Air France-KLM Moves to Simplify Airline Group

Air France-KLM CEO Benjamin Smith is pushing ahead with plans to transform the airline to bring it on a par with its European rivals.

On Wednesday, Smith outlined the new strategy, which included plans for a simplified structure as well as a brand reorganization.

Millennial airline Joon is going and the company will now focus on three airlines: Air France, KLM, and low-cost subsidiary Transavia with regional carrier variations — Air France Hop and KLM Cityhopper —in each home market.

The company is creating a new group CEO committee to determine the overall strategy. Smith will chair it with Pieter Elbers (KLM CEO), Anne Rigail (Air France CEO) and Frédéric Gagey (chief financial officer of Air France-KLM) reporting to him. Elbers and Rigail will be deputy group CEOs.

Elbers’s position was reportedly under threat but it seems all sides have agreed a peace deal with a new contract in the offing.

Air France has also secured a new pay deal with pilots, on top of previous labor agreements. Smith will be hoping this will brings an end to the crippling strikes that have hurt the airline.

The group is also working to simplify and modernize its fleet. This will involve securing new aircraft, phasing out older models and sprucing up cabins.

Asked by one analyst on an earnings call, whether his plans to restructure the company were any different to his predecessors’, Smith said he was working with “respect, transparency and confidentiality” and that employees at Air France in particular were buying into his vision.

“They are willing to really start to understand the marketplace to look outside of Air France to ensure that the group is more cohesive to ensure that the strengths of the group are leveraged and to really understand that we have four other major competitors in Europe and that Air France KLM has everything that is necessary to regain our natural position at the top of the industry in Europe,” he said.

IAG and Lufthansa — which have had much more success moving from national carriers into multi-airline groups — are Air France-KLM’s biggest full-service rivals but it also competes with low-cost carriers EasyJet and Ryanair.

Alitalia Tease

There wasn’t much in Smith’s comments about any future M&A until towards the end of the earnings call, where he made quite a cryptic remark about struggling Italian airline Alitalia, which has attracted interest from Delta Air Lines and EasyJet.

“[I]n terms of Alitalia, we continue to observe the process and what is going on. We are not active participants at this moment. But obviously, the Italian market is extremely important for the group. As far as Alitalia is concerned, we are actively watching the events that are unfolding,” he said.

Alitalia, Air France and KLM are all part of the Skyteam airline alliance.

Full Year Results

Operating profit for 2018 fell 31 percent to $1.5 billion (€1.3 billion,) largely as a result of the crippling strikes at Air France and a higher fuel bill. Revenue rose 3 percent to $30.1 billion (€26.5 billion.)

The differing performances of the two main airline components illustrates just why the new CEO wants to change things. Air France Group’s operating profit fell 69 percent to $301 million (€266 million,) while at KLM Group the same metric fell 6 percent but still resulted in earnings of $1.2 billion (€1.1 billion.)