With the government refusing to intervene, share prices falling, losses mounting, and a strike persisting…is Air France fighting for survival?
Bruno Le Maire, the French Finance Minster, told reporters that the ongoing labor dispute “threatens the survival of Air France.”
Air France has cancelled 15% of its flights today, but 13 days of strikes over the last few months have already cost the airline $358MN. Air France reported a first quarter loss of $141MN and blames the majority of that loss on labor disputes.
But Air France is not anywhere close to fighting for survival, as far as I am concerned.
Air France is still expected to post a profit for 2018. Its cash position is stable.
But this profit has emboldened labor unions to seek higher pay wages. Last week, unions rejected a 7% pay raise over four years, prompting CEO Jean-Marc Janaillac to resign.
The French government owns 14.3% of Air France-KLM, but thus far is not stepping in to try to break up the strike or even offer mediation. Delta and China Eastern, who each own an 8.8% stake in the company, have also not addressed the labor unrest.
CONCLUSION
Air France will eventually fight for survival…like Alitalia is doing now…if it is forced to continue to raise wages in a hyper-competitive environment. While it is still profitable now, oil prices are rising and Air France’s bloated labor contracts are also out of sync with much of its European competition. This is not a recipe for long-term success. But for now, Air France is just fine.
image: Air France
Of course not. One of my best friends (a Parisian) comes to Los Angeles twice a year for work. He had a client meeting in West Hollywood, and when I asked him how it went his response was: “I am now depressed from being there. I wanted to kill myself. I’ve never seen such a terrible store.” Each time I read it I laughed harder. “Air France WILL DISAPPEAR!” lol…no.
It will take a lot more industrial action to bring AF to its knees. Posted 2017 net profits: https://globenewswire.com/news-release/2018/02/16/1357282/0/en/AIR-FRANCE-KLM-FULL-YEAR-2017-RESULTS.html
Look at the numbers though. The KLM side of the unit is much stronger, hence the KLM v. AF tensions.
The – really – shortsighted view that is given here doesn’t do the situation justice. AF-KLM is fine for now. Mostly as result of KLM and their ability to adapt and restructure to market conditions. AF is not. And the personnel of AF don’t want to realize that IAG and LHG are over performing them in every way from a cost structure perspective. On the long term the demands of the French unions are killing for AF, especially in growing competition and eventually less favorable market conditions vs higher fuel prices for example. AF is just not making any money really, KLM is. But the Dutch won’t accept their efforts and money being flushed down the toilet in Paris. This puts immense pressure on the combination. On a larger scale AF-KLM is at risk. But especially AF is at risk if they will not adapt. And seemingly they can’t due to the power of the French Unions.
Operational margin AF vs KLM 3,7 vs 8,8%. In a favorable year economy/passenger and fuel wise. KLM can handle setback. AF can’t.
Absolutely right. I wonder how long the AF-KLM relationship will last.
https://www.bloomberg.com/news/articles/2018-05-09/air-france-turmoil-is-said-to-spur-klm-arm-to-seek-change-at-top
Really subject to how much power KLM gets moving forward and how long the trajectories continue.
https://www.ft.com/content/01ddffe6-5438-11e8-b3ee-41e0209208ec
Of course Air France is not going under…this week, this year or even next. But if the unions win this fight it will be a Pyrrhic victory and a death sentence for AF. The window of opportunity for reforms to make it competitive is almost closed; it’s hard to see a comeback if reason/logic cannot prevail this time.
They just need to come up with a mixed fleet crew like what BA does. Unions cripple both service and profits.
That’s not happening. French labor laws are a lot worse than in the UK.
@William Do you mean more employee-friendly (or rather employer-unfriendly)?
I don’t think they are going anywhere soon, but with no end in sight for the strikes, I am reluctant to book them. And then there is the simple fact that they are not really trying to be cost-competitive. Some companies would lower prices to bring back demand, but that has never been AF’s approach.