Air France-KLM Seeks Makeover After Brush With Bankruptcy

Air France-KLM Group (AF), Europe’s largest airline, is getting a makeover ranging from high-end seats to bigger entertainment screens as Chief Executive Officer Alexandre de Juniac attempts a turnaround from near bankruptcy.

De Juniac, who became CEO in July, is coupling luxury perks such as gourmet meals with a push to trim spending that will erase almost 10,000 jobs from 2011 into 2015. With fliers ready to spend more, investing in the customer experience goes hand in hand with savings, he said.

“We can’t compete with these Gulf and Asian carriers without providing the best service and product in class,” de Juniac, 51, said yesterday in an interview at Bloomberg’s headquarters in New York.

In betting the carrier’s future on premium fliers, de Juniac faces long-haul competitors such as Etihad Airways PJCS, Qatar Airways Ltd. and Singapore Airlines Ltd. that upgraded their jets earlier. Paris-based Air France-KLM posted five annual losses in six years as labor spending topped fuel, a reversal of the situation in the newly efficient U.S. industry.

“We were heading to bankruptcy,” said de Juniac, who took the top job at Air-France-KLM after heading the Air France unit for about a year and a half.

Photographer: Balint Porneczi/Bloomberg

Alexandre de Juniac, chief executive officer of Air France-KLM Group, pretends to relax in a new business class seat during a presentation of new aircraft seats for the airline's Air France unit at the Zodiac Seats France plant in Issoudun, France on Feb. 4, 2014. Close

Alexandre de Juniac, chief executive officer of Air France-KLM Group, pretends to relax... Read More

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Photographer: Balint Porneczi/Bloomberg

Alexandre de Juniac, chief executive officer of Air France-KLM Group, pretends to relax in a new business class seat during a presentation of new aircraft seats for the airline's Air France unit at the Zodiac Seats France plant in Issoudun, France on Feb. 4, 2014.

After being late to the game with luxury appointments now standard on carriers including Emirates and Singapore Airlines (SIA), Air France-KLM is spending 1 billion euros ($1.37 billion) over three to four years to gussy up its long-haul fleet.

Longer Seats

Fully reclining business-class seats will be longer than those offered by competitors, with down pillows and comforters, bigger media screens and the new menus, de Juniac said. He said he personally insisted on more room for fliers’ feet.

“We think people are fed up with being badly treated,” de Juniac said. “People will be willing to spend a little more on their plane ticket.”

Passengers flying abroad in premium-class seats rose 4.2 percent in 2013 from a year earlier, according to the International Air Transport Association. The North Atlantic market, the biggest by revenue and one where Air France-KLM competes, rose 2.4 percent after gaining just 0.6 percent a year earlier when Europe was mired in recession.

Higher fares on long-distance flights make premium passengers especially valuable. Of 15 million travelers on those flights for Air France last year, the 1.6 million fliers who used business class contributed one-third of revenue, the company has said.

Photographer: Balint Porneczi/Bloomberg

Air France flight crew stand beside a new business class seat unit during a presentation of new aircraft seats for the airline at the Zodiac Seats France plant in Issoudun, France on Feb. 4, 2014. Close

Air France flight crew stand beside a new business class seat unit during a... Read More

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Photographer: Balint Porneczi/Bloomberg

Air France flight crew stand beside a new business class seat unit during a presentation of new aircraft seats for the airline at the Zodiac Seats France plant in Issoudun, France on Feb. 4, 2014.

Stock Rally

Investors are starting to warm to Air France-KLM’s turnaround plans, sending the stock to a 22 percent gain through yesterday in the past 12 months. That was enough for 11th place among 30 carriers in the Bloomberg World Airlines Index. France’s CAC All-Tradable Index rose 20 percent in the same period.

Air France-KLM has also started to forge commercial partnerships to strengthen its position in markets outside Europe, where passenger traffic growth is sluggish and competition from low-cost rivals is fierce.

“Africa will be on the line of the horizon,” de Juniac said. Air France-KLM already has an agreement to share booking codes with Kenya Airways Ltd., an arrangement that lets the carriers place passengers on each other’s flights.

To spread his vision of a new face for Air France-KLM, de Juniac said he plans to double or triple the advertising budget. The airline has 150 people working on social media networks and will announce a new global advertising campaign and a communication investment strategy this month, he said.

“Tablets and iPhones impose on us to be present everywhere all the time,” he said.

To contact the reporter on this story: Molly Schuetz in New York at mschuetz9@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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