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Air France at a Crossroads

Tuesday 07 October 2014

Air France has been obliged to shelve plans for the proposed expansion of the Transavia low-cost subsidiary, a defining moment for the future of the airline.

The strike action started by pilots of Air France on 15th Sept resulted in an unprecedented period of disruption to air traffic in France, with the cancellation of up to 80% of flights at some airports over a period of two weeks, the longest period of industrial strife in the history of the company.

The pilots of the main trade union SNPL (Syndicat National des Pilotes de Ligne) have been protesting at the plans by Air France to take on the challenge of low-cost carriers by the transfer of short to medium haul traffic to their own low-cost subsidiary, Transavia.

It is a plan that has been around since the merger with KLM in 2009, but one that dare not speak its name, for there have been several false starts.

The Transavia airline has been part of KLM since 1991, but only made its modest appearance in France in 2006 in a joint venture with Air France.

In order to keep the pilots on board Air France agreed to ring-fence the airline so that:

  • the fleet would be limited to 14 aircraft;
  • it would not compete with Air France routes;
  • it would operate out of Paris Orly.

The airline serves primarily Mediterranean tourist destinations in Europe from Orly, although there are a limited number of flights to the sun out of Nantes, Lyon and Lille, with a price structure comparable to those of competitor airlines.

However, the airline division has failed to make a profit, and the selected routes have failed to deal with the main challenge from other low-cost carriers on French soil.

Ryanair alone carries more passengers a year than does the whole of the Air France-KLM Group, and low-cost airlines now have 40% of the share of the European market.

Only this year Easyjet announced that France is a market they intend to grow substantially, with plans to start 24 new routes from 18 French airports.

The Air France-KLM group have run up substantial losses over the past 8 years, mainly incurred on the short to medium haul routes.

As a result, the airline decided that there is nothing for it than to transform Transavia into a full-scale pan-European low-cost airline, operating from bases in France and elsewhere in Europe from where it would attack its competitors.

In order to achieve this objective they proposed that the fleet should be increased to at least 100 aircraft by 2017, carrying 20 million passengers, against 9 million currently. Around 250 more pilots would be recruited. No pilot from Air France would be obliged to transfer to Transavia.

Sitting alongside Transavia would be Hop!, itself also a subsidiary of Air France, formed out of the merger in 2013 of Brit Air, Regional and Airlinair. Hop! currently serves the 'point to point' destinations within France from Orly airport and would absorb internal routes flown by the parent airline at Roissy, Charles de Gaulle airport.

The result of these twin moves would be that the Air France brand would effectively dissappear from within France and many European short to medium haul destinations, leaving it to become an almost exclusively long-haul carrier.

In itself, none of this posed a problem for the Air France pilots, who support the growth of the low-cost airline, but they only do so on the basis of maintaining their existing terms of service, a condition that is a complete non-starter for Air France.

As the Chief Excecutive of Air France, Alexandre de Juniac, has stated, "Air France has accumulated over the years advantages which make its costs and operating conditions well above those of Transavia. It is, therefore, not possible to go and work for Transavia on Air France conditions, without killing Transavia."

There is no doubting that pilots in Air France have very comfortable set of working conditions. Pilots in Transavia and Hop! earn around 20% less than Air France pilots and work up to 30% more hours a year. Whereas the hours of an Air France pilot are 500 to 600 a year, pilots in Transavia and Hop! do 700 to 750 a year (800 a year at Ryanair). The maximum legal limit in Europe is 900 hours.

Salaries for pilots at Air France start at around €75,000 a year, rising to €250,000 for the most senior long-haul pilots in the airline and there are other fringe benefits that go with the job.

But it is not a dispute even mainly about cash; it is one about jobs, for the major concern of the pilots is the establishment of bases outside of France, where Air France would be able to recruit and locate pilots on terms far more favourable than those within France. These new bases have been muted to be in Munich, Lisbon and Oporto, as well as potentially Madrid and Brussels.

The union may well not be far off the mark, for that is precisely what Air France did with their Cityjet airline, which is based in Ireland, and where many of the pilots reside. Given the more generous level of taxation in Ireland, that may be no great sacrifice made by them. The airline was sold earlier this year to an investor based in Germany.

With the writing on the wall, the pilots clearly decided it was time to take a stance.

They did without the support of the pilots from Transavia and Hop! who continued to work, and also much to the disgust of the main ground staff trades union at Air France, the CFDT, who called the strike 'indécente' and 'corporatiste'.

Indeed, during the strike several hundred staff of the company protested outside of the headquarters offices demanding that the pilots return to work. Amongst the protest group were a number of AF pilots who considered that their striking colleagues had failed to take account of the new economic realities of the industry. Pilots from Transavia France also accuse the striking AF pilots of wanting to 'trample all over us".

Not surprisingly, there was also very little support amongst the general public and the Prime Minister, Manual Valls, also called the strikers "égo├»ste". The government hold a 16% stake in the airline.

Although there were discussions between the pilots and the board of Air France to try and resolve the dispute it was really a dialogue of the deaf, for the pilots were unwilling to yield any ground.

The board of Air France offered concessions on the deal by proposing to limit the pace of development of Transavia and to offer a payment to pilots who transfer to Transavia, as well as to provide assurances concerning local bases, but the pilots remained unmoved.

As a result, with losses of over €300 million from the strike, the company were obliged to shelve the plans.

With the collapse of their central business strategy for the future, and the loss of the loyalty of thousands of customers, it remains unclear just how the company are going to be able to develop a competitive response to the low-cost carriers.


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