Need I say Moores

Does Air France’s strategy go far enough?

Air France-KLM has released its new strategy, the latest in a three-part series, but will this episode deliver the results that are needed?

The trilogy of branded strategy plans are beginning to feel like just that - a branding exercise - rather than a solid strategy for change.

This latest plan has nine – yes nine - priorities. Air France will launch a new long-haul airline with 10 aircraft to stem losses on routes where Gulf carriers are taking market share. Then, in response to low-cost competition, leisure arm Transavia will retrench back to its French and Dutch home markets, rather than expanding to new bases across Europe.

The response from analysts during a Nov. 3 results call was telling. They quizzed Air France-KLM chairman and CEO Jean-Marc Janaillac on whether the unit-cost saving target (1.5% per year to 2020) was ambitious enough and if a comparatively small 10-aircraft operation could really make a difference.

Janaillac replied that Air France would be “very pleased” to hit 3% cost savings over the next few years, but this would be “hard to achieve.” In the best years of the previous strategies, the group hit 2% just once.

He said the plan was “ambitious, but realistic” and that 10 aircraft would be enough to curb losses on Air France’s worst performing long-haul routes; those where it competes with the Gulf carriers.

Most worryingly, Janaillac said that Air France and KLM don’t need to operate at the same costs as UK low-cost carrier easyJet, or the Gulf carriers. This, he said, was thanks to the Air France and KLM’s positioning, hubs, market share, loyalty program, image and other legacy advantages. “What counts is revenue,” Janaillac remarked.

Really?

Air France-KLM's rivals are growing revenue faster, have lower costs and are aggressively pushing to achieve more; it’s hard to see how this plan will miraculously put Air France-KLM back in the lead.

In today’s business environment, cost is king because price matters most to the passenger, whether traveling for business or leisure. 

When it comes to product, Air France’s strategy also seems strange.  The new long-haul airline will have a business cabin in line with those offered by US majors, not the Gulf carriers it is being created to take on.

“Regarding business class for the new airline, we will have lie-flat beds, but they will not have direct [aisle] access if you have a window seat. This is quite similar to what you find with US airlines. Compared with the Gulf airlines, this is a different positioning, but we are confident that this will be premium enough to keep our customers,” Janaillac said.

"Premium enough"? Higher costs and a lower-quality product don't seem like a recipe for success.

Of course, in all of its strategy-plan creations, Air France remains hamstrung by the same problem that has prevented the company from delivering far more ambitious goals; and that’s its unions. Hopefully Air France’s new CEO, Franck Terner, who has worked his way up through the airline can pour oil on those troubled waters.

For as long as Air France’s labor issues and costs are not fully addressed, all the strategy plans in the world will merely lead to ‘plus ça change, plus c'est la même chose.’ The more it changes, the more it stays the same.

Victoria Moores victoria.moores@penton.com

Please or Register to post comments.

What's Need I say Moores?

Need I say Moores

Blog Archive

We use cookies to improve your website experience. To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy. By continuing to use the website, you consent to our use of cookies.
OR WAIT 0 SECS