(Adds Air France comment in fifth paragraph.)
July 8 (Bloomberg) -- Air France will ask passengers to clear their seats and take their trash with them when leaving the plane as the carrier seeks to cut costs and stem the advance of EasyJet Plc and Ryanair Holdings Plc in its home market.
Paris-based Air France is working on the plan after cabin crew refused to assume cleaning duties at a low-cost operation it’s introducing in a push to claw back traffic at provincial airports, according to a union official involved in the talks.
Chief Executive Officer Pierre-Henri Gourgeon wants to eliminate ground-based cleaners to keep jets flying longer, emulating discount rivals and rendering hitherto-unprofitable regional hubs viable. Still, union wrangles have already forced one of four planned bases to be abandoned, even as EasyJet adds French routes and Spain’s Vueling Airlines SA begins flights from Toulouse, one of the remaining locations.
Ryanair, the region’s No. 1 discount carrier, isn’t worried about Gourgeon’s plan and regards Air France’s strategy as “hopeless,” Chief Executive Officer Michael O’Leary said in an interview. “No flag-carrier in the history of aviation has ever succeeded in rolling out a real low-fares airline.”
Air France will only ask passengers to clean up the free newspapers they are offered at the start of the flight, spokesman Jean-Charles Trehan said. Further cleaning duties will be carried out by ground staff who re-stock the planes, he said.
Air France-KLM Group, Europe’s biggest airline, trails rivals in evolving a strategy to confront the no-frills threat.
British Airways founded a low-cost subsidiary, Go Fly, in 1998 at London Stansted airport, Ryanair’s biggest base. Go was sold to 3i Group Plc in 2001 and then to EasyJet a year later, while BA pared its own unprofitable short-haul network to focus on providing feeder traffic to London Heathrow.
Deutsche Lufthansa AG created GermanWings to defend its position on regional routes, and Iberia combined its no-frills operation with Vueling in 2009. The Spanish company has since merged with BA as International Consolidated Airlines Group SA.
“Air France is a little late making these adjustments and the market rolls on without waiting for them,” said Penny Butcher, an analyst at Morgan Stanley in London. “Most of their peer group recognized the low-cost threat and adapted their businesses years ago. The delay is 99 percent labor-related.”
Air France’s share of domestic and international traffic fell from 39 percent in 2002, when Luton, England-based EasyJet opened its first French base, to 34 percent in 2009, the most recent year for which a breakdown is available.
EasyJet more than quadrupled its French market share to 7.6 percent over the same period. It increased capacity on French routes by 35 percent in the first half and based a 22nd aircraft in the country to add summer flights from Paris Charles de Gaulle airport and winter services to Verona and Bologna, Italy. Spokeswoman Celine Prenez declined to comment on the Air France plan.
French short-haul air travel is also under pressure from state rail operator SNCF’s TGV high-speed trains as the network is extended and journey times fall.
Gourgeon’s strategy involves shifting part of Air France’s single-aisle Airbus SAS A320 fleet from Paris to Marseille, Nice and Toulouse, opening up dozens of new routes including services to north Africa, eastern Europe and Scandinavia.
Under the plan, staff will work longer hours and be stationed at the bases, paring costs and trimming the turnaround between flights to 25-30 minutes in order to lift time in the air to about 12 hours a day from the current eight or nine.
Air France has dropped Bordeaux from the model, and may instead serve the city with smaller Embraer SA jets, while postponing the Marseille base’s opening from June to October to allow for extra union consultation, Gourgeon said in a June 16 interview, adding that the company wants its employees to endorse the plan.
“The delay is mainly because we want to do it in a win-win way with staff,” the CEO said. “We don’t force anybody, we don’t have to say ‘OK, you have to work more and make less money.’”
Members of Air France’s main SNPL pilots’ union accepted the strategy by a 54.5 percent majority in a ballot that ended this week, the labor group said on its website. Finding crews prepared to move to provincial cities may prove tougher.
The SNPNC cabin-crew union has rejected the plan, it said in an e-mailed statement yesterday. Fatiha Aggoune, the union’s president, said in a phone interview that talks broke down earlier in the week over issues including reduced rest periods and a lower hourly pay rate.
“It’s very difficult to get concessions from strong unions at traditional airlines,” said Alex Cruz, CEO of Barcelona- based Vueling. “We’ve not yet seen a strategy articulated by Air France that’s competitive enough to affect us.”
Vueling, which opened its Toulouse base this year and is seeking to expand at Paris Orly, keeps to tight schedules because of pilots and flight attendants who accept their wider roles, he said, citing the actions of one pilot on a recent flight.
“The plane wasn’t getting refueled fast enough so he went down the stairs and began to give hell to the people on the ground until they got their job done,” Cruz said in an interview. “Our cabin crew go through and do a cleanup because they’re already on board. You won’t get Air France staff to do that unless you hire a new crew under new conditions.”
Yet unless Air France secures comparable agreements, it will “never get near” the productivity or 25-minute turnarounds of low-cost rivals, said Morgan Stanley’s Butcher, who blames legacy labor costs for hampering no-frills experiments at other mainline carriers and called Qantas Airways Ltd.’s Jetstar the only budget offshoot that actually worked.
What’s more, Air France may soon face competition in southern cities from other discount carriers, such as Norwegian Air Shuttle ASA, Europe’s fourth-largest, Butcher said.
“It’s not a recent phenomenon that EasyJet decided to move into France, and it has been over a year since Vueling decided to move into the market,” she said. “Yet they really only launched the idea of short-haul bases late last year, so they’ve taken a very long time to actually get things moving.”
A rebound in demand for air travel from the credit crunch and recession also gives labor representatives more leverage, weakening Gourgeon’s hand, said Yan Derocles, an analyst at Oddo Securities in Paris with a “buy” rating on Air France-KLM. The airline should have acted after racking up 2.4 billion euros ($3.4 billion) of net losses in the two years through March 2010, Derocles said.
‘Time to Negotiate’
“The time to negotiate was during the crisis, when management held the bargaining power,” Derocles said, citing increased labor flexibility secured by Lufthansa in 2009. “But there was almost no discussion with unions, and now the environment has changed completely. Management simply wasn’t doing its job.”
O’Leary of Ryanair, which serves 26 French destinations and stopped basing planes in Marseille in a labor dispute, encouraging Air France to target the city, said Gourgeon could undermine demand at his company’s own mainline operation in his eagerness to stem the discount tide.
“For the low-fares airline to succeed it would have to cannibalize Air France’s traffic,” O’Leary said. “What Air France will do is probably use it to block the development of Ryanair or EasyJet in some regional markets, but that will be it.”
--With assistance from John Hughes in Washington and Steve Rhinds in Paris. Editors: Chris Jasper, Jerrold Colten
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