Uncertainty is sweeping across Europe, with many airlines now figuring out their next step. In this video, watch Air France CEO Anne Rigail share how she thinks this summer will pan out, and what she makes of rail operators replacing flights as the sustainability movement accelerates.
Skift Forum Europe
Skift Forum Europe was held in London, England on March 24, 2022. Find out about future Skift events through the link below.
Anne Rigail, CEO of Air France, had a lot to talk about during Skift Forum Europe 2022. Coming out of Covid, the flag carrier faces upheaval with the war in Ukraine and resulting spikes in fuel costs. But despite this, she remains bullish for the future, she told Seth Borko, Skift’s senior research analyst, during the event in London on March 24.
Yes, fares will go up (economy-class fares on roundtrip flights to North America could rise by $33 and in business class by $110), and yes, Asia now takes longer to reach, but South and North America demand is coming back strongly.
Watch the full video of the conversation, as well as read a transcript of it, below, and find out what else the CEO had to say about leisure versus corporate travel patterns, sustainability and much more.
Seth Borko: Hello everybody. Hello. Anne, thank you so much for joining us. We’re really excited to have the CEO of one of the largest airlines in Europe and in the world with us at the forum. So thank you.
Rigail: Thank you.
Borko: And just a quick reminder, everyone, we’re going to be having a conversation here, but we can take some questions. So if you any questions, let me know, we’ll do our best to work them into the conversation. Anne, I don’t want this to be the entire conversation, but I did want to start off asking you about Ukraine and the impact on your business and on the travel industry. Just give us, what has been the impact to Air France and to the airline industry of this conflict?
Rigail: Well, of course, the situation in Ukraine is quite tragic. You know how aviation is about connecting people, connecting cultures and economies, and in that sense, it’s a vector of peace. So we had to stop our flights to Ukraine on February 21 for obvious security reasons, and then, our flights to Russia on February 27 when France and then Europe closed their air space to Russia. So our priorities have been first, of course, to ensure the safety of our staff on the ground, and then, to find alternative routes, to avoid Russian air space for the flights to Asia, flights to Japan, to South Korea and to China. This has been done within a day.
We have not canceled any passenger flights, thanks to the commitment of all our teams. Of course, with longer flight times, especially in the way back, so I think the flight time from Narita is now 15 hours and 40 minutes, so quite long. It’s obviously too early to say what the real effects will be. But what we know is, on the short term, the impact of avoiding Russian air space on flights to Asia will be limited because travel restriction, we are still limiting traffic in this part of the world. The real impact is, of course, the increase of fuel price, which as you know, represents 20 to 30% of our cost base. And we follow this very closely.
Borko: Anne, I like that you ended with fuel. I’m going to touch on that in just a second. I wanted to just ask, have you seen any change in passenger demand for flights to Europe or flights to Eastern Europe outside of the Ukrainian region, to Czech Republic or Poland?
Rigail: Well, of course, this was a big question and maybe still is a big question. At the beginning of the war, of course, we saw the booking a bit paralyzed for maybe a few days, but the booking dynamics is terribly increasing since then. We were wondering if, of course, US passengers could fear coming to Europe as Ukraine is so close to Europe or part of the European continent, but we have not seen nothing like this.
Borko: Okay. That’s good to hear. Now, let’s come back to that fuel topic. Obviously, fuel is a huge cost input for airlines. Unlike your colleagues in the United States, Air France has hedged its fuel exposure quite a lot. I’m sure you’re feeling very smart about that decision right now. Are these fuel prices going to really impact your business, or so far, no impact? What’s the play here in terms of fuel and airlines? Is this going to really hurt?
Rigail: Yeah, it will hurt for sure. Of course, we have a hedging policy at Air France KLM Group. To give you some figures, in Q1, the hedging level is at 72% in Q2, it’s at 64% a bit like our competitors in Europe. But it won’t be enough to avoid the hit. So last week, we had to increase our ticket prices on the long haul flights to take into account, not the global, but the parts of the fuel increase. To give you an example, to North Atlantic in economy for a return trip, we increased by around 30 euro in economy, and around 100 euro in business for a round trip.
Borko: And you think that other airlines are going to have to follow suit pretty soon, right?
Rigail: We think that there is a general adaptation to the price of the energy, of course.
Borko: I won’t ask you to comment too much on your competitors. I apologize for that. All right. Well, let’s talk a little more optimist… Or you tell me if it’s more optimistic. Are you optimistic about the summer? I’m assuming, but what do you see shaping up travel demand for the summer in Europe?
Rigail: So what we can see is, because of the dynamism of the bookings, in the last week, it was really impressive. After the Omicron wave, what we saw in Air France and KLM it was bit the same is that November was very dynamic as the US opened their border. Then we had a good December month and then it stopped with the Omicron wave and very big impact in France in January and half of February. What we see now is capacities are going back up to follow the demand. We see that, as soon as people can return to skies, they do. To give you figure this summer, our capacity will be at index 90, 9-0, on average, compared to 2019. So that’s quite high. Even compared to pre-COVID levels, on the north Atlantic, on, Africa, on the Caribbean and Indian Ocean, we will exceed the pre-COVID levels. Those are areas, and especially Africa and Caribbean and Indian Ocean are really proving to be resilient throughout the crisis.
