Although Air France-KLM’s stock rose as pilots finally ended a two-week strike that sapped the company of a whopping $250 million, the beleaguered company has no choice but to deal with its bête noire: Its low-cost subsidiary, Transavia.
Company management had planned to make Transavia into a leading budget airline by expanding its network through creating new bases in the Mediterranean, but pilots strongly opposed that idea, together with the lower wages and longer working hours that are part of the course for budget airlines.
Currently, Air France pilots are among the highest paid in Europe and reportedly fly fewer hours than their peers at other legacy airlines, but this, according to Torsten Wulf, academic director Center for Strategy and Scenario Planning and the Leipzig Graduate School of Management, is unsustainable in the long run, “and Air France has to do something urgently if it wants to become competitive again, particularly about personnel costs, which are far too expensive.”
What the company will do, though, remains to be seen, since there is no word on wages, and expansion plans for Transavia have been watered down considerably, thereby serving little toward its profitability. Like any other European airline, Transavia faces intense competition from well-established budget carriers like Ryanair and EasyJet, which fly to and from multiple European destinations, but there’s little choice for parent company Air France-KLM but to take Transavia forward.
For its part, Air France is also finding it difficult to compete against airlines like Singapore Airlines, Emirates and Etihad, which are not only flush with cash but more attractive to consumers seeking long haul flights out of Europe, and also expanding rapidly in Europe.
European airlines have had a rough few years, there’s no doubt about it. Air France, part of the Air France-KLM group, is no exception, and has been impacted by the economic crisis, which dragged profits down.
France has recently been dubbed the new “sick man of Europe,” its economy is in trouble, and many believe there’s a need for some major restructuring to spur the private sector.
But surviving and returning to profitability by cutting costs and devising an effective low-cost strategy is likely to be easier said than done for Air France and German carrier Lufthansa, which also continues to face pilot strikes on a regular basis, said John Strickland, an independent aviation consultant based in London and director of JLS Consulting. “Both these companies are struggling with their pilot groups, who are resistant to change and fail to understand what needs to be done,” Strickland said. “Management, too, seems unable to communicate effectively.”