Air France Pilots’ Strike Casts Doubt on Carrier’s Future
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Version 0 of 1. PARIS — More than a week into the strike by French pilots against Air France-KLM, the two sides are stuck in a holding pattern. The only certainty seems to be that the dispute is doing severe financial damage to the airline, making it increasingly likely that neither party will eventually come away as a winner in any meaningful sense. With the cost of the pilots’ walkout now approaching 20 million euros, or $26 million, per day, investors and politicians can only wonder whether the opposing sides’ shared commitment to the airline’s survival will prove strong enough to avert disaster. “No airline is immortal,” Alexandre de Juniac, the Air France-KLM chief executive, told a French television interviewer Monday night. After nearly three years of slashing operating costs, a total of about €2 billion, and squeezing wherever possible to extract more productivity from a staff thinned by 8,000 job cuts, Air France-KLM had succeeded in reducing its debt and nearly tripling the group’s annual cash flow — to €1.3 billion at the end of 2013. Until this month, the prospect of restoring the group to even modest profit — after nearly a decade of losses — appeared within reach. And plans were moving forward to invest more than €1 billion in the growth of the group’s modest, no-frills subsidiary, Transavia, in hopes of building it into a leading European budget carrier. “These efforts are being destroyed in just a few days,” a visibly dejected Mr. de Juniac said in the TV interview. “I do have to say it is really sad.” The pilots’ union sees things otherwise. Its president, Jean-Louis Barber, has called for the company to abandon the Transavia plan, which the union sees as a threat to French pilot jobs, and he vowed Monday to continue the strike “for as long as management does not change its philosophy.” Analysts have long criticized Air France-KLM and its big European flagship peers like Lufthansa and Alitalia of grossly underestimating the threat, first posed decades ago, by nimble start-ups like Ryanair and easyJet, and of failing to adapt their business models in response. Today, a half-dozen low-cost carriers control close to 40 percent of the intra-European air travel market, while in purely domestic markets like France, the British company easyJet is now a close second to Air France at many of the country’s busiest airports, including Paris Orly. Even analysts who applaud the strategic responses of Air France-KLM and Lufthansa to the low-cost revolution, however belated, say the obstacles to success are daunting for a host of reasons, not least of which is the size of the budget carriers’ head start. Ryanair is already Europe’s largest airline by number of passengers, with a fleet of 300 planes. And it expects to carry more than 81 million passengers this year, four times the number that Air France-KLM had projected a pumped-up Transavia would have by 2017. EasyJet carries more than 60 million passengers annually. “Fifteen years ago, a top airline executive told me the low-cost business model would not succeed and claimed that start-ups such as Ryanair would never acquire a significant market share,” Pierre Sparaco, an industry watcher at Aviation Week, wrote of an Air France official. While Mr. Sparaco faulted pilots, too, for refusing to adapt to the new competitive realities, he said past managers at Air France were “equally culpable.” He also noted France’s long tradition of government intervention to protect national champions — and jobs — when times got tough. To observers like Mr. Sparaco, the ferocity of the pilots’ resistance to the new Air France-KLM strategy must be viewed in the context of the airline’s prolonged state of competitive denial. After rejecting management’s offer on Monday to delay implementation of its new low-cost expansion in the hope of sorting out a compromise by the end of the year, leaders of the French National Union of Airline Pilots have hardened their position by calling on Air France-KLM to withdraw the plan entirely. Convinced that the airline’s ultimate aim is to shift well-paid jobs outside France, the unions have stepped up their appeal to France’s leaders to intervene. On Tuesday, hundreds of pilots protested in uniform outside the National Assembly in central Paris. But the dispute is one that France’s beleaguered Socialist government is loath to step into at a time when it is under intense pressure from European partners to show progress on labor-market and other reforms aimed at kick-starting the country’s sagging economy. After eight days of the airline strike, President François Hollande — with a 13 percent approval rating and battling to stem a rebellion from coalition partners on the far left — has yet to mention the pilots’ walkout in public. But his prime minister, Manuel Valls, has publicly taken the airline’s side. “This strike has no reason, is not understood by the French, gives France a bad image and is a real danger for the company,” Mr. Valls said Tuesday. Alain Vidalies, the transport minister, also called for an end to the strike. But he criticized the airline for “rushing” into its new low-cost strategy. The carrier aims to double the size of Transavia in two to three years through the addition of 100 new planes and thousands of new staff members based in France and the Netherlands, as well as in lower-wage countries in southern Europe. “It seems to me this question is not mature,” Mr. Vidalies said on the sidelines of an industry fair in Berlin. With a 16 percent stake in the airline, the French government — and by extension, French taxpayers — have a vested interest in restoring Air France-KLM to profitability. And in an environment of anemic growth and high unemployment in the country, leaders are eager to embrace the airline’s promises of many as 1,000 new French jobs. A number of Air France’s smaller unions have thrown their support to the pilots. But some of the country’s most prominent labor leaders have broken ranks, expressing their frustration over a category of workers that much of the public views as overly privileged. Salaries for Air France pilots start at around €75,000 a year — three and a half times France’s median annual income of €20,000 — and can rise with seniority to as high as €250,000. And for their money, most of the airline’s pilots fly fewer than 700 hours annually, which is substantially less than the 900-hour maximum set by European Union safety regulators. Laurent Berger, secretary general of one of the top two unions, the C.F.D.T., last week condemned the pilots’ strike as “indecent,” and noted that thousands of ground staff and cabin crew members, who have continued to work throughout the strike, were “exasperated.” “This company has been restructuring for more than two years, with everyone else doing their part,” Mr. Berger said, “and yet the pilots don’t seem to want to participate.” The French government, with limited influence as only a minority shareholder in the airline, and with its traditional labor constituency divided, has little leverage to force a compromise. Meanwhile, analysts said Air France-KLM’s fate would be ultimately be decided by cultural, rather than financial, reform. “This is about transformational change,” said Chris Tarry, an independent airline consultant in London. “Setting the financial target is the relatively easy bit” for any company, he said. “But if you haven’t got the cultural change — if unions huff and puff and go on strike — all you do is damage your business.” |