Borko: I know that you’ve called those areas out before. I think I had it down in my notes that your capacity, especially into West Africa, I think even right now, your capacity into West Africa is above 100. So what is driving the demand? What kind of passengers are booking those flights?
Rigail: Well, what we can see is that, as I said, except in Asia, every time travel restrictions are lifted, we see the demand come back. Clearly, even if we see good signs of resumption of business travel these last weeks, it’s really leisure and VFR traffic that continue to drive the capacity increase. On the longer term, we continue to see a move to a more recent travel, especially among the younger generation. And what we see as a longer trend is really fewer but longer trip, more and more combining leisure and business, co-leisure. And we see that sustainability concerns are really changing the way our customers want to travel and how they expect us to take action to prevent global warming.
Borko: That was a great answer, Anne, and there was a lot in there. And I want to pick on a number of those different topics through the rest of this conversation. Talk about the shift to long haul, talk about business and leisure travel, and talk about sustainability. Maybe we’ll start the conversation with sustainability and we’ll come back to some of those others. I know this is a big initiative of yours. Tell the audience what your sustainability initiatives have been. And I know there’s a number of them.
Rigail: First, aviation used to be about flying faster and farther. Now, it’s really about having the least possible impact on the planet. And we are totally committed as a group to lead the best to sustainable aviation. You know the global industry goal to reach net-zero by 2050, but we have to commit to shorter term targets to reduce our emissions. We have decreased, at Air France, our absolute emission by 6% from 2005 to 2019. And we commit to continue to decrease by 9%, so overall 15% by 2030. We have recently taken SBTi commitments that we currently assess, which means that we will soon reinforce our 2030 target, but it’s too soon to give figures.
To give you the levels, they are not new. You can find any in each decarbonation trajectory. Of course, we know them. It’s with renewal. So you know that we are entering 38 Airbus350. We received our 15th Airbus360, tremendous aircraft, minus 25% CO2 emission. On medium haul also, we ordered 60 Airbus220, minus 20% CO2 emissions. And nearly half of our fleet will be renewed by 2025, so in three years. And probably, COVID crisis has really accelerated the speed of this renewal.
he second level, everyone knows it, is sustainable fuel. I think we are the first airline group who introduces SAF contribution this year because of the French mandatory intake in 2022 to take 1% of sustainable fuel. It can seem a little step, but I can tell you that when you add this mandatory incorporation mandate, plus the voluntary demand of SAF from our corporate customers, which more than double the mandatory intake. Our big problem at the moment is to find some SAF in Europe. That’s really the big question. The challenges of SAF, they are huge.
Borko: I wanted to just jump in and talk a little more about SAF, sustainable aviation fuel. I was doing some prep for this call. I called up some people. And when I mentioned sustainable aviation fuel, I’ll be honest with you, Anne, they kind of rolled their eyes at me. And they said, “This stuff is like five times more expensive than jet fuel. There’s not enough of it.” Is that just backwards thinking, is it going to increase your cost base? How realistic is this plan?
Rigail: It’s true. The two challenges is really the supply is very scarce and since the corporate customers are now demanding some SAF, it’s harder and harder to find some. And the price is still very high. Despite the fuel increase, it will never cross the SAF price. It’s four to eight times more expensive than conventional fuel. What we decided at Air France and KLM, is to transfer at least the mandatory SAF and corporate the mandate in the ticket price. So we announced to all our customers that we would increase the prices this year from one to four euro in economy class, from one to 12 euro in business class to cover this charge, in fact. We will be transparent towards our customers. I think it’s only way to build this decarbonation trajectory.
Borko: One of my colleagues, Walter, I know you’re remote, but he started talking about this gap between what customers say they want in terms of sustainability and how much they’re willing to pay for it. As you’re going onto the market with these higher prices for SAF, what are you finding? Is the reception positive? Are people paying for it, or are you seeing challenges and pushback?
Rigail: Yes, but if you look at corporate customers, and we have a lot at Air France, I think that three out of four are committed to SBTi targets, which means that they try to reduce their Scope 3. And first, of course, their action plans may be to reduce the travel, but also to cover the travel, to reduce the footprint by the SAF. So we have a huge demand. So I think that on the corporate side, for sure, it will be a huge demand and it’s accelerating the pace. For leisure, you’re right, we don’t see. We propose also a B2C offer of SAF. We see some people that take it. Not everyone will take it, and we will have also to pass some of the emerging price to the customer. We have other levels. I don’t know if we have time to speak about it. Of course, eco biologic, but also in term of integrating with the French railway.
Borko: Well, actually I do really want to talk about that. Correct me if I’m wrong, Anne, I think the French government passed a law and they basically banned domestic flights if that route can be serviced by a train route that the train has to be under two and a half hours. And so that’s going to affect a number of your network. It’s going to affect, for instance, Paris to Bordeaux. Are you going to miss the wine country, flying to the wine country? Are you not going to get enough Bordeaux wine?
