As the Air France Pilot Strike Ends, There’s Nothing to Count but the Losses

The longest strike in the history of Air France has finally come to an end, with the pilot’s union SNPL, sending out a quick notice to members that they should return to work, after verifying their flights, with no additional information on gains, and a promise of further information to follow.  For its part, the airline welcomed the end of the strike and repeated its commitment to accelerating the development of Transavia in France.

Alexandre de Juniac, Chairman and CEO of Air France-KLM, said in an official statement about the ending of industrial action: 

“The management team, Frédéric Gagey and I are well aware of the trauma that our customers, our employees and our partners have just experienced with this long strike. Our priority is now to join forces around the Air France-KLM group’s growth and competitiveness project, Perform 2020. I would like to thank all those who, in the belief that growth is within our reach if we provide ourselves with the necessary means, have supported our development projects. I would also like to thank all the staff at Air France who, over the past two weeks, have done a remarkable job in extremely difficult circumstances. To all our customers and our staff, I want to express our confidence and our commitment to restore the links and regain momentum”.

In the end, nothing has been accomplished but loses to all.  Beyond the approximately 20 billion euro revenue losses per day the airline has suffered for the duration of the strike, there has been the loss of goodwill with the pilots and passengers, the loses for the airports dependent on traffic from the cancelled flights, and the loses to other workers in Air France and throughout the Industry who were directly or indirectly affected by the industrial action.

All for nothing.  The chances that Air France will ultimately come out ahead in the competitive low-fares European air travel market, simply because it accelerates its Transavia strategy, are slim.  The airline’s approach to Low-Cost competition is itself not compatible with the Low-Cost Carrier model.

In an open letter to customers during the strike, Alexandre de Juniac, Chairman and CEO of Air France, and Frédéric Gagey, Chairman and CEO of Air France-KLM, explained the importance of a Transavia expansion to the airline:

Our ambition is to propose competitive offers in terms of products, services and price and a global offering for your trips, whether for professional or leisure reasons. To this end, we will continue to invest in the long-haul fleet.  We have already invested one billion euros in our new cabins.

We also aim to develop our low-cost activity in Europe, with Transavia. This project is intended to complement Air France’s activity and is targeted at customers seeking low fares and a quality of service focusing on the essentials.

As Transavia has its own specific mode of operation, this has no adverse impact on Air France staff. We simply want to better meet your different requirements and compete on equal terms with the competition.

In an attempt to resolve the strike, de Juniac, Gagey and Air France management teams postponed the plan to create Transavia subsidiaries in Europe outside of France and the Netherlands, but also indicated that they will push for faster implementation of the Transavia project in France.

The expansion of Transavia in France is vital for Air France, notably in order to defend the Group’s position at Orly, as highlighted by the experts’ report published in July 2014 and supported by the SNPL. It is now urgent to implement this plan.

The project was presented to the unions of each staff category over a year ago, but was not finalised within the framework of the talks underway. The pilot unions’ demand to use, on the Transavia network, Air France pilots employed under Air France conditions and to replace the existing 44 Boeing 737s by Airbus A320s, would inevitably lead Transavia France to failure. The compromise solutions proposed by management have all been rejected.

In these conditions, if the pilot organisations do not agree to the economic and social terms and conditions of the project put forward, Management will be forced to begin the formal procedure for denouncing the agreement to create Transavia France (signed in 2007). This agreement currently restricts the development of Transavia France; its withdrawal will make it possible to implement the project more quickly.

The aim is to rapidly equip Transavia in France with additional aircraft beyond the 14 currently in the fleet. It should be remembered that this project included the creation of a thousand jobs over the next 5 years, including 250 jobs for French pilots. It will now be possible to hire staff faster. The project will, as expected, be primarily open to Air France pilots on a voluntary basis.

Moreover, Management confirms that the development of Transavia in France is not intended to impact Point to Point activity on the French domestic network. Transavia will not feed the Air France hub at Paris-Charles de Gaulle.

“To remain in the race in Europe, we have no alternative than to rapidly expand Transavia. We are now taking every measure to explain and accelerate its growth out of France. The Air France-KLM Group is reaffirming its aim of reaching a fleet of more than 100 Transavia aircraft by 2017,” said Alexandre de Juniac. Frédéric Gagey continued: “These decisions must enable us to restore calm within the company and end the strike that has lasted too long for Air France, its customers and its staff.”

While the strike was damaging to the airline and the airline’s employees, and represents unprecedented industrial action which could damage the long-term financial stability and future prospects of the carrier, it may not have been necessary to stop the progress of Transavia through industrial action.  The Transavia plan is sufficiently flawed as a strategy to compete against LCCs that it might well have collapsed under the weight of its own logistics.  It still can.

However the Transavia strategy is modified, might not be enough to make up for the disadvantaged position of Air France-KLM against its Low-Cost rivals.

Low-Cost is Not a Franchise Business Model

Simply put, Air France has decided that it must compete with Low-Cost Carriers on like-to-like terms and that Transavia, as a Low-Cost carrier from the beginning, is their best strategic option.  The core assumption, though, that Transavia is a true Low-Cost Carrier is inaccurate.

Transavia may offer low fares, but has never truly operated under a Low-Cost Carrier model.  It has, instead, operated on a charter/commercial hybrid service.  This makes it more a competitor to airlines like Monarch in the UK than to traditional LCCs like the Ryanair behemoth.  Transavia has already established subsidiaries which failed due to inadequate regional demand to support a standalone unit, namely Transavia Denmark, which failed in 2011, despite a traditionally high-demand for leisure travel in the region.

While Ryanair has proven that the LCC model can be emulated, perfected and improved upon, and JetBlue stands as a testament that it can even be refined, it is not a franchise-friendly model.  As I have previously written here and for Skift, the Peanuts strategy is not a marketing strategy alone.  It is a strict business model, based on a strong central independent management, strict adherence to principles of economies of scale in operations and equipment, optimisation of revenue capacity onboard, no frills, and an aversion to unnecessary overheads.

The successful Southwest formula, which launched all other successful Low-Cost Carriers, is not a McDonald’s formula–the recipe is far more akin to Disney.  There must be compelling and inspiring central leadership, preferably from a charismatic and/or controversial strong-willed leader. It requires a strong bond in the corporate culture, fully devoted to the soul of the brand.  There should be an “us united against the world” corporate mentality.  Anything else will not cut it in the LCC sector in the long term.

Taking a bunch of identical aircraft, slapping a label on them, and charging for extras is simply not enough.  Approaching LCC as a franchised model generates a split-corporate and brand personality disfunction that no business, much less a frail airline business, can sustain in the long-term.  Placing all those franchises under the corporate umbrella of a traditional carrier– flying varied routes and varied equipment, serving long-haul and short-haul, offering a premium product and an economy product–makes things considerably worse.  Not only is the strong central brand identity and leadership lost, but the efficiencies of scale are diluted, and overheads can never be trimmed down enough.

We have yet to see a Low-Cost Carrier absorbed by a traditional carrier, as a brand supplement, which has resulted in sustained profits for either the Low-Cost carrier subsidiary or the parent company.  

The main thing to watch now is whether Lufthansa and its pilots have taken careful notes during this mess, and how those notes will be applied.

 

Featured Image: Air France A380/Air France

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