Air France has a week to gain support from pilots for its plan for a new lower-cost airline to win back market share from competitors, with a key union demanding guarantees on the number of flights the carrier will operate.
SNPL union has put Air France’s latest proposal for pilots, which includes the plan for the new airline, to its members. The union is recommending that they seek a firmer commitment on flight volumes, Philippe Evain, president of SNPL’s Air France branch, said in a phone interview. The other choices are to agree to the deal as it is or to reject it, with a decision to be announced July 17. Air France-KLM Group plans to begin operating the unit, provisionally dubbed Boost, in October.
A commitment by Air France to offer a certain number flights is tantamount to job guarantees for members of SNPL, which said it’s already seen its membership hurt as the company shifted flights from the French carrier to its Dutch unit, KLM. Boost is a pillar of Air France-KLM Chief Executive Officer Jean-Marc Janaillac’s plan to beef up profit after years of losses while unwinding the stalemate with unions that plagued predecessor Alexandre de Juniac’s tenure.
The union agreed to Boost in February after reaching an accord on pay details, though it said further talks were needed to refine the plan. The union has since signed off on productivity steps to save 40 million euros ($46 million) a year beginning in 2020.
“There has been a lot of progress since February,” Evain said. “We’ve agreed on Boost, we’ve agreed on savings; the only difference left is about job prospects at Air France.” SNPL represents 65 percent of Air France pilots.
Evain said discussions ended and resumed several times since February. Air France made its final proposal in June, two months later than expected.
To create Boost, we need the signature of the pilot unions and we have had lengthy but I think positive negotiations,” Janaillac said Saturday in an interview with Bloomberg Television at a conference in Aix-en-Provence, France. “We have done all the efforts to arrive to a good agreement. I hope that this effort will be recognized by the pilots.”
Air France-KLM has shifted flights to the Dutch unit to benefit from lower airport levies and taxes in Amsterdam, said SNPL’s Evain.
While management has consented to pay penalties to the union if the agreement on how many flights Air France will operate is breached, SNPL says the carrier also plans caps that render the penalties ineffective after 2022 or in case the brand posts a deficit. Air France declined to comment on the penalties.
Air France is losing money on 35 percent of its routes, with 10 percent of those involving “heavy” losses, while 15 percent of routes are unprofitable at KLM, Janaillac said in November. Last year, the company reduced overall payroll by 1,850 full-time jobs, with 1,400 of those positions going at the French arm.
Janaillac has pledged to build on the progress obtained during de Juniac’s tenure, when the company returned to large operating profits in 2015 after six years of losses and small gains.
Still, the new CEO dropped his predecessor’s Perform 2020 business plan, which initially thrilled markets by boosting profitability before backfiring as pilots and cabin crew resisted cost cuts shoved through in the face of union opposition. De Juniac’s threats to downsize Air France and eliminate 2,900 jobs snowballed into strikes, courtroom clashes and a confrontation that saw managers fleeing a meeting with unions with their clothes in tatters in October 2015.
Janaillac’s approach, dubbed “trust together,” combines negotiations to keep raising productivity at Air France and KLM with the development of separate units to compete with rivals that have lower costs. Air France-KLM’s Transavia already takes on European discounters and Boost is meant to face Persian Gulf carriers on medium-haul flights from the third quarter, and on long-distance services from 2018.
Since coming on board, Janaillac has helped soothe pilots by sharing the burden of wage cuts with the cabin crew. He’s also called on the French government to support his overhaul by ending “over-taxation” in Paris. The state owns 17.6 percent of Air France-KLM as well as 51 percent of airport operator Aeroports de Paris, which has delivered profits of almost 15 percent of revenue for the past couple of years.
Air France-KLM is benefiting from a recovery in demand this year and a declining fuel bill. Janaillac, in the interview Saturday, said the second quarter was good and bookings for this summer “are also quite positive” compared with last year, when travel was hurt by terrorist attacks in Paris and Nice. The number of passengers rose 8.2 percent in June, the company said Monday.
Air France-KLM reports first-half earnings on July 28. Shares have gained about 146 percent this year.
“If we consent to these efforts without there being a sufficient level of business aligned to match them, our efforts will have served to no purpose for pilots,” Evain said.
–With assistance from Caroline Connan
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