NickB

But they are not trying to do the same thing at all. AF is trying to create two distinct products: one product that will appeal to the more price-conscious end of the spectrum and which will appear reasonably competitive (albeit perhaps not the absolute cheapest) on OTAs or comparison sites and one product for the more traditional AF flyer that cares a little more about FFP, level of service, etc...
KL, OTOH, seeks to offer something at the bottom of the second category. As a result, KL fares are not competitive at all on the first segment. Out of LHR, at any rate, this is ultra clear, as a few examples of lowest available fares on AF and KL quickly shows:

• LHR-BCN: AF=GBP132 vs KL=GBP191
• LHR-ATH: AF=GBP164 vs KL=GBP196
• LHR-ZRH: AF=GBP139 vs KL=GBP187
• LHR-WAW: AF=GBP132 vs KL=GBP170
• LHR-LIS: AF=GBP133 vs KL=GBP202

Thus, it is clear that KL (unlike AF, LH, LX, SN, BA) is not at all trying to offer a product that competes at the bottom of the eco class price bracket so I am not sure that it makes much sense to try to compare their fares to the mini-fares.

As pointed out by orbitmic, KL has no "regional network" in the sense of a non hub-linked network so, again, the comparison is not apposite.

brunos

On top of all the excellent remarks above, I would like to add a few grains of salt (or pepper). As mentioned by many, AF mediumhaul is facing severe problems, so some better structure HAS to be found in the medium term. In the short run, there will be huge problems. As one of my friend used to say: "people don't like change, but they can manage change. They can't handle uncertainty; it is the job of leaders to eliminate uncertainty". Let's see if AF leaders can do that but I doubt that the current plan does.

Hop was a challenge to "merge" several regional airlines and create a new "product". That is far from being fully accomplished, so one can hardly judge its success.

But the new plan has much greater implications for AF, especially its staff. The idea is that a lot of A320 family planes will be transferred to HOP. What that means for the contracts of the crew is unclear. If all it means is that some planes will be repainted and that those flights will be booked on HOP website with HOP pricing, rather than on AF website, it will not be a major productive change for the company and its employees.

Let me focus on the market I know, namely the domestic network.

1. AF has already introduced a drastically-different pricing structure on its domestic flights. What affects me most is that the attractive typo flex fares (senior/couples) have been badly restructured and on their way out in terms of availability. Only family fares (must include a child) are surviving, otherwise the pricing structure will be quite similar to HOP. (BTW I fail to understand the focus on free bag. I have no problem figuring the overall cost of a ticket if I have to add the cost of a bag and I find it unfair to factor the free bag in the fare while I seldom check a bag.). Enough personal comments, my point is that AF does not need to code some flights A5 to use a similar pricing structure.

2. Rather than adopting a clear “certain” strategy like LH, AF keeps feeding uncertainty by dividing its ORY flights into HOP and mainline. MRS,TLS and NCE account for approx. 56 daily rotations from ORY. That is a huge number. If that is kept in the long run, it means that a big portion of ORY-based staff will remain AF. What is the point? I understand the accounting logic to keep the very profitable routes to AF mainline, but what is the strategic vision? And what is the uncertainty for these routes in the future?

3. Clearly the A320s “lent” to HOP will keep having AF crews in the short run. What is the plan for their contracts in the long run? A version of HOP can only survive (I doubt that they will ever be profitable) if the cost structure is drastically improved.

4. One should also think about ground employees. For example, NCE is often mentioned, even by AF management, as having a plethoric staff. I could see what was happening this summer at NCE. Basically the same AF staff was manning the HOP and AF counters. The major difference was a different format for the boarding pass. For example, forms for UM were in a different format but there was a single checkin counter for HOP and AF UMs. It will take years (decades?) to introduce a separation of HOP and AF ground staff at NCE.

