"The Cards Have Been Played" for Europe's Airlines

Air France CEO Jean-Cyril Spinetta talks about a future where Europe has just three dominant carriers, including his

Air France, France's state-owned flag airline, for years was a symbol of inefficiency and union featherbedding. During the first half of the 1990s, the airline lost $2.9 billion, and received a total of $5 billion in French taxpayer money. It was beset by constant strikes.

But under the leadership of Jean-Cyril Spinetta, the French carrier has made an impressive comeback. Once results for the year 2000 are tallied, Air France is expected to announced a profit of about $407 million. The company is fast expanding its Paris hub at Charles de Gaulle airport, and analysts say it's one of the best-positioned European airlines for future growth. It has a strong and successful alliance with the U.S.'s Delta Air Lines.

Spinetta, 57, followed a classic French path to the top: After graduating from the prestigious ENA, he served as a high-ranking civil servant in several ministries. France's new socialist government named him CEO in September, 1997. He recently spoke with BusinessWeek Brussels Correspondent William Echikson. Here are edited excerpts of their talk.

Q: There has been a lot of turbulence in European skies, talk of consolidation following the consolidation in the U.S. airline industry. Do you think there will be a similar trend in Europe?


Yes. There will be a few major airlines. Air France will be one of them. It will be a European pillar of a world alliance. We have an efficient commercial strategy and the size to survive [see BW, 2/26/01, "Europe's Flag Airlines: Going Nowhere"].

Q: Does the American consolidation directly affect you?


The simplification in the U.S. with the regrouping of TWA and American is crucial. Now there are discussions between Delta, Northwest, and Continental. If there are only three or four big American companies, there will be only three or four big world alliances. A world alliance is unthinkable without an American partner, because the American market is the world's largest. So there can only be three or four European leaders.

Q: Are the winners already determined?


Yes. Only Air France, Lufthansa, and British Airways can be the European pillar of a global alliance. The cards have been played. There are three poles, with Lufthansa and United, British Airways and American Airlines, and us and Delta. I think British and American will overcome their regulatory problems and work together.

Q: How does the alliance with Delta help you?


Delta gives us a lot of things. It gives access to the American market. It gives us lots of new connections. We have been able to open lines to Atlanta, Boston, and Cincinnati in the past two years. We use Delta's hubs in Atlanta and Cincinnati. So we can sell tickets to more than 100 American cities. A few years ago, we could only serve seven American cities.

We have grown our traffic to the U.S. by 20% in the past three years -- and it has been profitable growth. All our transatlantic lines are profitable. Similarly, Delta gets the same advantages in Europe, using our hub in Charles de Gaulle.

Q: What will happen to the airlines that don't have such an alliance?


The airlines in Europe that have not already made this choice must now choose to enter into one of the big alliances. Otherwise, they will be isolated and risk everything.

Q: What about Swissair and Alitalia?


It is clearly the case for them. Swissair and Alitalia have to take their place within the large European alliances. I believe they have accepted in their head that they must play a secondary role.

Q: Are you going to make an alliance with Alitalia? Some Italian ministers say they don't want to play a secondary role.


Italian ministers say a lot of things. We are still talking to them. We can make this a good deal for both Air France and for Alitalia.

Q: What about subsidies? Your airline received a lot of them. Are government handouts to airlines finished once and for all in Europe?


We haven't taken any subsidies for five years. So subsidies are history. I'll let Brussels comment on whether they will cut off aid for others. But one thing is sure: We won't need it again. We have been profitable for the past three years.

Q: And you are adding capacity. Isn't that dangerous, just when British Airways is cutting capacity and concentrating instead on business passengers?


No. We only go for growth that [is] profitable. We are not able to raise our prices so much but we are able to raise our yields, thanks to our strong hub. And that means we can add staff.

Q: You have some of the toughest unions in the world. Are they still difficult, and will they be demanding large pay rises?


No. We have no problems with our unions. We have kept our costs steady for the past three years. The unions have shown real maturity. People are proud to be working for a company that is making money, that looks like a European leader. I don't expect problems.

Q: Is this partly luck, since you don't have strong competition in France?


That's wrong. We have lots of competition in France. This is the most competitive market in Europe. Swissair may be having some problems now, but it is a strong company, and their three airlines in France give us a real battle. And remember, there is the [high-speed] train. We have to compete against the TGV, which goes to all the major markets in France. That gives us a tremendous amount of competition.

Q: But why isn't there a French version of a low-cost airline like Ryanair?


There is Ryanair in France. They fly to Beauvais [a small city north of Paris]. So Ryanair is not just in England. They are good at what they do, like Southwest in the U.S., and they will be successful. But they are not in the same kind of business as we are. They will do their thing. We will do ours. Each complements the other.

Edited by Douglas Harbrecht

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