Air France seeks new union contracts to implement cost-cutting measures

2012 04 12


LOSS-MAKING Air France, the French arm of the Franco-Dutch group Air France-KLM, has announced that it will continue to offer short and medium-haul service within its European network "on condition of achieving extensive restructuring and a drastic reduction in costs."

Air France-KLM's chief executive Jean-Cyril Spinetta is seeking an agreement with unions to achieve EUR2 billion (US$2.63 billion) in annual savings after the Paris-based company registered a net loss of EUR809 million (US$1.1 billion) in 2011, reports Bloomberg.

The company said in a statement that "the goal is to return to break-even for point-to-point service in 2013 and for the entire short- and medium-haul business in 2014".

The cost-cutting programme already introduced at its Southern France bases of Toulouse, Nice and Marseilles will be extended to the rest of the point-to-point network, including flights from Paris Orly, in a bid to return short-haul routes to profit, Bloomberg reported.

Furthermore, a standardised regional division will be created to optimise costs and the "working relationship" between Air France and its regional subsidiaries.

The company said these initiatives will be reviewed in detail with employee representatives, re-emphasising that additional savings must be found to reach the break-even point in 2014.

Bloomberg also reported that the airline will continue to serve short- and medium-haul routes only if staff agree to a "drastic reduction in costs" aided by the development of budget airline subsidiary Transavia under its own or another brand to target the growing French leisure travel market.

"Although passenger unit revenue is better than competitors, Air France's costs remain too high. The objective is to reduce controllable costs 20 per cent to reach the industry level. This objective is included in the framework and methodology agreements signed with the majority of unions representing pilots, flight attendants and ground staff", the airline said in a statement.

Another key goal is to accelerate the transformation of freight. Air France said: "Confronted with a difficult economic environment and insufficient competitiveness, several improvement priorities have been identified in freight, particularly in the areas of purchasing, fleet and business development via enhanced integration between Air France, KLM and Martinair."

Another priority is to develop growth segments in maintenance, after claiming that maintenance is a growing business, but admitted the company's "competitiveness in major overhaul maintenance is wholly inadequate".

It said that "priority actions" are expected to significantly improve competitiveness and accelerate development of the "promising engines and equipment segments. Maintenance also will contribute more widely to the group's profitability, with a goal to be No. 2 globally".

Other major areas identified include a restructuring of the long-haul segment, which has traditionally been a growth engine for Air France, by lowering production costs, and to win back customers "significant investments will be made in the product, conditional on the success of the savings plan.

Air France chairman and CEO Alexandre de Juniac said in the statement, "The work performed by the (company's restructuring plan) "Transform 2015's project teams will enable us to fundamentally transform the company to restore competitiveness, win back customers and return to a growth trajectory."

The comments came as Mr de Juniac presented an update on the plan to the airline's central works council and executives at the end of March, when initial talks with unions were due to end. Details are to be worked out this quarter and a new business plan is scheduled to be ready by June.

"By next June, we will be able to present the company's business plan. The 20 per cent cost reduction objective is a minimum threshold; to fall short would jeopardise the recovery and the company's future. These equitably shared efforts must be implemented without delay. I am confident that with the commitment of our employees and the responsible spirit of our social partners, working together we will regain our leadership position."

Source Shipping Gazette - Daily Shipping News
 

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