Reflection on Swissair Strategy

Dreams are no basis for a sound corporate strategy

By John Kay

Financial Times 20 March 2007


"Swissair Strategy"



Swissair strategy



An effective business strategy is not separable from execution and is not based on visions and dreams, but on a match between capabilities and activities.

A man’s reach should exceed his grasp, or what is a heaven for? The sentiment better expressed by Robert Browning has today been adopted by business gurus. Stretch your organisation, adopt big, hairy, audacious goals.

But it is not true that if you can dream it you can do it. Personal maturity lies in aligning expectations with aspirations, capabilities and goals. It is possible to be happy even if one does not receive a Nobel Prize, marry Julia Roberts or Hugh Grant, or even became a master of the private equity universe. But corporate executives, surrounded by sycophantic advisers, can continue to proclaim that the only limits are those of imagination.

If you are tempted by that thought, post on your desk a picture of the row of planes grounded at Zurich Airport in October 2001. Switzerland’s national airline collapsed because creditors would no longer supply fuel for its aircraft. The trial that has just ended in Zurich revealed the hubris that destroyed the quality Swissair brand and tarnished the national reputation for reliability and efficiency.

The conventional wisdom of the airline industry, as in other industries, was and is that globalisation demands concentration into a small number of global operators – a conventional wisdom that is certainly oversimplified and perhaps false. The important changes in airline industry structure have come not from mergers but from the ability of new entrants to grab market share in more competitive markets.

But strategy is driven by beliefs rather than realities about the underlying business economics. Since national protectionism prevented full consolidation, global alliances of business carriers were established. The two main groupings are the Star Alliance, based on Lufthansa and United Airlines, and One World, based on British Airways and American Airlines, with European hubs at Frankfurt and Heathrow respectively.

Swissair’s Hunter project, adopted in 1997 under Philippe Bruggisser, the newly appointed chief executive, was to build a new global alliance led by Swissair and centred at Zurich. Never mind that the population of Zurich is only 350,000 or that, since Switzerland remains outside the European Union, Swissair did not enjoy the benefit of Europe’s open skies: bizarrely, the Hunter scheme was presented as an answer to this problem.

The small boy from the Alps, late to the party, found the pretty girls already spoken for. Delta, the favoured US partner, preferred the bright lights of Paris and Amsterdam. Swissair courted wallflowers such as Sabena, Air Liberté and Volare. It is easy to lose money in successful airlines and easier still to lose money in unsuccessful ones. Billions of euros went in support of partners who subsequently went bankrupt.

At no time did the strategy ever connect with reality. But in the closed Swiss business community critics were slapped down. The Credit Suisse analyst who exposed the scale of the airline’s liabilities claims he was forced to recant and then fired. His boss sat on the Swissair board. In early 2001, Mr Bruggisser was dismissed and a process of realising assets and containing liabilities began. But it was too slow and too late.

Former directors and executives in the Zurich courtroom scrambling to blame each other for the debacle played a familiar refrain. The problem lay not with strategy, but with execution. But effective strategy is not separable from execution and is not based on visions and dreams, but on a match between capabilities and activities. Other companies have been damaged by unrealistic ambitions: the remarkable feature of the Swissair debacle was the quality of the business that was destroyed and the degree to which the strategy was inappropriate for the distinctive capabilities of the organisation.

There is probably a role for a European airline whose primary focus is on business travellers: a carrier that emphasises service in a market increasingly driven by price yet with many customers who are not particularly price-sensitive. Mr Bruggisser joins the long list of generals, dictators and business leaders whose dreams of world conquest ended in ruin.

Swissair Strategy





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