Editor’s Note: Following our previous CEO interview series in online travelhospitality, and destinations, as well as our CMO series across verticals, we’ve launched another series, this time focused on the CEOs of leading airlines outside of the United States.

Airlines_CEO_logo2To better understand the challenges facing airlines in an age of fluctuating oil prices, rapid growth, and changing passenger expectations, our Future of Passenger Experience series will allow leaders in the industry to explain their best practices and insights. Read the rest of the series here.

This is the latest interview in the series.

You might say Air France hit its nadir in October 2015, when photographs and videos emerged of the airline’s head of human relations, nearly shirtless after protestors yanked at his clothing, being boosted over a fence by security officers. They were helping him escape from a mob, upset the airline planned to fire nearly 3,000 flight attendants, pilots and ground crew employees.

Executives said they had no choice. Even more than other top European airlines, including British Airways and Lufthansa, Air France is burdened with high costs, and management complained unions had shown little interest in allowing it to be more nimble against legacy airlines and low-cost carriers.

At the time, Air France was profitable, but not by much. Its margin in 2015 was 2.8 percent, less than the 3.9 percent recorded by sister company KLM. The French and Dutch airlines combined in 2004, the first merger in a wave of airline consolidation that would sweep Europe and the United States, though they retain separate brands, and each has its own CEO. When the merger closed, Air France-KLM was the world’s largest airline company by revenue. It’s now fifth.

During the past 13 years, KLM has generally outperformed Air France, not only on financial metrics, but also for innovation. KLM is often among the first airlines to introduce features like biometric boarding, WeChat Pay, and chatbots for customer service, while Air France often lags.

Last summer, amid deteriorating relations between management and labor, Air France-KLM’s CEO, Alexandre de Juniac, left to left to run IATA, an industry trade group, and the company’s board hired Jean-Marc Janaillac to address some of these structural problems. Janaillac, who is French, had not worked for an airline since 2000, when he was chief operating officer of the now-defunct French carrier AOM.

His most recent job made him a strong candidate. He had led Transdev, a train and bus company, where he also dealt with difficult unions, and by most accounts, he performed well. Like his predecessor at Air France-KLM , Janaillac was charged with cutting costs and making the company more competitive. He called his restructuring plan, introduced last year, “Trust Together.”

Early returns are encouraging. Though he hasn’t won all the labor concessions he sought, Air France is launching a new lower-cost brand called Joon later this year. Janaillac said the brand should help Air France compete better against Gulf and low-cost carriers.

Air France-KLM remains profitable. For the first half of the year, Air France-KLM reported a net profit of 151 euros, or about $176 million. But KLM, the smaller of the two airlines, is still the better-performing business. At Air France, in the first half of the year, operating margin was 0.8 percent, while at KLM it was 6.1 percent.

We spoke with Janaillac on October 24 at Air France-KLM’s New York office. We asked him about challenges at Air France, and how management can meld the cultures of Air France and KLM to make the company more cohesive. We also asked about the business case for Joon, and why it’s taking Air France so long to retrofit its Airbus A380s.

Note: This interview has been edited for length and clarity. 

Skift: Air France and KLM merged in 2004, but to customers, and even for many employees, they’re still two distinct airlines, each with a CEO. When airlines in the Americas merge, they tend to consolidate around one brand. But not in Europe. Why?

Jean-Marc Janaillac: I think consolidation does not have same meaning in Europe as in the States. In the States, you had a real integration when Delta bought Northwest or when American merged with US Airways. One airline disappears and it is a real merger and integration. We were the first between Air France and KLM to make this European consolidation 13 years ago. And it’s not really a total integration, for legal reasons, for [reasons related to] traffic rights to certain countries, for social reasons and also political reasons. It is very difficult to have a flag carrier disappear. I am not sure I will see the day, even when I’m retired, when Air France and KLM will disappear and we will be called Flying Blue. 

