Air France-KLM needs to court Lady Luck!

Courtesy Air France-KLM

Courtesy Air France-KLM

Air France-KLM’s report of widening losses for the full year to €1.2 billion ($1.9 billion) from €809 million a year ago is yet another indication of the uncertainty of the airline industry. This was despite rising revenue from increased traffic and higher fares. The negative results were attributed to higher fuel costs, the dismal performance of cargo operations, revised staff pensions, goodwill payment for the acquisition of Belgian regional airline VLM Airlines, and the restructuring costs under the Transform 2015 program amounting to €471 million.

Of course, like most legacy airlines, Air France-KLM also faces rising competition from low-cost operators and Middle East airlines. Therefore, only to be expected, Transform 2015 is rolling out a new French regional carrier Hop!, which will operate 530 daily flights to 136 destinations within Europe from March 31. Seen as part of the move to rationalize short and medium-haul operations, the new carrier merges regional units Brit Air, Regional Air and Airlinair.

Perhaps a necessary move in response to the changing travel preferences, it is really a strategy not much different from the rest of the industry. Yet the Group’s executive VP finance Philippe Calavia remained encouraged; he said: “We are beginning to see the initial results of our Transform 2015 restructuring plan.” Under the 3-year plan, Air France-KLM hopes to reduce costs further by cutting 5,000 jobs. This was targeted to be achieved by end-2013. (See Air France to axe 5000 jobs, June 26, 2012). So, what’s new?

Chief executive Jean-Cyril Spinetta said: “In 2013, we will maintain strict discipline in terms of capacity management, investments and costs.”

Short of any new bold initiatives and innovative ideas, perhaps the answer really lies in that one word “discipline”.

Mr Spinetta had been reported to say that the company’s breakeven would depend on three major uncontrollable external factors: the economy, fuel prices and exchange rate fluctuations.

It looks like Air France-KLM would need more than discipline: a courtship with Lady Luck!

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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