Mastering heights

Christen Baumann has a rare gift. He can make Swiss skilift companies profitable. And a key reason for his success, he believes, is his entrepreneurial drive.

Before he made his mark in the tourist industry running various lift companies, Baumann, now CEO of Zermatt Bergbahnen AG, had spent many years in top positions at a number of mechanical engineering companies in and outside Switzerland. Still, having grown up in the Bernese Oberland, mountains were in his blood – as any amateur alpinist seeking to discover the peaks around Zermatt with him would be able to attest.

The company he now manages is Switzerland’s largest cable, skilift and funicular railway organization. It came into being just under three years ago as a result of the merger of six previously independent companies, each with its own ownership structure and identity. With a workforce of 260, it can transport more than 45,000 people an hour in peak times with its 32 lifts operating between 1,600 and 3,883 metres above sea level – in itself an extremely technologically demanding task. In winter, his company is additionally responsible for the upkeep, preparation and grooming of roughly 200 kilometres of ski pistes.

When he took up his new position during the merger, Baumann, an experienced turnaround manager, decided to limit staff upheavals when integrating the six companies. Within a fortnight, he had filled all the company’s managerial posts with seasoned hands who had been asked to reapply for their jobs. Integration was smooth, and job losses insignificant. Since then, Zermatt Bergbahnen AG has been turned into an income generator. “We have reached or even surpassed all the targets we set ourselves,” says Baumann proudly.

In the 1990s, many Swiss skilift companies and mountain railways found themselves facing huge financial problems. One of the reasons was that, when approving loans them, the banks no longer based decisions on the earnings projections of their transport infrastructure but instead looked at each operator’s long-term debt capacity. Because of that, banks cut sector and client ratings for them, meaning that they were forced to restructure or merge in order to avoid the higher price of servicing their debt.

According to Baumann, the deep problems experienced by a large number of them were not caused by the bank’s lending policies, but rather by a lack of cost discipline.

“There was an excessive amount of collective wishful thinking, egotism and pressure from special interest groups – in ignorance of business realities. Rising costs – combined with stagnating or even declining income. In the long run, that doesn’t work,” stresses Baumann.

Another factor in their downfall was the fact that a number of them traditionally gave seats on their boards of directors to elected politicians. And they tended to gauge the benefits of investments and other such measures in terms of their impact on popular opinion. Company interests came second.

But does that mean governments should keep out of tourism altogether?

«No – as long as we’re talking about the general operating environment, and not operating decisions, » Baumann says. As an example, he is very appreciative of the work done by Schweiz Tourismus to promote the country. But he thinks the most effective way to encourage tourism would be to greatly accelerate the process for obtaining construction permits. Many of those applying – including Baumann himself – have become entangled in the red tape of an often slow and cumbersome bureaucracy.

And, the government should provide the tourism industry with more incentives to look for private investors as the source of funding, creating a level playing field, Baumann believes.

The crux of the problem is that medium-sized skilift companies have tended to rely on federal and local government loans while larger privately financed ones, although not explicitly forbidden from doing so, have refrained from taking any as they would be unable to pay any dividends to their shareholders.

Despite that, one of Baumann’s guiding principles, whether managing a small or large company, is never to let a company’s indebtedness rise to more than 60% of its balance sheet. It is how he retains the necessary degree of autonomy, protecting his companies from potentially excessive debt service burdens, even if interest rates suddenly rise.

As is now normally the case, all the newer Zermatt lifts havebeen leased, and as the company’s main bank, UBS also has a major interest in them. When choosing his business partners, Baumann’s main concern is to obtain good terms and conditions. In addition, in his dealings with banks he appreciates straightforward communication and quick, business-like decision-making. His view of UBS has changed considerably in recent years.

“Nowadays UBS looks closely into the issues of the tourism sector in Switzerland and offers support in finding highly competitive solutions,” he says.

Baumann does not run his business in splendid isolation. He thinks it is important that most locals in Zermatt stand behind what he is doing. In this he is perhaps helped by the fact that he appears quite the opposite of an ice-cold profit-monger.

“We live off nature,” Baumann declares. And he practices the wisdom that he preaches. For instance, in the last financial year almost 3 percent of the company’s capital investment and operating expenditure was for environmental protection. For Baumann, it goes without saying that construction must be environmentally friendly from start to finish. This April, he will submit an application for ISO certification of his company’s environmental management system.

Also, Zermatt is a village that has kept its feet on the ground. It is still predominantly locally owned – something true of the lifts, railways and hotels – and most living there intend to keep it that way. Baumann sees this as both an opportunity and a potential threat: “Local roots and local control promote a sense of identification, preventing the damage that control by outside forces might inflict. At the same time, there is a danger of a certain blindness to the realities outside.”

So does Baumann have a ‘vision for 2010’? Yes: “Zermatt must remain what it is.”

In order to keep the village ahead of the game, Baumann’s company has already invested almost 100 million Swiss francs in new lift infrastructure and opened another 20 to 30 kilometres in new ski pistes. He expects to make another 100 million in investments over the next five years.

“It is only our cash flow that allows us to enhance the quality of the product we offer.”

In winter, Baumann has a policy of skiing all the company’s pistes personally every fortnight, and in summer his walks take him past the company’s construction sites.

“We can only build from June to October – so we can’t afford to waste time.” In the mountains, things are not only at the mercy of the economy – they are also determined by weather and the climate.