Wednesday 28 September 2016

Air France risks exiting the airline elite as Ryanair attacks

Andrea Rothman and Richard Weiss

Published 10/01/2016 | 02:30

Shares of Air France-KLM fell 12pc last year as chief executive Alexandre De Juniac’s restructuring faltered. Photo Credit: Steve Parsons/PA Wire
Shares of Air France-KLM fell 12pc last year as chief executive Alexandre De Juniac’s restructuring faltered. Photo Credit: Steve Parsons/PA Wire

Air France-KLM Group - ranked as Europe's biggest airline since its formation in 2004 - is teetering toward an exit from the industry's top tier after a year in which efforts to slash costs foundered on union opposition, and discounters like Ryanair attacked.

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While figures due this week are likely to confirm the Franco-Dutch company as the top regional operator by traffic (a multiple of passengers and kilometres flown that's viewed as an industry standard), the number masks a mounting crisis: and by a host of other measures, the carrier looks distinctly second rate.

Shares of Air France-KLM fell 12pc last year as chief executive Alexandre De Juniac's restructuring faltered.

It trails Germany's Deutsche Lufthansa (Europe's No 2 by traffic) in revenue; is dwarfed by British Airways parent IAG (the No 3 in traffic) in value; and has had four years of losses.

Air France-KLM's market capitalisation of €2.3bn is less than a third of Lufthansa's, whose stock rose 5.3pc in 2015 despite labour woes, and barely one-seventh that of IAG, valued at €16.1bn after a 26pc share surge.

De Juniac faces many of the same challenges as Lufthansa chief executive Carsten Spohr and Willie Walsh of IAG, as discount carriers including Ryanair - Europe's most valuable airline after a 50pc share jump in 2015 - attack the short-haul market, and Middle East raiders led by Dubai-based Emirates divert lucrative inter-continental passengers through their Persian Gulf hubs.

What marks the Paris-based carrier out are higher labour costs at its French arm and a perennial incapacity among top management to overcome workplace opposition, compounded by interventions from the French state (which owns a 15.88pc stake) whenever the leadership digs in and disputes drag on.

"At British Airways and Iberia Walsh confronted these issues," said Jonathan Wober, an analyst at the CAPA Centre for Aviation in London. "Spohr hasn't quite done it, but he's tough and is trying."

By contrast, De Juniac's latest push on costs was stymied amid union clashes that culminated in managers fleeing a meeting with their clothes in tatters. Analysts estimate, on average, that Air France-KLM lost €88m in 2015, compared with net income of €1.38bn at Lufthansa and €1.55bn at IAG.

Bloomberg

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