Bloomberg News

Air France-KLM Said to Consider Starting New Low-Cost Operation

March 26, 2012

Air France-KLM Group (AF), Europe’s biggest airline, may start a new low-cost service as the carrier seeks ways to stem losses, according to a person familiar with the matter.

Two possibilities are being considered, said the person, who asked not to be identified because the discussions are private. One would see the development of Transavia, a Dutch subsidiary which has low-cost and charter services. The other would involve the creation of a new service under a new brand alongside Air France for flights shorter than two hours, the person said.

“No option is excluded in the framework of our transformation plan,” Jean-Charles Trehan, head of Air France- KLM’s press office, said by phone. “Regarding the restructuring of our long- and medium-hauls, different options are being examined. A dedicated working group will release its conclusions in the coming weeks.”

Air France-KLM reported a net loss of 809 million euros ($1.08 billion) for 2011 and is struggling with rising fuel costs and competition from low-cost airlines such as EasyJet Plc (EZJ) and Ryanair Holdings Plc (RYA) on short- and medium-haul routes in Europe. The Paris-based carrier’s challenge is to attract more customers in those segments without damaging its brand.

The company’s decision about the proposed service will depend on negotiations with unions to increase productivity by 20 percent, the person said. To start a new entity for a low- cost service would require the full agreement of employees, the person said, noting the strikes experienced by Iberia Express, the low-cost airline owned by International Consolidated Airlines Group SA (IAG).

Air France-KLM’s decision to consider options for a low- cost service was reported earlier today by newspaper La Tribune.

To contact the reporter on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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