The company, born last year out of collapsed carrier Swissair and regional subsidiary Crossair, has been losing about 2 million Swiss francs ($1.5m; �900,000) a day.

Now it has decided that massive job cuts and the scrapping of 34 aircraft - nearly a third of its 112-strong fleet - are the only way to proceed.

It aims to cut costs by 1.6bn Swiss francs ($1.21bn; �725m) in its new business plan, in the hope of putting itself in a better position when seeking to strike alliances with other airlines.

"The enduring crisis in the airline industry points to sector-wide consolidation," the airline said in a statement.

"Only healthy, well-positioned companies will survive."

Two-tier service

Like most international airlines, the Swiss carrier has been hit by the combination of the global economic slowdown and the slump in air travel relating to the Sars virus and war in Iraq.

It has also suffered particularly badly from increased competition from low-cost airlines.

A third of the fleet will be grounded

In response, the airline is changing the way the services on its aircraft are supplied for intra-European routes.

Effectively, it will have both old-style full-service and new-style budget travellers on the same plane.

Business class passengers will pay upfront to have access to all the trimmings, while their economy class fellow travellers will pay for meals, drinks and other services as they use them.

Knock-on effect

Details of where the job cuts would fall were not yet available.

But Swiss newspapers reported on Tuesday morning that while the management payroll would be cut by about half, most of the job losses would be among the airline's ground staff.

The company has already run into trouble with its job-cutting policies, after a Swiss court banned it from concentrating its firings of pilots among higher-paid former Swissair staff, rather than their lower-paid ex-Crossair colleagues.

There is also expected to be an unwelcome knock-on effect for Swiss's suppliers.

"Apart from the 3,000 redundancies at Swiss, we also fear the loss of 2,000 peripheral jobs," said Daniel Vischer, secretary general of VPOD union.

Ground handler Swissport has already announced 350 job cuts in Switzerland and a likely 100 abroad.

Most aviation analysts believe Swiss needs large scale job cuts to turn the airline's fortunes around. "They've got to reduce capacity," Ernst & Young analyst Lloyd Brown told BBC Radio.