While a nice flowchart and blabla can make the market separation between AF, HOP and Transavia appealing, I am worried that the operational details will make such a beautiful plan unfeasible in the French context. And the uncertainties induced could create more problems than solutions.

orbitmic

While I agree with petty much all of your remarks, I found the ones above particularly inspiring in the sense that they made me realise (not sure if it was your intention) that we have been looking at the proposed change much from the AF end of the lense and have somewhat neglected the Hop end.

As the proposal was largely "piloted" (no pun intended) by the Head of Hop, one would think that this is a "victory" for them. NickB and myself have pointed out that Hop may fail to restore profitability on those routes and if so it will be "easier" to either sell or close down a whole bunch of activities (including, conceivably Hop as a whole) if it fails.

But going one step further in the thinking, one thing that we have not really considered is whether the transfer of new "mainline" routes to Hop might actually make it more likely for it to fail as a whole. You correctly identify what was supposed to be the whole point of Hop in the first place: unifying something that was fairly heterogeneous. But now, barely one year and a bit into that, Hop are inheriting complete heterogeneity in their activities! What I mean is that flying mainline planes of the A320 family on "big" routes out of ORY or other major airports is quite different from flying some AT4s or CR1s on BOD-NTE or CFE-FSC! Indeed, there is a reason why almost all European and US airlines have created regional airlines (of one form or other) in the first place.

So my question is, even if Guerin feels very happy today (perhaps because he has inherited that old AF travers of thinking that bigger is necessary better?), as Hop is still barely coming to terms with internal rivalries and diverging practices between its different components, to what extent could this "offer" of now embracing an entirely different type of flights in addition to its current regional operations really be a poisoned gift making it hard or even impossible for A5 to find any coherence in its modus operandi?

nicolas75

There's no simple solution to complex problems.

In the medium-haul flight business, operational costs are: costs of the aircraft, the staff and fuel.

With the integration of leisure flights - the least profitable flights - in Transavia, Air France wants to lower its exploitation costs and reconcile them to those of easyjet.

Without giving up the slots at Orly (difficult airport because it is not an European hub) to the competition (the question will be at what cost: Air France cannot lose to much money simply to protect its positions at ORY against easyjet).

By merging the remaining activities to Hop, the objective is to reduce the operating costs of staff, aircraft (small aircrafts). For a320, maintenance will be provided by Air France Industries, which is very competitive.

This is perhaps not the ideal solution, but in light of the constraints, this seems the most appropriate solution.

brunos

I understand the logic, at least some of it.

What is less clear is how this will be achieved and what is the time frame.

Just moving the AF plane/staff under HOP management will not solve the cost issue, primarily the low staff productivity (to use a neutral word). To me it seems like a flowchart solution rather than tackling the real problems. But I could be wrong and maybe AF management and politicians are finally ready to tackle the unions.

I assume that all flights from ORY, including MRS, NCE and TLS will be moved to HOP but later, as it will already be a challenge to move a few flights. Or is there a logic for moving the 14 daily BOD to HOP and not the others?

orbitmic

I fully agree that this is a particularly difficult aspect of AF's strategy. I have no doubt that U2 would love to make ORY a major base (I guess "hub" would technically be the wrong word as U2 doesn't technically do hub and spoke) comparable to what they have achieved at LGW and if AF leave too much space I have little doubt that they will be ambushed waiting to take the place. Many business travellers (not me) still prefer ORY to CDG as it is quite a bit closer to central Paris and a small airport so it is closer to much of Paris by car/taxi.

However, AF is indeed bleeding cash at ORY. So as you say, their counter-strategy seems to be to put A5 and HV in the place so that the space is not freed for U2 to put their other foot in the door while hoping that HV will manage to transform their ORY flights into gold the way U2 would most likely be able to. Their proposed major growth is of course not without risks:

- On the HV side, they are doing ok, but it is worth remembering that U2 has grown progressively over many years and did not expand nearly as quickly as what would be proposed to happen to HV. It has only been a major player on the French scene for a few years and how much growth it will be able to efficiently handle fast remains to be seen.

