Air France/Union dispute reflects a divisive and unsure industry

AFTER two weeks, the dispute between Air France and the pilots’ union SNPL was finally called off. One may be tempted to ask: Who wins, who loses? That aside, the dispute clearly reflects not only a divisive industry but also an unsure one trapped without clear strategies in place in the throes of uncertainty.

The pilots’ strike is costing Air France hundreds of millions of euros, estimated to be as much as 15m euros (US$19m) a day. Yet a day after the announcement last Saturday, the airline was still operating with half its scheduled number of flights though with the hope that flights would gradually return to normal in the week that follows. An agreement is still pending, the only consolation being that according to SNPL, negotiations could now “continue in a calmer climate.”

Courtesy Getty Images

Courtesy Getty Images

The union’s protest concerned Air France’s plans to expand low-cost operator Transavia across Europe as part of the strategy to better compete with budget carriers such as Ryanair and Easyjet. Transavia would operate from regional hubs. The pilots expressed two main concerns: a possible loss of jobs, and transfers to Transavia whose employees are paid lower wages and in accordance with local terms. Air France chairman Alexandre de Juniac and chief executive Frederic Gagey said in a statement: “Our Transavaia project is a 100 per cent pro-France project. It is about developing Transavia to encourage growth in France and quickly create more than 1,000 jobs in France.” Refuting the union’s concern about job security, the airline said an additional 250 pilot jobs would be created.

It is easy to understand how the opposition might treat that public spirited bit as a red herring. But the reason for survival is as difficult an argument to refute, and that does not do the pilots any favour when British operator Monarch Airlines announced at the same time that its employees have agreed to pay cuts of up to 30 per cent to secure the future of the airline, supported by the British Airline Pilots’ Association (Balpa) which said its pilots had made “major sacrifices”. But, of course, the British issue was not complicated by the suggested disparity in wage and employment terms between the parent airline and its budget subsidiary in the French dispute.

The differences between Air France and its pilots are far from being resolved at this stage even as the airline has conceded to expanding its Transavia operations only within France and guaranteed there would be no job relocation while maintaining its prerogative to vary the terms for employment with the low-cost subsidiary. SNPL insisted on similar wage and terms, and issued a statement to say its “determination remains intact.” It proposed the appointment of an independent mediator which Air France rejected, supported by the Government which has a 16-per-cent stake in the loss-making airline.

French government spokesperson Stephan Le Foll had said the Transavia expansion project “strategically, is important to the company. We have to find ways and means for Air France to extend its activity in low-cost flights.” French Prime Minister Manuel Valls said: “The creation of Transavia in France has to go forward.”

Clearly Air France is smarting from losses which it attributed to the competition posed by low-cost operators. There are some 40 budget carriers operating across Europe, and these apparently have taken a large chunk of the business away from not only of Air France but also other legacy European carriers. But is Transavia the answer to Air France’s woes, as an alternative cheap option to stem its losses?

British Airways (BA) had a short run with Go Fly, founded in 1998 and operating flights between Stansted Airport and destinations in Europe until it was sold first in 2001 to a private equity firm and then in 2002 to BA’s rival Easyjet. There had to be reasons for its divestment, among them one of synergy and how Go Fly was attracting BA customers to cross over as well. Other established airlines have gone down that path, in most cases the result of a push rather than pull factor as a way to maintain rather than grow the market and, hopefully, muscle out the competition.

But not all subsidiary low-cost operators managed the challenge as successfully as the likes of Ryanair and Easyjet, although it is to be also noted that only a third of the independent upstarts have survived. However the demise of many budget carriers could be attributed largely to wider economic factors and not necessarily the intimidation of the big boys. On the contrary, it is the threat posed by low-cost carriers that had the established airlines sending their second liners into the game.

Yet that is no argument for Air France to abandon its expansionary plan via Transavia, which the Air France-KLM merger inherited 100 per cent from the Dutch entity, if that is the way to regain its grounds. The paradox is that this then lends some credence to SNPL’s fear particularly if Transavia grows at the expense of the parent airline, and that which must necessarily bring into question what makes a budget carrier tick if not low cost?

Beyond the lure of the budget model that has reshaped the traditional market across the globe, a more pertinent question to ask is why airlines such as BA and Cathay Pacific are profitable but not Air France-KLM and Qantas, with or without the complement of low-cost offshoots.

Frederic Gagey

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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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