Rigail: So definitely, in France, we won’t miss any wine. [inaudible 00:14:05] For sure, we are committed to apply the fact that we would not have a point to point route on destinations where there is a high speed train that puts Paris at less than two hour and 30 minutes from this destination. So we cut some routes from Orly. You know Orly airport?
Rigail: It’s the second airport in Paris. Orly to Bordeaux, Orly to Lyon, Orly to Nantes, we cut them. This is a part also of a big restructuring of our domestic network. Of course, some customers say it’s not easy. The station is not so near their office, but I think that for short travels, when you have a train, more and more, we will work with the train and the SNCF, the French railway station, also as a feeding of our hub. So we keep the flights to the province from Charles de Gaulle. We have even reinforced them. They are even feeding our hub. And on Orly, on point to point airports, we keep only the rules that are quite long to go by train.
Rigail: And we… Yes.
Borko: No, no, I’m sorry. I apologize, but I guess you’re going to cut these domestic flights. That’s going to naturally transition you to more medium and long haul. And actually, we have an audience question I wanted to work in. What’s your view on the international long haul recovery? And this person asked, especially from China, but maybe both in terms of, you’re comfortable with betting on long haul, instead of more short haul flights?
Rigail: More sorry, more?
Borko: I was just saying that you’re going to cut some of these domestic flights, you’re going to become more of a long distance carrier, international long haul has suffered relative to domestic travel. What’s your view on the international long haul recovery?
Rigail: Well, as I said, the recovery is really sustained by our long haul. Our network is really balanced at Air France and KLM. And that was really a strength throughout those difficult times where we had to renew our network every week, but we could fly with quite the capacity towards Africa, towards the Caribbean and Indian Ocean. Now, South America is resuming also quite fast. And when we look at the North Atlantic this summer, it’s our leading long haul axis in terms of seat capacity. Since the reopening of the US in November, we’ve been increasing its service. For this summer, we have resumed 14 destinations with close to 200 weekly flights, which make 20% more flights than in summer 2019. So it’s really, we can’t see that the business model of the long haul will be impacted. We had an impact on the environment on the short distances, but on the long haul, on US, on Canada, no, it’s really booming.
Borko: Wonderful to hear that. Certainly, I’d like to visit Paris from New York sometime soon. Let’s talk about distribution. I’ve got a question from Richard. I think it’s Richard Clark, but I could be wrong. I’m sorry. He asked, “Booking.com is growing a flight product and can an online travel agent add value to the flight industry?” So, what do you think, online booking agencies in Air France, in your distribution model?
Rigail: Yes. As you know, we have implemented new distribution capability to be able to personalize, to add ancillaries, to add new services that were difficult to distribute with GDS. It’s a long path, not an easy one. We have implemented it for the leisure traffic. We are in the middle of the transition for the corporate traffic because we had to adapt a lot of IT systems and our partners have to be on board. But for sure, we need to have a more personalized offer to our customers. We are, as you know, now working with GDS also to have this.
Borko: Yes. So, as long as the third party is able to sell your ancillary content, you’re happy to have it? Or do you want to have a more focused first-party distribution capability?
Rigail: Of course, if we can have more direct sales, we do it. As you know, it decrease also our cost base, and I think, like a lot of airlines, we are exiting the crisis with a weak finance position, so we are really transforming everything inside the airline, including the commercial costs. And we are seeing that currently, the direct sales are really increasing compared to the pre-COVID level. Will it stay like this? Because of course, leisure is resuming faster than corporate, but we are not giving up with third-party distribution. Of course, we need it, but we will use each sales channel in an optimized way.
Borko: I have a kind of oddball question, but I’m curious your view on this. There’s a lot of talk about the return of supersonic transport to commercial aviation. Air France is one of the only airlines that’s ever flown a supersonic aircraft, commercially. You think it can be done? Are you going to do it in again?
Rigail: Well, I would say we are super proud of having the Concorde and how in history, it’s inspiring. It’s really an aircraft that everybody loves at Air France. We have one of the Concorde next to Charles de Gaulle airport, so if you come to Paris, you will see it. Each type of Air France when you go back home, you drive under the Concorde and it’s really a part of our memory. Our crews, the service in the Concorde, it’s really the French pride. It’s the French art de vivre, as you know. So really, we love supersonic. We love the Concorde.
But for sure, the times have changed. I think our total priorities are now to make the air travel industry sustainable. It would not be responsible towards younger generations to work on supersonic when we have to invest in fuel, on the next generation SAF, on the renewal of our fleet. So we don’t care about supersonic. What we want is really to have aircraft that emit less and less. And maybe at one time, at one point, on short distances, really green aircraft, hydrogen or electric, that’s where we want to put our money.
Borko: I love those priorities, Anne. I think that’s a great note to end on. Focus on the fundamentals, on sustainability and on what you want to do well. So thank you so much for joining us, Anne. We really appreciate this conversation.
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Photo credit: Air France CEO Anne Rigail spoke with Seth Borko, Skift's senior research analyst, at Skift Forum Europe 2022 on March 24, 2022, in London. Source: Skift.