Air France-KLM Turnaround Plan #398 Looks Familiar (and Bad)

Air France, KLM

Oh Air France, why do you do this to yourself? This month, the airline released yet another turnaround plan to try and shore up its weaknesses and prepare for the future. There is absolutely nothing imaginative in this nine-point plan, but instead it looks like a way for the new CEO to make it look like he’s been doing something.

Air France KLM Turnaround

The new plan is called “Trust Together,” which would be a great name if the title wasn’t being completely undermined by the actual details of the plan itself. I assume “Trust Together” means that they’re hoping the entire team can come together and move forward. But a large chunk of the plan is an end-run around labor. So I’m pretty sure there isn’t going to be much togetherness.

I know I said it’s a nine-point plan, but some points are really multi-part while others say nothing at all. For example, point #4 is “Strengthen the growth of the maintenance business.” How?

Air France-KLM will continue its investment in this high-growth market to reinforce its global number two position and improve the efficiency of its production tools. From this perspective, the Group will launch a review of this business’ industrial model, examining its potential corporatization, knowing that Air France-KLM wishes to retain exclusive control

Holy crap! What in the heck does that mean? I could have come up with that myself by using this website. So let’s focus on the bits that have any substance at all.

#1 Creation of a new company alongside Air France, which is competitive and innovative and will drive growth for the Paris-Charles de Gaulle hub
Remember that whole “undermining labor” thing I talked about? This is it. Just as Lufthansa has done, Air France (I’ll just call it Air France since I don’t blame the Dutch for the combined carrier’s problems) has come to learn that it can’t be competitive with gulf carriers. So it’s going to create a new low cost subsidiary to fly 10 A340s. Seventy percent of flying will be devoted to existing routes with low yield while the rest will be new or previously abandoned routes.

What’s the difference? Labor. They’ll be paid less. Forget that Air France will be devoting its most piggish, fuel-gulping aircraft here. Forget that “low costs” will have nothing to do with the product. What really matters here is that Air France is blindly deciding that somehow these 10 airplanes flown by lower-paid crews will vanquish the gulf carriers and solve the airline’s problems. (Well, that and point #9 “Pursue lobbying initiatives in Europe and France directed at more equitable competition.”)

Of course, even with “equitable competition,” there will be new entrants and Air France’s high costs will put it at a disadvantage. The airline itself needs to change. You can’t just carve out a piece and pretend like that solves all your problems. How many times have we seen this fail? Ted, Song, Delta Express, Metrojet, etc. And most recently, we have Lufthansa doing the same thing. This is all just stop-gap band-aid garbage. Air France needs to fix its own problems at the mainline airline.

#3 Develop the point-to-point markets on departure from the French and Dutch home market
What Air France and KLM have both done in this realm is similar to what Lufthansa Group has done. They’ve shrunk back into a defensive position at their hubs in Paris and Amsterdam, where they increasingly serve only shorter-haul, higher-yielding markets as well as long haul. That leaves two market types they’ve farmed out.

Those routes that don’t touch the hubs have been primarily handed over to the annoyingly-styled HOP!. HOP! buzzes around smaller airports, forming a regional network that overflies Paris. (It also does some regional flying from Paris to smaller markets like a traditional regional would.)

Then for lower-yield leisure markets from the hubs themselves (and from a few other cities), flying has been given to Transavia. That was actually originated by the Dutch but then Air France adopted it for flying from Paris too. It used to be nearly entirely separate, but this plan will integrate it better with Air France and KLM. That means it can more easily handle connections, etc. Transavia will also be expanded as the low-cost-carrier-killer. Good luck with that.

Again, it shows that Air France’s plan is to effectively get rid of as much flying as it can in its core business and give it to lower cost options. Will this solve Air France’s systemic problems? Nope.

The Rest
The rest of the plan is fluff. Air France will “defend the cargo business,” increase aircraft utilization, introduce new uniforms, and yes, it will focus on “personalization of the customer experience and relationship thanks to Big Data.” Did you know Big Data was capitalized? I didn’t.

In the end, the airline hopes this will reduce costs 1.5 percent a year for the next few years and allow it to expand. To me, it just looks like the airline is confusing itself under a labyrinth of brands and initiatives that will hardly help its core business succeed in the long run.

[Original photo via tec_estromberg/CC 2.0]

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17 comments on “Air France-KLM Turnaround Plan #398 Looks Familiar (and Bad)

  1. I think the big question is…

    Can we expect Air France / KLM’s turnaround plan to “sponsor” next week’s Cranky podcast?