Skift: Over the summer, an internal report about company culture leaked. According to reports, your French employees may suspect KLM workers are too capitalistic. And the Dutch employees might think French employees are too bureaucratic. Is it true?

Janaillac: It’s a large and interesting question. Of course, we are two countries with different experiences, cultures and histories.

It means that in everyday work, you have to understand the culture of each other. Air France is a company where there are many engineers, and where the security of the flight is very important. They tend to have very strong organization with lengthy preparation periods so that everything is very precise. Whereas at KLM, they are more in the spirit of test and learn — though not for safety, of course.

But the culture of Air France, which had been [appropriate for] flight operations, has become the general culture of the company. There is this difference but people are changing.

Skift: Can you share an example of how Air France is getting more nimble?

Janaillac: Before, Air France used to spend two years — I’m exaggerating a little — to decide whether to fly to this destination, and studying and making market studies. They would launch the flight, and if it works, OK. If it doesn’t work, they don’t stop, because they had spent so much time studying. They would wonder, “why is it wrong?’’

Now, Air France is doing the same thing KLM is doing. Because when you launch a flight, it’s not like building a factory. You can always change it.

[Janaillac said Air France recently started being more efficient with how it schedules its airplanes. That gave route planners an opportunity to start new flights, and they approached the task differently than before.]

They decided to launch new destinations. They spent four months to study new destinations, and they launched the flights. I would say two-thirds were OK, and one-third were not OK. Now, they are going to stop [the underperforming routes.]

Skift: For your two legacy airlines, cabins look and feel different. Service and food is different too. Why?

Janaillac: The motto of KLM is, “Dutch at Heart” and the one of Air France is, “France in the Air.” It means there are two cultures and they are different. I think it’s important to keep this kind of specific flavor for each airline. And it’s not only the color of the seats, but also some amenities that can be a bit different. People know it’s going to be different. But it must be consistent. If you take the seats for example, they are nearly the same. The food is different, because people don’t want the same food. But you cannot have too much difference between the two services. It’s about how we try to package and manage the differences.

[Editor’s note: Air France and KLM use the same frequent flyer program, called Flying Blue.]

Skift: You’re part of tangled web of airlines that invest in each other. Delta and China Eastern each own 10 percent of Air France-KLM. Meanwhile, you’re buying  31 percent of Virgin Atlantic. And you have several joint ventures with airlines, where you share revenues. What’s the point of the Sky Team alliance when some of its members have close relations and others don’t?

Janaillac: I think SkyTeam will have … some airlines with commericial links through a joint venture or links through having shares owned between us. And around that, we’ll have a number of other airlines where there is not a system of joint ventures, but where passengers will get big advantages. For example, SkyPriority all over the world is really something very important for our clients. I think it’s very possible to have a two-level system because they are not at all conflicting. It gives value to frequent flyers.

Skift: If there’s one complaint I hear most often about Air France it’s that your Airbus A380s have an outdated onboard product, including angled-flat business class seats flying on premier routes, such as New York and Los Angeles to Paris. Why?

Janaillac: It’s because refurbishment of the A380 costs a huge amount of money. We didn’t have really the financial capacity to do it as quickly as we would have wished. But we have taken the decision and we are going to launch the refurbishment program for the A380, putting our new first class, our new business class and our new economy class. It will begin in 2020.

Skift: Why not until 2020? Passengers want it today.

Janaillac: I know. But we already have new planes [with new seats]. The 787 that are already here, and the A350 that are going to arrive in 2019 are going to have our new seats. And we are refurbishing the A330s and the rest of the 777s. We have decided to do the refurbishment of this part of the fleet before beginning the A380.

Skift: At Air France, you’re launching a new lower-cost airline in December called Joon. The marketers say it’s designed for millennials. What’s the plan?

Janaillac: The first goal was to be able to have a resistance to the Gulf carriers, which we feel are being unfair. But they are there, and we need to find a way to resist their competition, especially to Southeast Asia, where they are very strong. And the second thing is we also have fierce competition from low-cost airlines in the European battlefield.

