Air France to release drastic cost cutting plan

[WorldTraveler]

from WSJ article entitled "Air France to Release Drastic Cost-Cutting Plan"



The decision came in response to a breakdown in negotiations with pilots unions. Talks between the unions and Air France initially aimed to trim 170 million ($190 million) annually over the next three years. But pilots refused to fly more hours for the same pay, casting the demand as an effective pay cut.

Air Frances pilots cost 25% more than those of European competitors, management says.

other sources say that Air France will cut up to 10% of its long-haul flying and lay off up to 12% of its workforce across both AF and KL.

On Wednesday, management had revealed that negotiations with the union representing Air France-KLM pilots on its initial restructuring plan had failed, opening the way to establishing a "Plan B", which is expected to include a 10 percent reduction of long-haul flights and a delay in its orders for Boeing 787s.
http://www.channelnewsasia.com/news/business/air-france-klm-board/2164698.html

 

[jimntx]

I guess AF failed to come to DL for guidance on how to effect a merger perfectly, without glitches, and at the lowest cost ever.

 

[WorldTraveler]

AF/KL merged long before DL/NW.

The European flag carriers are in serious trouble. AF is in the worst position but LH is not that far behind.

The competitive environment in Europe has changed and shrinkage is the only option if labor costs are not reduced.

The ME3 are pulling traffic off of the Euro flags to every direction except the Americas while low fare carriers are taking traffic within Europe.

Gerry Grinstein made the statement during DL's bankruptcy that is just as relevant for AF today as it was for DL then: "The bleeding stops. It always does."

14 longhaul aircraft are to leave the fleet and 787 deliveries will be delayed


Les grandes lignes de ce plan B sont déjà connues. Faute de gains de productivité, la direction d’Air France va supprimer un certain nombre de lignes et de fréquences déficitaires, à hauteur de 10 % de l’offre long-courriers, afin de ramener la proportion des lignes long-courriers déficitaires de 50 % actuellement à 20 % à l’horizon 2018. Selon nos informations, 37 fréquences et 5 lignes seraient supprimées d’ici à 2018.

En parallèle, 14 avions long-courriers devraient quitter la flotte (en incluant les A340 dont le départ était déjà prévu). Par mesure d’économie, Air France devrait également reporter les premières livraisons de Boeing 787, attendus à partir de novembre 2016.

En savoir plus sur http://www.lesechos.fr/industrie-services/tourisme-transport/021370829977-feu-vert-du-conseil-dadministration-dair-france-klm-au-plan-de-reduction-du-reseau-et-des-effectifs-1161340.php?vK5mqsdWLvODjITF.99#

 

[FrugalFlyerv2.0]

The European flag carriers are in serious trouble. AF is in the worst position but LH is not that far behind.

The competitive environment in Europe has changed and shrinkage is the only option if labor costs are not reduced.

The ME3 are pulling traffic off of the Euro flags to every direction except the Americas while low fare carriers are taking traffic within Europe.

Gerry Grinstein made the statement during DL's bankruptcy that is just as relevant for AF today as it was for DL then: "The bleeding stops. It always does."

14 longhaul aircraft are to leave the fleet and 787 deliveries will be delayed

 
I think you are correct here. 
I would say that EU countries that have a large domestic market (for example Germany, France) as well as those that are popular tourist destinations (for example Spain, Italy) are under serious pressure from Euro LCCs (FR, U2, DY).  So to me it is a little surprising that AF is cutting long haul flying.  Would it not make more sense for AF/KL to reduce/outsource the European short-haul flights (as much as the unions allow them to - LH is doing this with Germanwings)? 
IMHO he ME3 are only threats to EU legacy carriers mainly to Asia - and even here I would qualify that as primarily to places like India and leisure destinations, whereas the top business markets like HKG, PEK, PVG, NRT, ICN are still good for the Euro legacies.

 

[FrugalFlyerv2.0]

AF/KL merged long before DL/NW.

 
I think AF-KL merger was ~2004.
Is it just me, or does it still look like the AF/KL merger is still a huge (corporate culture?) mismatch even after >10 years?
I wonder if UA-CO will end up like this?

 

[WorldTraveler]

you are right on both of your points... and it is refreshing to discuss with you on the issues.

AF/KL is a mismatch because it involves different cultures across different countries. UA-CO was a cultural mismatch but both worked within the same country and culture (as if American culture is a single culture)

and the Euro flags are losing longhaul passengers to the ME3 in every direction except for to the Americas. Africa, Australia, and Asia are all large markets from Europe.

The reason why the US3 are fighting against the ME3 is to make sure they can't grow and expand into TATL markets.

 

[FrugalFlyerv2.0]

It isn't looking pretty.
 
"Air France’s long-running spat with workers over cost cuts erupted into violence as protesters stormed a meeting where managers were presenting plans for 2,900 jobs cuts, causing executives to flee with their clothes in tatters.  Human resources chief Xavier Broseta and Pierre Plissonnier, the head of long-haul flights, scaled an eight-foot high fence to escape, shielded by security guards, with Broseta emerging shirtless and Plissonnier with his suit shredded."
http://www.bloomberg.com/news/articles/2015-10-05/air-france-plans-almost-3-000-job-cuts-after-failed-pilot-talks
 
 
"Two senior executives of Air France had their shirts ripped off their backs after being cornered by a furious mob protesting against job cuts at the airline."
http://www.telegraph.co.uk/finance/newsbysector/industry/11911943/AIr-Frances-HR-boss-his-shirt-as-he-escapes-furious-mob.html
 

 

 

[WorldTraveler]

incredible indeed.

