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Air France-KLM has announced that it will be forming a new company with the aim of competing directly with the three major Middle Eastern airlines. The airline announced the news as part of its “Trust Together ” project aimed at restoring Air France-KLM to profitability and to a “leadership position” in the airline industry.
Air France-KLM say that it’s targeting profitable growth of 2% – 3% per year (through 2020) for its long-haul routes and, while this will include alliances and commercial integration with partners at a revenue level, a major component of the plan is the formation of a new low-cost company/airline.
Air France-KLM describes this new airline as being “adapted to ultra-competitive markets and positioned on structurally loss-making routes, or those that have been closed in the past few years”
The new airline will run alongside Air France and, per AF-KLM, “will constitute the Group’s response to the Gulf State airlines which are developing at low production costs on key markets where Air France-KLM is pursuing its growth ambition.”
Air France-KLM has a very high cost base so the idea behind the new venture is to create a subsidiary with lower costs and more efficient work contracts to allow AF-KLM to compete with the ME3 and, presumably, other more slimline airlines.
[The new airline] will be focused on ultra-competitive markets and will enable the Group to go on the offensive by opening new routes, re-opening routes closed due to their lack of profitability and maintaining routes under threat. This new company will propose a simple, modern and innovative offer, whose positioning will not be low cost. It will offer its customers business and leisure destinations with standards comparable to those of Air France in terms of product quality and the professionalism of the crews.
So this won’t be a low-cost airline in the way that we use that term now – the new company will aim to have a low-cost base while, at the same time, still offer an attractive product for all travelers.
I’ve even heard that the new airline will offer a Business Class cabin…but we’ll have to see what AF-KLM has to say about that.
AF-KLM says that it plans on using the new entity as a “a laboratory for the Group’s innovative ability in terms of products, digital and technology, catering, cabin design, services and the customer experience, as well as for working methods.”
So presumably we can expect to see successful aspects of the new airline incorporated into the legacy Air France-KLM aircraft where contracts and union rules allow.
The new company/airline doesn’t have a name yet but the initiative to regain market share has been called “Boost”
We’ve been told that the new airline is set to have 10 long-haul aircraft by 2020 (no news on what aircraft these will be) and that 30% of operations will be focused on newly-created routes.
I’m going to go ahead and speculate that the airline will operate 787 Dreamliners as that would fit with the need for efficiency as well as give the new entity the aircraft with sufficient range to compete effectively with the ME3.
I do, however, foresee trouble on the horizon before the new airline has even been formed.
AF-KLM say that the new airline will operate with Air France pilots “on a volunteer basis at work conditions adapted to its competitive positioning” and that cabin crews will have “an independent career path to enable this new company to be operated at the level of market costs.”.
That all translates to less pay and less benefits and, knowing the strength of the unions in France, I don’t see that as being an easy thing to achieve.
According to AF-KLM the HR framework for the new company will be negotiated with the unions in the coming weeks….so we’ll soon find out just how much opposition they’ll face.