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Air France Plans Low-Cost Turnaround

Friday 01 June 2012

Air France plans a major shake-up of its operations, to give greater priority to the use of its low-cost fleet for destinations within Europe.

It is proposing merge its regional subsidiaries Régional, Brit Air and Airlinair, to give birth to a single, more autonomous company.

Air France also wants to more than triple the fleet of its subsidiary low-cost airline Transavia over the next few years and for the airline to take over from its parent on some tourist routes.

At the same time, it is proposing to scale down the size of its flagship main carrier, with a view to achieving €2 billion in savings. Around one-quarter of the short to medium haul fleet will go, with the clear implication that it is going to focus on long-haul, leaving France and European routes to its low-cost subsidiaries.

The new regional based company, which would have a new brand, would have a turnover of €1 billion, 3,500 employees and a fleet of a hundred aircraft.

Brit Air is a company based in Brittany, with around 40 aircraft, with 45 destinations in France and other airports in Europe.

Régional goes to around 20 destinations in France and 25 principal cities elsewhere in Europe. It is based in Nantes but also flies out of numerous other airports in France and Europe. It's only UK destination is Southampton.

Airliner is based at Paris, with 24 aircraft running scheduled routes within France, often for Air France. It also runs flights to Portugal.

The new entity would be headed by Lionel Guerin, current CEO of Airlinair and Transavia. He will remain at the head of Transavia, leaving the door open to merge all of the low-cost operations into a single company.

It is anticipated that new investors will be invited to takes shares in the new company.

In order to combat competition from low-cost carriers such as EasyJet and Ryanair, Air France has opened three bases at Marseille, Nice and Toulouse. The aim is to base pilots and flight attendants in these locations and increase the daily aircraft utilization by 15%, as well as other savings in operational costs.

Air France is to also increase Transavia's fleet by 20 single-aisle Boeing 737s, against the current 8 aircraft.

Air France could also cut up to 5,000 positions by 2015, although no compulsory redundancies are planned. The company has fifty-three thousand employees.

It is currently in discussions with the unions to try and reach agreement on new terms to reduce costs and improve productivity.

The personnel costs of the company are higher than its two main competitors Lufthansa and IAG (British Airways-Iberia), although Lufthansa is to lay off several thousand employees and IAG is also struggling with the merger of its loss-making BMI subsidiary.

Air France-KLM, which is Europe's second largest airline, reported a first-quarter loss this year, and losses of €560 million in 2011. While long-haul routes make a profit, last year the company lost €700 in short to medium haul operations.

Meanwhile, low-cost airline Ryanair, who have been dive bombing Air France in Europe for years, recently reported 2011 profits of €503 million, an increase of 25% over 2010.


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