Dose wants the Swiss government to cut taxes

The struggling airline Swiss has announced that it will spin off its regional operations into a new subsidiary.

The company said the new fully-owned unit, to be named Swiss Express, would offer low-cost travel within Europe.

In a news conference on Friday, Swiss also promised to cut its wage bill by 10% and the costs of its regional operation by 20%.

The airline has struggled recently to shore up its finances after banks and investors declined to stump up more capital.

Switzerland's government, which helped set up the new airline after its predecessor Swissair ran out of money, has also resisted the call for fresh funds.

Shares in the airline, which have fallen by 84% this year, bounced up more than 17% on the news.

Airline woes

Like many other airlines, Swiss has been hit by the slump in air travel following the economic slowdown, the war in Iraq and the outbreak of the virus Sars.

There is no question of the airline being grounded Swiss statement

Chief executive Andre Dose said Sars alone had cost the airline 40m Swiss francs (�18.5m; $29.8m; 26.5m euros) a month.

The former flag carrier Swissair collapsed in 2001 and was superseded by Swiss after its intercontinental operations were merged with its more successful regional airline, Crossair.

Friday's change of strategy effectively breaks the Swiss airline into two companies once again.

Swiss described the move as a "response to market conditions to offer low-cost air connections, particularly in Europe".

'Savings'

Also at the press conference on Friday, Swiss denied that it too was in danger of running out of money.

"There is no question of the airline being grounded," it said in a statement.

At the end of March, Swiss had 861m Swiss francs in cash and is expected to have 500m francs by the end of the year.

The company plans to implement its wage cuts by asking top management to agree to a 14% pay cut to set an example to other staff.

"Further savings in personnel costs are essential," the airline warned.

Mr Dose is also calling on the Swiss government to cut airport and fuel taxes.

Despite the jump in share price, analysts remain cautious of Swiss' new strategy.

"It is hard to judge whether they will be able to cut their costs in the European business given the scant information," said Zuercher Kantonalbank in a note.