  2. AF made costly mistakes over the years. Acquired every aircraft model imaginable. Insisted in flying to cities around the world from an expensive hub, CDG. Leads from behind, copies other airlines strategies after others have gained a foothold in profitable markets. Cutting payroll costs is a short-term solution. Lack of leadership is the real money loser.

  3. In their defense, Air Canada has succeeded with their Rouge sub-brand. It uses old 767s and A320 series with sardine class seating and low paid employees. It is a low cost brand for the airline to run, but somehow charges full prices to the passengers. If AF/KLM can do that as well, it will certainly help their profitability. Not so nice for the passengers though.

    1. Has Air Canada succeeded with Rouge? West Jet has a less cramped economy product and West Jet’s Plus is equivalent to Rouge’s business class and cheaper. So Rouge is pricing its business class so high to keep the seats for business class passengers using Air Canada for overseas and needing to make a connection within North America. How do you know how this really working out for them?

      1. It’s working out for them in that Air Canada just announced record profits. Load factors are reportedly good, and Air Canada continues to announce new Rouge routes.

        It doesn’t work for me, in that I have a personal minimum seat pitch of 31″. So I would only fly Rouge if the Rouge Plus product were cheaper than a standard Y seat on a competitor. But I’m just one guy, and apparently atypical.

    2. I’m far from declaring Rouge a success. Air Canada has made it clear that what really matters is lower crew costs. They just couldn’t get to that with labor unless they made this into a very distinct separate brand. It’s not actually all that distinct but all the “cool kid” branding work is a waste and just for show. What they really should do is find a way to work with their people on wage packages that work. Then simply fly more dense aircraft with less premium under the AC brand. It would be far more successful from the AC side. Instead, they’re just playing labor games.

  4. Reminds me of an old Dilbert cartoon: “Oh no! They’re going to utilize synergy! We’re in trouble now…”

  5. of course it is the same rehashed plan that has been floated a jillion times before – but it does look a whole lot like what some other carriers are doing.

    AF/KLM is going with an airline within an airline plan which is the same thing that LH and other legacy carriers are doing while others are not.

    I think the bigger question is what plan they SHOULD come up with to succeed esp. given the labor situation they face – and which isn’t a whole lot different than at some (but not all) Euro carriers. I’m more interested in reading people’s thoughts on that question.

    1. Tim Dunn – Great question. There’s no question that labor costs are a problem and discussions have been heated at best. But they need to find a way to become more competitive. They also need to focus more on revenue generation.

  6. I would say Air Canada’s Rouge is succeeding, it has been around for a while and keeps expanding. It started with old 767’s and A319’s but has recently taken a brand new A321, I believe. Their front end is more ‘Premium Economy’. I don’t believe it is intended for their regular business class passengers, more for vacationers who want a bit more space. (e.g. me and wife on our way home from Venice) Rouge routes are largely places where the mainline couldn’t make money e.g. Edinburgh, Barcelona, Athens etc, most of which are seasonal. What I find amusing is that Canadians complain bitterly about Rouge since it falls far short of regular Air Canada mainline service. And that would be the same mainline service that they have been complaining bitterly about for years. Never satisfied, eh?

  7. Cranky, in addition to your very valid point on #1, I would hypothesize that Air France Rouge (see what I did there?) faces headwinds not just on the labor/cost front, but commercially as well.

    The only relatively successful (read: not explicitly hot-mess) examples of an organically-grown LCC-within-a-legacy are AC Rouge and Jetstar in Australia. But that has a lot to do with the fact that their home markets are affluent, geographically isolated with highly dispersed population centers, and have relatively significant financial or regulatory barriers to new entrants leading to fairly concentrated airline industries.

    Whereas more fragmented markets like the US, EU, or ASEAN region have begotten successful independent LCCs and ULCCs to service the price-sensitive end of the market, Air Canada and Qantas have the scale and competitive breathing room to cultivate that same niche at their discretion, hence why complaining about airfares is as much of a Canadian tradition as fighting in hockey. Needless to say, Air France won’t have that luxury.

    1. Paul – I’d say both are struggling with the same issues while IAG (BA/Iberia and friends) surges forward. Lufthansa seems to have made more progress, but then it veers off and does things like Eurowings.

  8. I like the buzz phrase site. Air France will distinctively deliver low-risk high-yield networks. Their joint venture with KLM will intrinsically evisculate market positioning relationships and will compellingly utilize cloud-ready human capital.

    Damn, I could have been a high priced consultant.

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