For a carrier once synonymous with luxury, the award handed to Air France in June by ratings agency Skytrax came as a bit of a comedown: “Most-improved airline”
The gong was bestowed for the introduction of lie-flat business seats that rivals had years ago, highlighting the challenge facing Chief Executive Officer Alexandre de Juniac as he seeks to restore a wounded company to the aviation elite.
A political technocrat without previous experience in the airline industry, De Juniac was put in charge two years ago to revive Air France-KLM Group’s image and earnings. His efforts have been thwarted by union opposition to cost cuts and a customer base that’s deserting to discount carriers and Gulf rivals. An insight into the company’s faltering progress is due Friday with its first-half numbers: declines are forecast.
“It’s too little too late,” said Chris Tarry of London-based aviation consultancy Ctaira. “Air France was successful when European economies were strong, but as well as the aftermath of the recession and problems within European economies they face new competition across all their markets.”
While Air France-KLM remains under attack from old foes including British Airways and Deutsche Lufthansa AG, it’s facing a tighter squeeze as a new breed of Gulf carrier led by Dubai-based Emirates grab the most lucrative long-haul traffic with their glitzier cabins and unrivaled global networks.
In European markets, discount specialists including EasyJet Plc are making inroads, and domestic routes are being undermined by France’s TGV high-speed trains.
Air France-KLM stock is down 18 percent in 2015, while BA parent IAG SA is up the same amount and EasyJet has added 5 percent. Earnings before interest and tax at the Paris-based company probably fell to 91 million euros ($100 million) in the second quarter from 116 euros a year earlier, based on four estimates in a Bloomberg survey. The company declined to comment for this article.
De Juniac, a former chief of staff to one-time French finance minister Christine Lagarde, has responded to Gulf incursions by backing U.S. claims that the carriers have benefited from illegal aid, though without tangible results.
The 52-year-old CEO’s answer to the discount challenge has been equally combative, but no more effective, with plans for a low-cost operation based outside France abandoned after a two-week pilot strike cost 500 million euros ($545 million) in lost sales and bookings and prevented a return to annual profit.
The walkout, which ended when an alarmed French government that still holds Air France stock forced it into a climbdown, has left De Juniac treading water -- convinced his company is being held back by a 100,000-strong headcount and inefficient short-haul network, but stymied by the threat of more strikes.
As for returning to the glory days of the 1970s, when it wowed travelers with supersonic Concordes and a Dior-clad crew, the absence of savings is starving the company of investment.
Some 200 million euros earmarked for business cocoons and first class suites will upgrade only 44 Boeing Co. 777s -- denying a flat-bed seat to passengers on a further 60 wide-bodies, include 10 flagship Airbus Group A380 superjumbos.
Just a decade ago Air France could claim to be Europe’s top carrier after buying Dutch operator KLM as the 2001 terror attacks triggered consolidation. Instead of pushing home its advantage, the group integrated slowly while tolerating bloated staffing levels for years.
A contrast in ambitions was revealed after British Airways bought Spain’s Iberia to form IAG in 2010 and began carving out costs, turning a notoriously inefficient business profitable by the second quarter of 2014. On the day IAG began trading in London in 2011 it had a market value $3 billion higher than Air France-KLM’s; since then the gap has widened to $16 billion.
It fell to De Juniac to finally push through 7,500 job cuts, though with full-year profit not yet restored the pressure is on to deliver thousands more.
De Juniac latest push for comprehensive restructuring has prompted Air France pilots to team up with cabin crew and ground staff to ask the government to intervene. The unions reckon fresh cuts would shrink the company to a skeleton business; the CEO says Air France may be finished without them.
“He’s a brave person,” said Emmanuel Moulin, a former economic adviser to the French government who worked with De Juniac under Lagarde. “He’s honest with employees about the difficulties the company’s facing. If reforms aren’t made there is a mortal risk for Air France.”