AF might well be one of those companies that simply cannot make it under the necessities of private market influence which dictate pullbacks at times and sometimes also involves success and growth.

AF employees are still too accustomed to the gov't ownership and protectionist mindset that has provided insulated from market realities but cannot now.

I am sure DL and KL even as part of AF/KL have a plan B and plan C if AF can't make it thru the restructuring that they have to go thru. Even with the current cuts, 5 longhaul int'l routes is not a whole lot of cuts for a company that has been losing billions of dollars for years. It will likely get worse until both the European and int'l cost issues are addressed.

AF keeps going back and forth between addressing one or the other but has yet to come up with a plan that addresses both.

 

[jimntx]

AF/KL merged long before DL/NW.

So what?  Since DL is the font of all wisdom on all things airline-related, AF/KL should have come to Atlanta and asked, "If you were going to go bankrupt and merge with another airline, what would you do?  Then they would have had the absolutely correct way to do it in advance of the merger.
 
If they had had any questions on ANYTHING else, they would need to come to you.

 

[FrugalFlyerv2.0]

I am sure DL and KL even as part of AF/KL have a plan B and plan C if AF can't make it thru the restructuring that they have to go thru.

 
What exactly do you mean?
 
How much more revenue & profit can be generated funneling more flights via AMS?
 
I know that AMS is a great airport for connections, especially geographically if you're flying from the USA --> most of Europe.  But that's about it, as I think using AMS for transfer/connections within EU would involve a good amount of backtracking (even flying north-south).  And, with a relatively small population (~15-20 million for NL vs. 65-70 million for France) I would imagine it doesn't have anywhere near the O/D market of France and CDG.
 
So what exactly would be the strategy of focusing more on KL/AMS that could save AF/KL overall?

 

[xUT]

It isn't looking pretty.
 
"Air France’s long-running spat with workers over cost cuts erupted into violence as protesters stormed a meeting where managers were presenting plans for 2,900 jobs cuts, causing executives to flee with their clothes in tatters.  Human resources chief Xavier Broseta and Pierre Plissonnier, the head of long-haul flights, scaled an eight-foot high fence to escape, shielded by security guards, with Broseta emerging shirtless and Plissonnier with his suit shredded."
http://www.bloomberg.com/news/articles/2015-10-05/air-france-plans-almost-3-000-job-cuts-after-failed-pilot-talks
 
 
"Two senior executives of Air France had their shirts ripped off their backs after being cornered by a furious mob protesting against job cuts at the airline."
http://www.telegraph.co.uk/finance/newsbysector/industry/11911943/AIr-Frances-HR-boss-his-shirt-as-he-escapes-furious-mob.html
 

 

Have to love Europe.
He!! AMFA just performed house picketing and we were designated as 'thugs'... LOL
B) xUT

 

[WorldTraveler]

What exactly do you mean?
 
How much more revenue & profit can be generated funneling more flights via AMS?
 
I know that AMS is a great airport for connections, especially geographically if you're flying from the USA --> most of Europe.  But that's about it, as I think using AMS for transfer/connections within EU would involve a good amount of backtracking (even flying north-south).  And, with a relatively small population (~15-20 million for NL vs. 65-70 million for France) I would imagine it doesn't have anywhere near the O/D market of France and CDG.
 
So what exactly would be the strategy of focusing more on KL/AMS that could save AF/KL overall?

CDG and AMS are basically in the same location between most points in the US and Europe and the rest of the world.

The Netherlands does have a fairly small local market for the size of AMS but local market size seems to be much less of a factor for longhaul connections than it is for domestic hubs where fares are lower.

It is very possible that AF/KL will finally start rewarding KL with being able to restructure better than AF is and shift some of the flying from CDG to AMS. CDG is a large market but AF is far from assured of a place among the ranks of the world's largest airlines if they can't figure out how to successfully restructure.

This is about the 16th iteration of a plan to restructure AF and none have yet to definitely turn things around.

The best advice from DL for AF (for Jim's sake) is probably from Gerald Grinstein who told DL employees that "the bleeding stops... it always does."

 

[FrugalFlyerv2.0]

It is very possible that AF/KL will finally start rewarding KL with being able to restructure better than AF is and shift some of the flying from CDG to AMS.

 
Any idea of how much more space AMS has for additional AF/KL flights?
 

This is about the 16th iteration of a plan to restructure AF and none have yet to definitely turn things around.

 
Sadly, it might not be the last.

 

[WorldTraveler]

I don't know, Frugal, but I suspect the bigger issue is not just adding more flights... remember AF is only cutting a half dozen long-haul flights... but rather that the whole notion of how the European legacy carriers operate might be in for a change.

LH is better off than AF but LH is just as in need of implementing major change and is also facing growing amounts of competition in Europe by LCCs and on longhaul int'l flights from the ME3.

I suspect your final comment is more right than anyone wants to admit. The question is how much AF has to shrink before they are able to turn things around.