And we’re back with part two of my interview. By this point, we were furiously bouncing down the 101 on our way to SFO, so I had to work hard to fit all my questions in.

Cranky: Talking about the onboard product. I saw the new seats yesterday in Business, but nothing is changing in First Class, right?
Harry: On the A340-300 it’s not changing. On the A330-300 we have a completely new redesigned first class. The reason for this on the A340 is that we did a customer survey that said, “should we do something with First Class” and customers were saying that we didn’t need to do anything. We will do some slight modifications there, but why should we reinvest in something which is not bringing real added value for the customers? Maybe in five years, we’ll learn that the next cycle of product innovation is there that we really should do something. But the product innovation from where we are now with the A340-300 is not that big.

Cranky: So there’s no concern that the product on the A330s is different than the A340s?
Harry: No

Cranky: In economy, it’s a coach seat, big screen. But what are the trends in economy? Do you need to address the product or is it just price?
Harry: Price is very much an issue and that’s why I think the trend is to have a high density economy, with 30 inch pitch and that’s it. We differentiate by having 32 to 33 inch pitch and better service.

Cranky: What about premium economy? Would you consider that?
Harry: No. I don’t think that will ever be a successful product. You have business which is high value and people are willing to pay for it and you have economy which is based on price.

Cranky: But I think we’ve seen business class go upmarket and economy go down.
Harry: Actually, we haven’t seen economy go down. It’s stayed about the same but the price has gone way down, so the value is better now. I remember when we first started offering 999 euro fares to North America and people said that was going to bankrupt us.

Cranky: Now you wish you could get that.
Harry: That’s right. [Laughs] We should all be so lucky.

Cranky: So you don’t see a gap between the two?
Harry: No. People who care about the product will pay for business class and those who care about price will pay for economy.

Cranky: What about connectivity? Are you looking at internet? I know Lufthansa is bringing back internet. Is that something you’re looking to do?
Harry: Not now. We will wait and see how it works for Lufthansa. The question is, how successful will it be? Then we will evaluate again later on.

Cranky: What about mobile phones, people making calls on airplanes?
Harry: No. Our customers have clearly told us that they do not want to hear people talking on the phone.

Cranky: Now, you used to be with Lufthansa, right?
Harry: Yes

Cranky: So how much influence does Lufthansa have on Swiss? What sort of cooperation is there and what about the cultures?
Harry: They’re actually very similar but very different. We’re a smaller company and Lufthansa is very big. For example, Lufthansa comes to us looking for rules and regulations and we don’t have them. We haven’t created them. But we do work together and that’s a good thing.

Cranky: I’d like to go back to Europe for a minute. You were at Thomas Cook, right?
Harry: Yes, that’s right.

Cranky: So what do you see for the European market? Some have said that the premium market is in structural decline in Europe. You have the low cost carriers, and you have the tour operators. It’s a very crowded place. Where do you see the Swiss European operation going?
Harry: Our European business is doing very well. We are trying to provide high value at a good price. The low cost carriers provide a low price but not high value. We provide value to our customers. So I can fly Swiss for an attractive price, which is based on the low cost structure we have, while getting the full service package.

Cranky: And what about the premium cabin?
Harry: It’s very much under pressure, so we have to rethink it. But, business class has an important value with hub connecting itineraries. You can’t fly someone in business class from San Francisco to Zurich in business class and then within Europe in coach.

Cranky: United did that when they had Ted
Harry: Maybe not a good idea
Cranky: Yeah, well it’s gone now fortunately. You could fly over the Pond in business class and then you’d have to fly coach for the 4+ hours to Las Vegas on Ted.
Harry: [Shakes his head]

Cranky: Now, you were talking about cost structure, people naturally start talking about labor. I believe you’re the only airline in Europe to not have had a strike this year, right?
Harry: I think that might be true. [Laughs]

Cranky: As you’re working to reduce your cost structure, are the employee groups helpful with you on that?
Harry: Unions are always complicated. Unions have a very simple approach and this makes it complicated. The approach of the unions is to promise more money for less work and more vacation. The thing you have to do is make them understand the situation. What we’ve been doing is saying, “this is the development of the market and this is what we have to do.” Then we have a discussion where we also get good feedback. They can find a different way to meet the same targets and that’s good. Some of the unions are a little bit stuck in the ’90s which can be a problem. But the overall relation, and this has to do with being a small entity, the overall relation between let’s say the workforce and the bosses is much closer than at a big company. This is positive.

Cranky: Looks like we’re at the airport. I appreciate you taking the time to speak with me.
Harry: Thanks for your creativity of doing this on the ride to the airport.

So there you have it. I apologize that some pieces were edited down a bit, primarily the Lufthansa discussion, because bumps along the road made my recording inaudible.

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?
Harry: Yes
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?
Harry: Oooh
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.

