Downfall of Sabena- Swiss air's Strategic Failure by Urvashi and Shivangini , Institute of Productivity and Management, Lucknow.

1. TTHHEE DDOOWWNNFFAALLLL OOFF
TTHHEE EEUURROOPPEEAANN FFLLAAGG
CCAARRRRIIEERR ,, SSAABBEENNAA

2. AABBOOUUTT SSWWIISSSS AAIIRR
 Swissair was for many years, the national airline of Switzerland.
 It was formed from a merger between Balair and Ad Astra Aero ,
in 1931. For most of its 71 years, Swissair was one of the major
international airlines and known as the "Flying Bank" due to the
financial stability of the airline, hence regarded as a Swiss national
symbol and icon.
 Advised by its long-term consultants, McKinsey, Swissair thought
it had a great strategy. Under the banner of the “Quali-flyer” group,
it sought links with other small European airlines: Sabena in
Belgium; three small French carriers, Air Littoral, AOM and Air
Liberté; LOTPolish Airlines; LTU in Germany; and TAP, Portugal's
flag carrier.
 Burdened by over-expansion due to the controversial “Hunter
Strategy” in the late 1990s and after the economic downturn
following the September 11 attacks, Swissair’s assets dramatically

3. AABBOOUUTT SSAABBEENNAA
 SABENA began its operations on 23 May 1923 as the national
carrier of Belgium. The airline was created by the Belgian
government. The first commercial flight of Sabena was operated
between Brussels and London (UK) on 1 July 1923.
At the outbreak of World War II in 1939, SABENA's fleet were18
aircrafts. During the war the airline managed to maintain their
Belgian Congo routes, but all European services ceased.
In 1990-95, After the liberalisation of the airline industry and
the Gulf War, it became apparent that Sabena had little chance of
surviving on its own in this very competitive market. The Belgian
government, the main shareholder of the company, began searching
for a suitable partner.

5. And so another optimistic era began for the airline. This time , the
goal was for Swissair/Sabena to become the third most important
airline grouping in Europe by 2000 (after Lufthansa and British
Airways). To do that, however, meant breaking the POWER OF THE
UNIONS. In November 1995 the airline cancelled all labour
agreements with unions, leading to immediate strike action. The
union uproar at the move and a damaging strike eventually led to
the resignation of Godfroid. In April 1996 Swissair appointed Paul
Reutlinger as his replacement.
Reutlinger’s task was— cut costs by 4.7bn ($150m at the 1996
exchange rate) by 1998. Reutlinger’s policy was unveiled in June
1996- he gave the unions three choices — a 12% salary reduction,
1,270 job losses, or revised work schedules. Any one of these
would reduce labour costs by 2bn ($64m). The other 2.7bn ($86n)
saving was to come via restructuring (i.e. fleet rationalisation,
closing unprofitable routes, adding destinations, improving the
brand, developing the Brussels hub, and even spinning off cargo and
catering).

6. SSOOMMEE FFAACCTTSS ..
The name Sabena stands for the Societe Anonyme Belge
d'Exploitation de la Navigation Aerienne (Belgian Company for the
Exploitation of Air Navigation).
RRAAPPIIDD EEXXPPAANNSSIIOONN..
• Sabena was Europe's second oldest airline, having been set up in
1923.
• It launched transatlantic services in 1947, and in 1953 became the
first airline in the world to offer a scheduled helicopter service to
major European cities.
FFAAIILLEEDD RREESSTTRRUUCCTTUURRIINNGG..
The 1980s and 90s saw successive attempts to restructure the
airline as it struggled to come to terms with the liberalization which
spread through the industry. In the 1990s , Sabena was converted
into a private limited company, and in 1995 it signed a deal with
Swissair to collaborate more closely. This led to Swissair taking a
49.5% stake in Sabena, with the remaining 50.5% held by the
government. In April 2000, Swissair announced plans to increase

