star Alliance connectivity to your US network? I know you fly to some cities that aren’t big Star Alliance locations like JFK, I think Boston, but then of course you add San Francisco.
Harry: It’s good to have Star Alliance but our network is very much based on local traffic to and from Switzerland. We are not so much dependent on gateway traffic via the hubs. So this is a little add on but it’s not a reason for decision-making to fly somewhere. So we base our itineraries very much on the local market needs for the Swiss market. It’s normally 50% or more.
Cranky: The European network – does that provide a lot of traffic on to the US flights?
Harry: It’s very strong. European business brings roughly 40% of traffic. Mainly it’s France, Italy, Austria, and partly Germany, so we’re offering California destinations to Europe.
Cranky: You now have Austrian as a Star partner, in Italy you have Lufthansa Italia, and of course Munich does a lot of Northern Italy business as well. How do those all fit together when you’re looking at route planning? How closely are you tied with other Lufthansa group partners?
Harry: It fits very well, because from the Austrian market you have no direct service. From the French market, you have no direct service on Star Alliance. From the Italian market you have no direct service on Star Alliance. Our hub competency with our multi-hub system, providing three services to San Francisco with Lufthansa, is giving us wider coverage. Of course, we coordinate schedules so if you look at the timings, you can go all day back to Europe.
Especially for a business traveler, We’re giving more variety of different itineraries. It makes it more attractive than if you have only one hub or one service with a big airport. We have variety of choice throughout the whole day and that gives us a competitive advantage.
Cranky: It seems like Frankfurt goes a little earlier, then Zurich, then Munich.
Harry: Right. This is the kind of coordination we can do there. And of course, the additional capacity has to fit with the market needs. We heard yesterday from John Martin, the Director of San Francisco Airport, they expect this year roughly 10% growth from the intercontinental market. We just want to participate in that growth.
We can say that we see a turnaround in the US economy. The economy is going up again at a good pace. We see that in the early bookings for this route. In the first three months, we’re really well booked. The customer will decide if the product is good enough, and from what I see in the prebookings, I think the customer is deciding that we have a good product.
Cranky: How important is airport cost when you’re looking at routes? I know that San Francisco has done a lot to bring their costs down, they talked about it yesterday. LAX is about to skyrocket with all the projects they’re doing. Is that something that’s a big concern for you?
Harry: Sure. The airport in itself has a monopoloy structure. We don’t have 4 or 5 different airports in a destination that we can go to, but we have a lot of competition on the airline side. There are several airlines that fly to Europe. So on the airport side, it’s very very important. Therefore, I really appreciate what John Martin was saying yesterday about their strong work on costs. I personally wish all airports, especially in Europe where they’re much more expensive, Zurich is quite expensive, if all airports looked at costs that way.
Cranky: I think another airport that’s brought costs down is Denver, another Star Alliance hub. Are you looking to expand to other cities in the US in the near future?
Cranky: I know you’re not going to give me specifics, just a general idea of what you’re looking at.
Harry: No, the problem is we’ve been growing a lot, adding a lot of capacity. Also with the A330-300, adding more seats per flight, which means we have a steady growth on the North Atlantic of roughly 6 to 8% per year. I think now we have to really make it successful and make money out of that. And maybe for 2012, we have several ideas. On the east coast there is still some potential left for us in addition to what we offer today but we learned that risk management, especially in terms of capacity management, has value in itself. Therefore we are not pushing capacity.
Cranky: As far as capacity goes, what is the fleet plan? You have A330s, A340s on the widebody side. You’re still operating some Avros on the very shorthaul, right? And Airbuses So what’s the plan?
Harry: The longer fleet plan is that we will roll over the Avros from 2014. So for that we have the C series on order. We have 30, and we are the launch customer. That will save us more than 20% in fuel costs.
Cranky: Do you know if they’re meeting the fuel saving goals?
Harry: Yes it seems so, but you never know until the engines are on the wing. Also, for the Airbuses in our case or the 737s if you’re a Boeing operator, there’s not much development, which is a pity. They have to become more efficient. The industry was relying on technology progress in the last years that let’s say, is something like 20% per decade, but now we see that the maximum we can receive is 5% per decade which I believe we cannot survive with, because airport and energy costs are increasing. This is what the manufacturers have to learn.
On the long haul, I think they are focusing on that. The 787 seems to be a good aircraft for the future and I hope also that the A350 will be so that we have some competition. We’ll have a look at both aircraft. By the end of the day, the best aircraft will win for us. We are not in a hurry. The A340 still is a good aircraft. We have quite new aircraft, one of the youngest fleets in Europe.
Come on back later this week for part two.