Greetings from San Francisco. I came up this week for a couple of reasons, but most interesting was the launch of SWISS service to Zurich. I don’t usually travel for route launches, but this had several interesting aspects that made it worth the trip, including my first look at the new seat (see the video below).

So what was so special about this? Well, I was offered the chance to interview SWISS CEO Harry Hohmeister (I’ll have the Across the Aisle interview next week), but there was more than that. They painted an airplane in a special San Francisco livery just for this launch and they introduced their new business class seat on the A340 on this route. Why was it getting so much attention? I had to find out.

When the flight arrived, SWISS had a viewing set up in the reflection room at SFO. The airplane was specifically parked at gate 91 so that people in the room would have a perfect view of the airplane. Then the reception continued in the excellent SFO museum on the other side of the terminal.

It was there that I found out a lot of the rationale behind this route. Apparently, the ties between Zurich and San Francisco are big, but not necessarily big enough to support a flight historically. That being said, companies like Google and Novartis have large travel needs between the two and expressed a strong desire for the flight.

Ultimately, however, it was Roche that made it happen. Roche, the pharmaceutical giant, purchased Bay Area-based Genentech. They wanted a flight to connect the two cities, and in fact, they signed a guarantee with the airline on one condition: they wanted the new business class seats.

I think Chris McGinnis got this one right when he dubbed the flight, the “Roche Coach.”

It all makes sense, right? The new business class is excellent and this is the first A340 refitted with it. I had the chance to go onboard yesterday after they cleaned the airplane and took this video tour.

 
Pretty cool. For what it’s worth, I did lie down on the seat and used the controls to feel the cushion getting firmer and softer. It’s fairly remarkable what a difference that makes. The massage function was nice as well. I can see why a company would want this.

Right now, all the A330-300 airplanes have the new seats and they fly to New York and I believe, Dubai. The A330-200s are being phased out and will be gone by January. The A340s will be refitted by next June, so at that point, all long haul will have these new seats.

So, those of you in the Bay Area have a new, rock star option if you’re flying in business to Europe. Coach ain’t too shabby either, but it’s effectively the same as what you’ll find on other airlines with in-seat video.

Even though it’s a new route, don’t expect to see any amazing deals right now. The summer is booking very well, and I was told that in some months it’s already outperforming the long-established Los Angeles route. That’s music to their ears, I’m sure.

It’s a new year, and that means Lufthansa will probably acquire another 15 airlines before the year is out. If I were a betting man, I would expect to hear SAS and Virgin Atlantic involved in those discussions, but I wouldn’t expect Alitalia. It sounds like Air France/KLM may have won that battle.

Of course, this all remains to be seen. What we do know is that Lufthansa already owns a bunch of airlines, and I’d guess you probably don’t know them all. (I didn’t.)

Here is my compilation of all the airlines that are currently at least partially owned by Lufthansa. I’ve included main country of operation and Lufthansa’s percentage ownership in the graphic. Let me know if I’ve missed anything.

[Edited image 1/5 @ 516p to reflect additional airline ownership stakes]
[Edited image again on 1/6 @ 627p to reflect even more ownership stakes]

Things got a little busy last week with the A380 flight, so I didn’t have a chance to post the last of my NBTA posts. Here it is . . . .

Back in May, I talked about how Swiss had decided to replace its current business class offering with a new seat that used air for cushion instead of foam. Well, at NBTA, they trotted out a very early version of the seat to show it off.

I didn’t get to sit in the seat, because they said it wasn’t fully developed yet, but they did have a cushion there that you could hold. Why would you want to hold it? Well, they wanted to show you how light it was compared to a regular cushion. As you’d probably imagine, it really was a good deal lighter. (If it weren’t why would they bother trotting it out?) But that’s only half the story . . . will it be comfortable?

They’ve certainly put a ton of effort into this. You can see at left that there are several layers on top of the air cushion. I believe the white layer is a kevlar coating that helps with fire resistance and distribution of weight. The light blue layer is almost entirely for moisture-wicking. Then the seat cover is on top. Not bad at all, I have to say. But let’s see how it holds up under the stress of flying in revenue service.

By the way, you can see the entire flat seat at right. It looks very similar to Continental, no? You can see how the legs go underneath the seat in front of you. But Swiss is doing something different from Continental in that some rows will have a 1-2-2 configuration while others will have 1-2-1.

I imagine I’d like the seat by itself on the “1″ side, but it depends on if I’m traveling with someone or not. The interesting thing about this configuration is that only a few seats require stepping over someone to get to the aisle. (Just the window seat on one side of the 1-2-2 configuration.) But compared to Continental, they have a lot fewer seats in a row here. That could come back to haunt them – it’s going to be tougher to make money with this less dense configuration.

I know, I know. Enough about seats already, right? This should be it for awhile. Not back to our regularly scheduled programming.