7. HUNTER STRATEGY OOFF SSwwiiSSSS
AAiiRR
• In the 1990s Swissair initiated the controversial “Hunter
Strategy”, a major expansion programme devised by the consulting
firm, McKinsey & Co. Using this strategy, Swissair aimed to grow its
market share through the acquisition of small airlines rather than
entering into alliance agreements.
• Swissair decided to acquire 49.5 percent of the very successful
Italian charter airline Air Europe, the unprofitable Belgian flag
carrier, Sabena and significant stakes in the carriers Air
Liberté, AOM, Air Littoral, Volare, LOT, Turkish Airlines, South
African Airways, Portugalia, etc. It later , promised to acquire 85
percent.
• During the so-called "Hotel agreement", signed on July 17, 2001,
Belgian prime minister Guy Verhofstadt met with Swissair
boss Mario Corti , who agreed to inject €258 million into SABENA.

8. FiNANCiAL RESULTS OOFF SSAABBEENNAA

9.  Other than labour , cost savings in four key divisions —
cargo, catering, ground operations and technical were being
focused upon. Particular progress was being made in one area
— fleet rationalisation.
 Belgian government, which owned a 50.5 per cent stake,
blamed the demise of its flag carrier as a political hhuummiilliiaattiioonn.
Even before 11 September, which provoked a slump in
business for major carriers, Sabena was on the verge of
financial ruin.
 Some flight destinations of Sabena have been suppressed to
the advantage of Swissair flights. Great suspicions exist about
some expensive contracts with the Airbus manufacturers.
Sabena workers have given hundreds of examples of how the
Swissair shareholders have succeeded in enriching themselves
at the expense of Sabena and public money.

10. BBAANNKKRRUUPPTTCCYY -- RREEAASSOONNSS
FFOORR DDOOwwNNFFAALLLL ..
Sabena, Belgium's long-suffering national airline, filed for
bankruptcy on 7th Nov, 2001 , ending 78 years of service.
Sabena's bankruptcy ended a tradition of Belgian commercial
aviation that began in 1923. Although it built up a strong
network of routes in Europe and Africa, Sabena suffered from
labour unrest and high costs and accumulated more than 2bn
euros (£1.2bn) of debt.
 Poor Profits…The airline had only once made a profit since
1958, and at the point of bankruptcy, it had debts estimated
at around $2bn (£1.4bn).
 Diverse Fleet… The purchase of 34 new Airbus planes,
imposed by the Swiss, was a burden SABENA could not cope
with.
 Hunter Strategy of Swiss Air… Aggressive Expansion for the

11.  Too many accidents…
 Poor service, union unrest, low load factors… high costs
and accumulation of more than 2bn euros (£1.2bn) of debt.
 Privatization & Crisis of Airline Industry… due to the
Sept,11 terrorist attack .
 Failure of living up to the contractual obligations by Swiss
Air… unable to honor its promise to finance the bulk of a
recapitalization for Sabena.
‘‘ Despite all the good work on fleet restructuring and cost–cutting,
Sabena still faced with the problem that Belgium was a high cost
base for any airline to operate in. ’’

12. SSTTRRAATTEEGGYY

13. STRATEGY is a high level plan to achieve one or more
goals under conditions of uncertainty.
 Strategy is important because the resources available to
achieve these goals are usually limited. Thus, Strategy
generally involves setting goals, determining actions to
achieve the goals, and mobilizing resources to execute the
actions. A strategy describes how the ends (ggooaallss) will be
achieved by the means (rreessoouurrcceess). Strategy can be intended
or can emerge as a pattern of activity as the organization
adapts to its environment or competes.
 Strategy typically involves two major processes
- FFoorrmmuullaattiioonn aanndd IImmpplleemmeennttaattiioonn. Formulation involves
analyzing the environment or situation, making the diagnosis,
and developing the guiding policy. Implementation refers to
the action plans to achieve the goals .

