Easyjet rides on Air France’s troubles

Courtesy AFP

Courtesy AFP

AIR FRANCE should feel chastened by Easyjet’s jubilant admission that the strike by French pilots had brought it a windfall. The industrial action has boosted the budget carrier’s revenue by about £5m (US$5.35m), raising hope of the financial year ending September 30 achieving better pre-tax profit of between £575m and £580m, previously expected to be between £545m and £570m. This will be Easyjet’s fourth consecutive year of record profits.

The Air France/SNPL (Syndicat National des Pilotes de Ligne) dispute may be said to be fulfilling a prophecy that the French flag carrier feared. The issue at heart was Air France’s plan to expand budget subsidiary Transavia’s network across Europe with regional hubs established at airports outside France, and this raised its pilots’ concern about transfers to Transavia and being paid lower wages and hired on less favourable terms as regulated by the country where they are based.

For Air France, growing Transavia a strategy to better compete with the likes of Easyjet and Ryanair, which together with the growing number of low-cost operators, have taken a big chunk of the business away from legacy carriers. Inevitably it must weigh in the factor of cost, a sizeable part of it is wage-related. Perhaps there is a strong reason here why independent full-fledged budget carriers such as Easyjet and Ryanair tend to fare better than upstarts spawned by established full-service airlines.

Lufthansa faces the same problem, when its pilots went on strike in protest against the airline’s cost-cutting plan to introduce new low-cost units to improve its competitive edge. This led to a dispute over retirement benefits for pilots, resulting in strikes in August and September that affected operations at Frankfurt and Munich, disrupting flights to major destinations such as New York, Washington D.C., Boston, Chicago, Los Angeles, Dallas and Atlanta in the United States, and to gateway airports in Asia including Singapore and Tokyo.

Needless to say, the single most critical focus of any budget carrier is cost even as it means a necessary sacrifice of service, the lack of which may somewhat be compensated by the customer’s pre-flight low expectations. Most of the other factors may be said to be universal applications to all airlines, though in varying degrees how they impact on the bottom-line. A cheaper fuel bill will go a long way to boost the carrier’s viability, compared to how on the other hand the higher cost of fuel is more likely to bear a heavier toll on a budget carrier than a legacy airline. Easyjet said it expected its fuel bill for the next financial year to decrease by about £50m, and that is a huge plus.

One may argue that Easyjet’s windfall from the Air France strikes might be a fortuitous once-off event, with more passengers switching to Easyjet in light of the disruption. The question remains as to whether the switch will continue to trend even after complete normalcy returns to Air France. It is more than just a foot in the door for the competitor but a clear signal to the likes of Air France as to where the competition is heading in Europe.

Easyjet CEO Carolyn McCall has added a new spin to what the low-cost model means in a recent interview with BBT (Buying Business Travel, Jun 18, 2014): “It means we have new engines, high fuel efficiency. Our plane utilisation, turn-time and load factors are very high. We use our assets really well. We use our assets really well. We don’t have fancy offices, we have a hanger – open plan offices, and we share space with plane maintenance. It’s very important to us, we’’ never lose sight of it – without that low-cost model, we wouldn’t be able to do the low fares.”

Even if Air France finds that a little stretched, it must recognize the close call, especially when  budget carriers begin paying more if only some attention to customer service, albeit their own differentiated brand. Even Ryanair chief Michael  O’Leary said his airline, noted for its bad service, needed to stop “unnecessarily pissing people off.”

In the end it is all about efficiency as defined by the cost-benefit relationship. Easyjet attributed its success to increased efficiency, which made up for increases in airport charges and other related operating costs. Forward  booking for the next six months has improved, with more than 25 per cent of capacity sold. The plane is achieving a 90-per-cent load. But the industry is far from being stabilized, with new concerns over political unrest in Eastern Europe, the Middle East and Africa, and the Ebola scare.

In summary, Ms McCall said: “We have to understand the economics.” But, of course, with one caveat that neither Air France nor Easyjet can refute: It is the customer that decides, full-service or low-cost. In a way, Easyjet seems to understand what its customers want. One asks, Does Air France, noting how the aviation landscape has changed? If expanding Transavia’s operations is a positive move, has Air France the gumption = and right formula – to press on and succeed?

This article was first published in Aspire Aviation.


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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