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March 11, 2005
Swiss International Air Lines remained silent on reports that it had broadly agreed a planned union with Lufthansa when it published detailed 2004 results on Friday.

Swiss has stuck to its independence even though having a partner is considered crucial for its long-term survival in an increasingly cut-throat industry.

In 2003, Swiss had been torn between joining Lufthansa's Star Alliance and British Airways' oneworld alliance. It opted for oneworld but those plans later fell apart.

Germany's Handelsblatt newspaper and the Financial Times Deutschland reported on Friday that the chiefs of Swiss and Lufthansa have broadly agreed on a planned union of the two carriers, citing Lufthansa and financial sources.

Swiss and Lufthansa have declined to comment.

Swiss said last year it was not in talks with Lufthansa and it would not worry about a partner until its operations were on track. Investors and analysts have also said Swiss has much work to do to lower its cost base before an alliance would be possible.

In a detailed statement of full-year 2004 results, Swiss reiterated it would be hard to break even this year if it failed quickly to implement cost-cutting measures, which include plans to cut 800 to 1,000 jobs and trim its regional fleet.

It also aims to cut net annual costs by about CHF300 million Swiss francs (USD$259.7 million) from 2007.

Swiss is in talks with unions and suppliers to implement the cost cuts but a union of pilots affected by the job cuts has already threatened to go on strike.

Created by grafting regional carrier Crossair onto the ruins of grounded predecessor Crossair, Swiss has already cut staff, its route network and fleet to stem losses.

Rising oil prices added CHF120 million (USD$103.9 million) to its operating expenses in 2004.

Swiss had sold its fuel hedges early last year to boost liquidity but then introduced a fuel surcharge on tickets to help offset rising oil prices.

But after securing a credit facility, Swiss hedged about 27 percent of its fuel needs for 2005 as of end-2004.

Swiss had said in February that its 2004 net loss had narrowed to CHF140 million (USD$121.2 million) from CHF687 million (USD$594.7 million) in 2003 thanks to cost cutting, and its earnings before interest and tax had narrowed to CHF122 million (USD$105.6 million) from CHF498 million (USD$431.1 million).

(Reuters)