Air France-KLM has announced yet another round of cost-cutting. For the debt-ridden carrier, closing unprofitable routes and cancelling some winter flights are reasonable responses to a loss of euro 638 million in the first half of the fiscal year. But for sustainable success, the French pilots will have to follow their Dutch peers' example and make substantial concessions.
Alexandre de Juniac, the group's chief executive, can point to progress. The group's debt burden has fallen and cashflow is improving. But the net loss was still three per cent higher than in the same period last year.
Some of the adverse factors are beyond the airline's control. The stronger US dollar dented second-quarter operating profit by euro 54 million. Still, after three profit warnings in 2014, plus job losses and investment reductions announced in February 2015, fast measures are needed to safeguard the full-year guidance.
That's all fine, but far from enough. Air France-KLM's cost base remains amazingly bloated, despite a series of restructuring plans since 2012. The wage bill is equivalent to 30 per cent of revenue. Lufthansa's ratio is 24 per cent, and even that is way too high by global standards. At best-of-class rivals like Emirates or easyJet, personnel costs are around 12 per cent of sales.
The Dutch side of the company has accepted reality. KLM's key employees on July 8 agreed to slower salary increases, fewer holidays and a higher retirement age. So far, French pilots have been far less conciliatory. In 2014, they staged a two-week strike over the planned growth of low-cost brand Transavia.
De Juniac says an agreement is needed by September to prevent more brutal cuts of the long-haul network. In the short run, the ultimatum may trigger even more strikes. But the carrier cannot afford to give in. Otherwise, it will keep on course on its flight to nowhere.
Alexandre de Juniac, the group's chief executive, can point to progress. The group's debt burden has fallen and cashflow is improving. But the net loss was still three per cent higher than in the same period last year.
Some of the adverse factors are beyond the airline's control. The stronger US dollar dented second-quarter operating profit by euro 54 million. Still, after three profit warnings in 2014, plus job losses and investment reductions announced in February 2015, fast measures are needed to safeguard the full-year guidance.
Also Read
The carrier is trimming flights to Japan and Brazil by 14 per cent and five per cent respectively. An already modest capacity growth plan for the full year was roughly halved to just 0.6 per cent. German rival Lufthansa is planning for a three per cent capacity increase.
That's all fine, but far from enough. Air France-KLM's cost base remains amazingly bloated, despite a series of restructuring plans since 2012. The wage bill is equivalent to 30 per cent of revenue. Lufthansa's ratio is 24 per cent, and even that is way too high by global standards. At best-of-class rivals like Emirates or easyJet, personnel costs are around 12 per cent of sales.
The Dutch side of the company has accepted reality. KLM's key employees on July 8 agreed to slower salary increases, fewer holidays and a higher retirement age. So far, French pilots have been far less conciliatory. In 2014, they staged a two-week strike over the planned growth of low-cost brand Transavia.
De Juniac says an agreement is needed by September to prevent more brutal cuts of the long-haul network. In the short run, the ultimatum may trigger even more strikes. But the carrier cannot afford to give in. Otherwise, it will keep on course on its flight to nowhere.