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SWISS Limits First-Quarter Losses

SWISS generated revenues of CHF 1,044 million during the first three months of the 2003 financial year and has reported losses of CHF 200 million for the period under review. The results reflect the extremely difficult economic environment currently affecting all airlines, a situation which has been exacerbated by the war in Iraq and the SARS virus. The cost-cutting measures that have already been implemented are now beginning to take effect. Liquidity stood at CHF 913 million at the end of March.
Revenues from scheduled flights total CHF 880 million. 2.7 million passengers travelled on our scheduled flights during the first quarter, and the seat load factor was 67.9%. The gross average yield per revenue seat-kilometre remained under pressure at 14.0 Swiss cents. As in recent months, the reasons for this trend are to be found in the very difficult operating climate impacting on the entire air travel industry, which is negatively affected by low demand, substantial over-capacity and fierce pricing competition amongst national airlines. The industry faces a further challenge from the growing number of low-cost carriers. The cargo business reported sales of CHF 130 million, a satisfactory result roughly on a par with the results achieved in recent quarters. Year-on-year, the charter business performed slightly better, generating sales of CHF 22 million. Further earnings of CHF 12 million also accrued from e.g. aircraft maintenance work carried out for other airlines.

Total turnover in the first quarter amounted to CHF 1,044 million. Additional operating revenues amounting to CHF 22 million were collected from leasing operations concerning aircraft, flight simulators and office space, and from commissions on ticket sales for other airlines.
The cost of materials, which includes, in particular, the cost of in-flight catering, aircraft maintenance and fuel purchases, amounted to CHF 348 million in the period under review. Aviation fuel prices peaked in March in the run-up to the war in Iraq. However, the greater part of the increase in this cost item was mitigated by hedging transactions. At CHF 415 million, the cost of services was the biggest cost item: it includes expenditure for ground services, landing and fly-over fees and sales commissions. Personnel expenses amounted to CHF 270 million, whilst depreciation totalled CHF 58 million. The CHF 174 million in other operating expenditure includes administration, advertising, IT and insurance costs.
The cost-cutting measures announced as part of the “Target Turnaround” project were implemented during the first quarter of 2003, and have so far reduced costs by CHF 50 million. Substantial savings have been achieved in personnel and IT expenditure, advertising and catering. The cost-cutting programme is expected to go on reducing expenditure throughout the year, especially from the third quarter onwards. The aim of the “Target Turnaround” project is to trim annual costs by a total of CHF 600 million. In view of the current situation affecting the air travel industry, further drastic cost-cutting measures will have to be implemented.
Ensuring a competitive cost basis is a top priority for SWISS, and will remain of paramount importance in view of aggressive pricing competition in the air travel industry.

After the first three months of the current financial year, results from operating activities showed a loss of CHF 199 million. The financial results were balanced: financial expenses of CHF 12 million were offset by financial income of an equivalent amount (deriving from interest payments on cash and cash equivalents, and foreign exchange earnings). Taxes - owed because of profitable subsidiaries - amounted to CHF 1 million. First-quarter losses therefore total CHF 200 million.

The first-quarter result has been negatively burdened by the continuing slump in the global economy, high levels of uncertainty prior to the Iraq conflict and reduced travel during the war. Our calculations indicate that the Iraq war has wiped around CHF 70 million off SWISS’s first-quarter results.
The consolidated balance sheet as at the end of March showed cash and cash equivalents of CHF 913 million. Whilst this value is CHF 343 million below the year-end figure and substantially in excess of the loss incurred during the period under review, it can be ascribed to various seasonal factors. Accounts payable were reduced by CHF 84 million, for example, whilst accounts receivable rose by CHF 37 million. Further downpayments were also made on aircraft orders, and will not be refinanced until some later point. Advanced bookings also had a significant impact: in March in particular, there were fewer advance bookings because of the war in Iraq, and this had a corresponding negative effect on first-quarter revenues.
Given the seasonality of our business and the measures we have already implemented to reduce our net working capital, the “cash-burn rate” is expected to fall over the next few months.
The value of the aircraft fleet remained virtually constant at CHF 2,067 million compared to the year-end figure. Fleet depreciation almost equalled investment in aircraft modifications and further downpayments on aircraft orders. Property, plant and equipment (CHF 284 million) was CHF 18 million up on the value at the beginning of the year; this increase is essentially due to the completion of the offices in Basel. Fixed assets accounted for 58.8% of total assets at the end of March.
Shareholders’ equity stands at CHF 1,494 million following the loss sustained in the first three months, giving an equity ratio of 33.8%. The cut in capital announced at the General Assembly, which was effected by reducing the nominal value of each share from CHF 50 to CHF 32, went ahead on 9 May 2003. This will reduce share capital by a total of CHF 946 million; the amount of losses brought forward will also be reduced by the same amount. The total amount of equity is not affected.

The number of full-time posts at SWISS, including its subsidiaries, totalled 10,521 on 31 March, i.e. 85 posts fewer than the 10,606 at the end of 2002. Natural fluctuation and redundancies have reduced this total by a further 680 jobs since early April, so that the total head count will continue to fall over the year as announced.