Business | Air France

Strikers against reality

Pilots stop work as the French flag-carrier struggles to reinvent itself

|PARIS

THE good news is that Air France has an idea for getting back into the black: building up Transavia, the low-cost, short-haul carrier it shares with its partner, the Dutch flag-carrier, KLM. The bad news is that its pilots won’t allow it; they want Transavia’s pilots to be on the same pay and conditions as they enjoy. The fear is that an expanded Transavia will cut into Air France’s own short-haul services and that its pilots will be fired or forced to accept pay cuts. They have gone on strike in protest. The strike, in its fourth day as we went to press on September 18th, may be the worst at the airline since a particularly confrontational 1998. Around half of all flights were being grounded, with daily losses the company puts at €15m ($19m).

Air France-KLM, Lufthansa and International Airlines Group (IAG, which owns British Airways and Iberia), are all in the same fix. Low-cost rivals such as EasyJet and Ryanair now dominate short-haul services. Europe’s national flag-carriers are struggling to stay in short-haul, to ensure they have passengers to feed into their more profitable long-haul routes. They have tried slashing fares but are hitting the limits of this, because of entrenched working conditions and determined unions. All three are plumping for new solutions.

Last year IAG took over Vueling, a budget airline based in Barcelona that serves mainly Spain and the Mediterranean basin. Lufthansa plans to fly more low-cost services in Europe through its subsidiaries, Germanwings and Eurowings, and is starting a budget long-haul airline. It is an uphill struggle: Lufthansa’s pilots have gone on strike three times in the past month, over proposals to raise the retirement age. A threatened fourth strike on September 16th was called off at the last minute.

What put the match to the tinder in France was the launch on September 11th of Air France-KLM’s latest five-year strategic plan, for 2015-20. The group will invest €1 billion in Transavia. Its fleet of aircraft is to be doubled to around 100, and three new bases are to be set up outside France and the Netherlands.

Air France-KLM does have a measure of credibility where cost-cutting is concerned. The group’s previous plan, for 2012-15, scrapped thousands of jobs and returned it to operating (though not net) profit in 2013. Analysts at Credit Suisse, a bank, calculate that the group drove down its unit costs by 5% in three years, not counting fuel-price and currency swings. The goal now is to push the black ink through to the bottom line. Will it work?

“I’m not persuaded that full-service airlines can ever truly compete with low-cost carriers,” says Andrew Charlton of Aviation Advocacy, a consulting firm. “They don’t have the mentality, their business model depends on a hub and they are too handicapped by legacy work practices.” Nor are their leaner rivals standing still. EasyJet’s profits in 2013 were boosted by its expanding business-class sales. In August even Ryanair, hitherto defiantly downmarket, launched a business fare.

Competition of all kinds keeps building for Europe’s flag-carriers, and not just in short-haul. Carriers from the Gulf are extending their networks in Europe, to attract transfer traffic to their own hubs. Etihad, with stakes in a host of airlines including Airberlin of Germany, has recently rescued Alitalia of Italy (in which Air France too is a shareholder). Qatar Airways joined IAG’s OneWorld Alliance last year. Another rising contender, Turkish Airlines, is enjoying double-digit annual growth in traffic, much of it to or from the rest of Europe. Strikes by Air France’s pilots are not going to change these harsh realities.

This article appeared in the Business section of the print edition under the headline "Strikers against reality"

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