14. In this case, Swiss air tried to purchase the existing non
-profitable airlines (formulation). For this they used HHUUNNTTEERR
SSTTRRAATTEEGGYY where they started searching for the airlines and
partners for the purpose of acquisition. However, the strategy
did not benefit Swiss air in the intended manner. It suffered
from huge financial losses . Besides this, it became the reason
for the downfall of Sabena as well.
‘‘‘‘ FFAAIILLUURREE OOFF CCOORRPPOORRAATTEE GGOOVVEERRNNAANNCCEE AATT SSWWIISSSS AAIIRR ’’’’
The disastro us linkag e s with natio nal po litics be ing invo lve d in
g lo bal busine ss, trade asso ciatio ns, big companie s, o ve rstre tche d
strate g ic alliance s turne d Swiss air into an unto uchable symbo l.
 We ak financial co ntro ls o f Swiss air which are e xtreme ly impo rtant
fo r a g lo bal strate g y impleme ntatio n.
 Ig no rance and de tachme nt o f Swiss air manag eme nt in guag ing the
future and pre ve nting any disaste rs.
 Inability to co pe with libe ralizatio n o f the aviatio n marke t and
o the r marke t co nditio ns that le d to new playe rs in the industry.

15. STRATEGY FAILURE –– SSWWIISSSS AAIIRR..
Wrong decisions of Swiss air-
-Staying as an independent airline.
- Buying stakes in smaller airlines.
- Become a partner of bigger European airline.
-Blindly following Mc Kinsey’s advices.
The dual strategy of Swiss air-
1.GROW Swiss air & become attractive partner for Delta
airlines
2.Becoming a global player in airline related business such as
catering, ground handling services and maintenance.
* To pursue ag g re ssive acquisitio n strate g y , it acq uire d Sabina
which alre ady had chro nic financial pro blems and a bad re putatio n
fo r po o r se rvice . *

16. STRATEGY FFAAIILLUURREE –– SSAAbbEEnnAA..
o FFAAIILLEEDD PPEEOOPPLLEE IIMMPPLLEEMMEENNTTAATTIIOONN - Sabena workers were
pressurised into accepting wage cuts (up to 17%), increase in
productivity through the intensification of work (up to 200%)
and of course, sackings. Sabena workers had a tradition of
struggle against those "sacrifice packages". But their unions
had always been on the defensive and had often justified the
sacrifices in return for "social plans" to help improve their
human cost. The division existed between the workers on the
one hand and their union leaders and the government on the
other. Sabena workers were not even informed by the
management about their sudden fate but by the media.
MMaannyy aaccttiivviissttss uunnddeerrssttoooodd tthhaatt SSaabbeennaa rreepprreesseenntteedd tthhee bbaannkkrruuppttccyy
ooff tthhee ppoolliiccyy ooff pprriivvaattiissaattiioonn bbyy tthhee ggoovveerrnnmmeenntt aanndd aallssoo tthhee
bbaannkkrruuppttccyy ooff tthhee ooffffiicciiaall uunniioonn ssttrraatteeggyy..

17. o INTERFERANCE BBYY GGOOVVEERRNNMMEENNTT -
Sabena, until 1995 a public monopoly in the airline industry,
was forced to open its capital to private shareholders. This
privatisation imposed on the company by the European Union
was to become the death knell of Sabena. After a wedding
with the French company Air France that ended rapidly,
Swissair proposed to be its partner. The Belgian state
maintained formally a majority share of a little more than
50%. In reality tthhee nneeww pprriivvaattee sshhaarreehhoollddeerr wwaass rruunnnniinngg
SSaabbeennaa wwiitthh tthhee ggoovveerrnnmmeenntt ttuurrnniinngg aa bblliinndd eeyyee ttoo tthheeiirr
pprraaccttiicceess..
The entry of Swissair is comparable to opening the door of
your house to an unscrupulous thief. Swissair had made a lot
of promises of investment but ran away with the money. The
pilots' association had warned and given detailed proof to the
government and the workers' unions of the modus operandi of
this plundering. None of them wanted to listen. Swissair had

18. BByy --
SShhiivvaannggiinnii BBhhaasskkaarr && UUrrvvaasshhii
SSaaxxeennaa ..