Air France has done much since last year to try to reduce costs. For example, 10,000 jobs have been eliminated within the company. But it was not enough, and we have to reduce costs further.

When I arrived a bit more than a year ago, we studied what we could do, and we arrived at the conclusion that it was impossible to ask the actual cabin crew to make substantial cost reduction. The solution was to create a new airline with different rules that would be doing the same business as Air France is doing. It was rather an economy necessity.

But from this economic necessity, we thought it was good not to make a kind of Air France Blue or Air France White or whatever, but to have a bit different positioning. We thought that we should have a product, which, in terms of offer, is quite close to the one of Air France — for example we have two classes in medium haul and we are going to three classes in long-haul, with full flat seats in business class. It’s the same kind of product [as Air France] but with different items that are more related to the way people are living today and what they are asking for. It means it will be more digital. We are going to make it a laboratory in terms of marketing, in terms of pricing. The food is going to be organic, and so on.

We took the demands of this population of millennials, and adapted to them. But it’s not only for millennials, of course. It’s there to attract all the majority of the population, but with different feeling and marketing. For example, the uniform of our cabin crew is going to be quite French, but at the same time, it will be a bit more casual than the classical uniform on Air France.

Skift: Will my parents feel comfortable flying Joon?

Janaillac: Yes. I will feel comfortable. And I’m of the same generation as your parents. We don’t want to to be only attracting millennials. But we think that, even for people of my age, we are influenced by new behavior in the world, and even if we don’t have exactly the same patterns and desires and needs when we are buying things or traveling, we are still influenced by this same things. And digital is everywhere also. So it’s more general than an airline for millennials. It’s more about a lifestyle.

Skift: Whoever is marketing Joon seems to be having fun. The introductory press release said, “Joon is a fashion brand, a rooftop bar, an entertainment channel, a personal assistant … and Joon does flying too!” What did you tell your employees you wanted from this new brand?

Janaillac: We told them that we had to reduce costs. It’s not only from new contracts, but the planes are going to fly more. We will make economies in the ground services, and we are going to use more digital, and so on. That was our first goal.

Afterwards, the idea was to try to change a bit the image [of Air France]. Many people think, for example, that Air France is more expensive on the medium-haul routes than low-cost carriers. Very often, we have the same prices. But it’s not in the mind of the people. By changing the marketing, it’s also possible to enlarge our clientele and not to deter people from watching the tariffs of Air France.

Skift: How much of this is about avoiding past mistakes? Did Air France and KLM underestimate threats from short-haul low-cost carriers years ago?

Janaillac: I was not in the industry at the time, but the industry was pretty arrogant. They thought, ‘We are not in the same world, and we are not doing the same business.’ And they totally missed the rise of the low-cost carriers and now they are 50 percent of all travels within Europe.

We don’t want to do the same mistakes for low-cost long haul. We are watching very closely what they are doing and trying to offer solutions to compete and not to say, ‘It’s not the same business, and we don’t have the same clients, and so on.’ The main lessons we learned from that period is that you must be quite cautious and aware that this is a new kind of product, and this new way of selling. It’s something you must watch.

Skift: Many airlines fear competition from long-haul, low-cost airlines like Norwegian Air. But there’s some question whether the long-haul, low-cost market is potentially as large as the short-haul one. Will airlines like Norwegian ever be as powerful as Ryanair and EasyJet?

Janaillac: We are not that sure that this there a business model that will replace what we have in the long haul. There are several factors. The fact is that when you are an executive, you can accept to fly EasyJet for one or two hours before getting to a meeting. [For long-haul,] if you have to have to spend the night on the plane and have a meeting afterward, it’s better to have a real business class seat so you can sleep and be fit when you arrive.

