Air France-KLM Cuts Cargo Capacity Further Amid Slump in Demand

-- Air France-KLM Group said it will further reduce its cargo capacity as demand fails to recover, part of a cost-saving drive that includes expanding the Transavia brand to compete in the low-cost passenger market.

The full-freighter fleet in Amsterdam will drop to three planes by the end of 2016, phasing out five Boeing Co. (BA) MD-11s in 2015 and 2016, the company said in a statement today. That will leave the group with five ful freighters, two Boeing 777s in Paris and three 747 jumbos in Amsterdam, compared with a total of 14 in 2013.

Air France-KLM has been studying options for its cargo businesses for several months, with scenarios including a complete withdrawal, finding a partner, or further cost cuts, amid a struggle to regain profitability. The group today said demand has been recovering less quickly than anticipated.

Europe’s largest airline is also seeking ways to better compete in its short- and medium-haul passenger business with low-cost carriers including Easyjet Plc. (EZJ) In future, the carrier plans to build a pan-European operation under its Transavia brand that will offer service from the middle of next year.

“The group is positioning itself as a major player in this rapidly growing market in Europe,” Air France-KLM said.

The business will grow out of Air France (AF) KLM’s existing Transavia operations in France and the Netherlands, while adding new bases in other countries.

The airline is playing catch-up with its biggest rivals, which already have moved to head off discounters such as Easyjet and Ryanair Holdings Plc. (RYA) By expanding its leisure brand and using a different pay scale from the one applied to Air France and KLM employees, the company can cut costs in short-haul, point-to-point operations, the fastest-growing segment in Europe.

The creation of Transavia Europe is only one piece of the larger plan, which won’t be announced until early next year. Air France will host a press conference on Sept. 11 to announce more details about efforts to compete in the low-cost area.

The existing Transavia France and Transavia Holland, which both grew from a unit of Dutch carrier KLM, already operate about 50 Boeing 737s, the majority with the Dutch portion.

To contact the reporter on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net

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

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