Protesting pilots crippled traffic at Air France for two weeks, while Lufthansa has endured a wave of walkouts by pilots. Lufthansa Chief Executive Officer Carsten Spohr asked customers for patience as he struggles to broker a compromise. His counterpart at Air France-KLM Group, Alexandre de Juniac, caved in last week, dropping plans to create a pan-European low-cost operation to get pilots back to the table.
With about half the daily flights in France canceled, the strike provided another opening for the likes of EasyJet Plc, the U.K. low-cost airline that’s muscled into France and Germany, adding 3,000 seats in France alone during the strike. Lufthansa abandoned some long-haul voyages, the lucrative travel segment increasingly under attack from Middle East carriers.
“It is ironic that for the time being, the rivals that Air France and Lufthansa are trying to keep in check — low-cost and Gulf carriers — will benefit from the situation,” said Ruxandra Haradau-Doeser, an analyst at Kepler Cheuvreux in Frankfurt. “It is very important for both carriers to find solutions.”
Back to Work
Air France pilots returned to work this week, with the carrier estimating the cost from lost services at 280 million euros ($353 million), before additional damages paid to passengers. Financial targets are under review, and the stock fell 10 percent in the two weeks that pilots walked out.
De Juniac, who took over last year, had sought a more expansive low-cost subsidiary under the Transavia brand, riling employees concerned that a European unit based outside France would drive a wedge between established pilots and lower-paid colleagues domiciled abroad. Management eventually dropped the plan as the strike dragged on.
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Given that many customers were driven to fly with rival airlines, they may now be tempted to continue rebooking elsewhere to avoid future conflicts, said Ryanair Holdings Plc Chief Marketing Officer Kenny Jacobs.
“It’s really bad for their business,” Jacobs said. “It summarizes what’s wrong with the high-cost carriers.”
EasyJet flights were even “busier than usual” after it added the 3,000 seats in France from Sept. 15 to 25 to fly passengers on business connections, spokesman Paul Moore said.
In Germany, pilots are also keen to protect privileges from a better era of flying. Pilots are protesting a plan to curtail bridge payments by Lufthansa for pilots leaving before the age of 63, when they become eligible for government pensions. Lufthansa argues the average bridge period should be just two years.
The strikes, which continued yesterday on long-haul routes, have reduced operating profit earmarked for this year by more than 100 million euros, according to Lufthansa. CEO Spohr, a trained pilot, turned to the public yesterday in a video message that appealed to customers’ patience, stressing that he must safeguard the company’s future, and not simply give in to the demands of his 5,000 best-paid employees.
With Air France’s service returning to normal after pilots won some key concessions, the winner remains Luton, U.K.-based EasyJet, said Robin Byde, an analyst at Cantor Fitzgerald.
“They set up an aggressive strategy a few weeks ago to expand in France, including building out their French domestic resources,” he says.
Shares of Lufthansa have lost 23 percent in the past three months, while Air France dropped 19 percent. Ryanair Holdings Plc gained 6.6 percent in that time, with EasyJet Plc advancing 3.3 percent. The market value of British Airways parent International Consolidated Airlines Group SA, equivalent to 9.2 billion euros, tops the combined values of both its larger European rivals.
Air France has yet to present a substitute plan for its shelved strategy, though pilots privately say they fear de Juniac will come back with something similar. At Lufthansa, retirement benefits are just one of more than a dozen pent up issues to solve.
While there is a risk that Lufthansa might miss its financial guidance for this year as the carrier won’t be able to expand capacity as planned, the conflict may drag into next year, analyst Haradau-Doeser said.
“It is important for Lufthansa to accept some difficult times in order to safeguard profitability in the long run,” she said. “In his first year as CEO, Carsten Spohr is not that much under pressure to make concessions. His main task is finding a long-term solution.”
–With assistance from Kari Lundgren in London.
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