- On the A5 side, as mentioned by JOUY31, it is hard for mere mortals like me to know how it is doing. We hope well but it is a relatively new reorganisation of a side of the AF group activities which was not without problems. The choice to give it a more visible own brand allows "protection" for the AF brand as well as allowing Hop to develop its own product strategy autonomously, but conversely, it means that Hop probably has less of a reputational advantage than AF and it will now be asked to overtake some business travel to/from ORY and transversal routes where U2 is an aggressive competitor which has gained shares of the business market vis-a-vis AF year after year. The switch will undoubtedly cost more transfer (as in, for instance a hopefully small but not null portion of provincial corporate contracts with AF will not be reconducted with Hop or will be so at the cost of more favourable conditions to companies which will negate some of the operational gains).

So yes, "what to do with ORY" is a genuine issue for the AF group and one can hope for them that their strategy will be vindicated, but I'll admit that I am personally not convinced, even though I will be genuinely delighted if I am proved wrong.

brunos

While AF might be losing money at ORY (more than it does at CDG), I think that the situation is very contrasted. The shuttle should be doing reasonably well. Certainly ORY-NCE must be very profitable given their load and high fares. Of course, that might change if U2 can launch more flights on the route and the ORY slot issue might be crucial.

Sorry to be stubborn but can anyone shed some light on the next steps and timeline.
The current HOP is still an airline in-the-making with staff on different contracts depending on the airline. AF could try to transfer operations from mainline to HOP by pushing for voluntary departures and hiring freeze at AF, while hiring only at HOP. But that will be a slow process. Just giving a HOP badge to AF employees (as we see at some airports) will not solve anything. SO, how are the staff cost savings be realized knowing AF bad unions?
if anything the "bases de province" failure (sorry Orbitmic), has shown that AF is not good in such negotiations.

PS: I agree with Orbitmic that the reputational aspect is important. The frequent flyer will know the history of HOP, but most pax will not. It was natural to fly AF for most French nationals but that branding advantage will be lost with HOP. Actually Easyjet might have a branding advantage over HOP, while the reverse was true for AF.

JOUY31

Obviously, what we have read has been leaked to Les Echos. I would not expect any additional details before the plan is submitted officially, as required by labor law, to the Comité Central d'Entreprise.

orbitmic

Yes la navette is profitable which is why AF want to keep it under their own brand. Not sure about ory-mrs which must have suffered most from the tgv competition. At the same time, I know that the routes individually losing most money are indeed ex-ory (not bases province) - more specifically there seemed to be 5-6 routes in vast deficit (not sure which they are, what I saw anonymised destinations).

On your questions I think we need to wait till the September announcement. Already we know (from the article) that pilots want exclusivity for af pilots on all planes of over 110 pax and want to go on strike if they don't get it.

brunos

Fair point

It is just fun for us to speculate.
I did not notice that the new plan is called "Perform 2020", so it will be a progressive one.

JOUY31

Florence Parly, the head of Air France's Orly/France point-to-point network, is leaving the airline on September 8th.
Good luck and fair winds .

Lionel Guérin, Hop!'s CEO will be the project manager for merging this activity with Hop!'s.

http://www.latribune.fr/entreprises-...-avec-hop.html

Gronico

I went through the whole discussion, and there is no mention at all about AF operation from ORY to overseas territorries (CAY,RUN, FDF, PTP...) since the restructuring is more about the medium haul network, is it safe to assume that AF will still operate these flight.

By the way, no chance to see HOP doing MIA-PTP ??

olivedel

^^ She was a strong asset compared to Guérin...

orbitmic

+1.

orbitmic

Those are very lucrative flights and I doubt AF would leave them. If later HV becomes long haul, it may be a candidate to ensure an even more miserable passenger experience on those routes, but hopefully not too soon!