So is there a market? What is the size of the market? That remains to be seen. Is it a systematic business model? We don’t know yet. But contrary to what we did some years ago, we do consider that we have to carefully react in as many ways as possible. It’s exactly what we are doing.

Skift: In coach on Joon, you won’t serve free food, or even free soda. If customers accept it, might you do the same on Air France and KLM?

Janaillac: For Joon, on the medium haul, business will be as today, and we will have warm meals. For economy, we are going to serve free drinks like coffee, water and orange juice, but afterward if people want to eat or drink something else, they are going to pay. It means we are testing this new way of pricing and marketing. It has been very difficult [to do] at Air France because of the image and the size and so on. But it’s the task and the duty of Joon to be a laboratory where we can test new ways and marketing proposals.

Skift: You had asked Air France’s unions for concessions to start Joon, but you didn’t get everything you wanted. You called the agreement with labor a, “balanced compromise.” Are costs low enough for the airline to succeed?

Janaillac: When I announced a year ago on the third of November the plan to our board, there was a representative for our pilots and a representative for our cabin crews, and both of them told me, ‘It’s crazy. You will never succeed.’ So first, it took some time, of course. And some commentators, especially in the French press, are always a bit critical, said, ‘It’s crazy.’ So we didn’t reach the same kind of organization we had sought.

Now, the cost for flying at Joon is 15 to 18 percent less than the one of Air France. It’s not that huge but it really makes a difference. The goal is to reduce the cost, but not reduce the yield, the unit revenue. If you lower the cost by this amount, and keep roughly the same unit revenue, what was loss making can be a break even. It’s exactly what we are trying to do.

Skift: Where will Joon fly, both now and in the future?

Janaillac: In Europe, we are beginning next December with flights [from Paris] to Berlin, Barcelona, Lisbon and Porto. It’s a mix of business and also leisure, and visiting friends and relatives, kind of destinations.

For the long-haul, we are going to begin next May. First we are going to open two new routes with Joon. One is Fortaleza in Brazil. [Air France-KLM] is going to make kind of a hub in Brazil with Gol, our partner, and we would not be able to open Fortaleza with the Air France cost. And the second, which is quite remarkable, is the reopening of the flight to Mahe in the Seychelles. It is a very popular destination for European people. It’s an upscale destination that Air France was obliged to drop because of the competition from Emirates, which is flying I don’t know how many A380s to the Seychelles.

[Editor’s note: Mahe is mostly a 777 route for Emirates now, with flights two to four times each day from Dubai.]

Joon gives us the opportunity to fight back against Emirates with lower costs. We have not yet decided the other destinations that will be served by Joon but it will be a combination of Southeast Asia and, to ensure a good utilization of the fleet, you must have eastbound and westbound destination in order to have the maximum hours flown by the plane. We have Fortaleza and we are looking at other destinations in the western part of the world.

Skift: Does that mean Joon is coming to the United States?

Janaillac: We haven’t decided yet.

Skift: You’ve been so overt with marketing to millennials. But it strikes me that a route like Mahe can only succeed if you persuade wealthier and older leisure travelers to switch from Emirates, which brands itself as a luxury airline, to Joon. Will they?

Janaillac: They can always choose the competition but Joon is going to be marketed by Air France and it’s going to be a codeshare with Air France, so it’s going to be a reassurance for our customers. I see what you mean, calling it an airline for millennials. But the reactions we have right now, after launching, is that people — and even people from my generation — find it different and are quite interested to see it. It’s a bit more in the spirit of Virgin Atlantic, meaning not exactly in the mainstream, but being more of a challenger.

When I presented the Trust Together project in November [2016], I said that Air France-KLM should stop seeing itself as one of the biggest airline groups in the world. That’s what we used to be, when the merger was done 13 years ago. But we are now a challenger. When you are a challenger, you take a bit more risk and don’t always follow the evident solution in the mainstream.

Photo Credit: CEO Jean-Marc Janaillac has helped stabilize Air France-KLM in slightly more than a year leading the company. Air France