"An ambitious three year plan to restore profitability"
Jan 14, 2012, 7:11 am
#16
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I think that the argument developed by the blogger is incoherent. Pax have two choices 1) nonstop at higher price, 2) hubbing somewhere at lower price. If anything, the hub concept has been growing in popularity. Well over 50% of AF Longhaul traffic is hubbing in CDG. Paris is a very small market, AF has no choice but attracting pax from other airports and that can only be done at lower price. All airlines compete on hubbing. IMO the argument that the hub concept is outdated is ridiculous. Indeed, some flights/airlines require a long connection time and gulf airlines are sometimes obliged to include such long connection times due to their geographic position. But if AF does not hub and mostly relies on Paris-point traffic, it might as well close immediately.
Regarding Airlib's interesting question about premium pax: I think that there is a third factor to be included and that is product's quality. When you have a 12+ hours flight to Asia, quality/reliability is a major factor. there is much more differentiation in premium products than in Y. Frankly, when I contemplate 12 hours in AF angled seat (meaning back problems), poor customer service/respect, inconsistent onboard service, potential strikes, mediocre FFP (very few benefits to frequent flyers), etc... I have no problem adding one shorthaul and 3 hours of travel time. That is even if price is equal. And if I can fly BA, CX or SQ at a lower price, then the choice is obvious. Some premium pax are constrained by the company's policy (who can negociate good fares from AF), but many others are not. AF has lost market share on premium traffic not only from pax flying to/from Paris, but also pax who hub somewhere anyhow and can choose another airline to do so (e.g. pax flying from MAN or NCE). Then BA, LX, LH or some US/Asian/Gulf airline prove more attractive in terms of quality/price.
AF faces a huge uphill fight in premium classes, but it is a hopeless fight if they do not have the money to invest in better quality. It is a hopeless fight if they compete on price alone as 1) they have higher cost structure and 2) premium pax are less sensitive to price and more sensitive to quality given the huge money spent anyway.
Regarding Airlib's interesting question about premium pax: I think that there is a third factor to be included and that is product's quality. When you have a 12+ hours flight to Asia, quality/reliability is a major factor. there is much more differentiation in premium products than in Y. Frankly, when I contemplate 12 hours in AF angled seat (meaning back problems), poor customer service/respect, inconsistent onboard service, potential strikes, mediocre FFP (very few benefits to frequent flyers), etc... I have no problem adding one shorthaul and 3 hours of travel time. That is even if price is equal. And if I can fly BA, CX or SQ at a lower price, then the choice is obvious. Some premium pax are constrained by the company's policy (who can negociate good fares from AF), but many others are not. AF has lost market share on premium traffic not only from pax flying to/from Paris, but also pax who hub somewhere anyhow and can choose another airline to do so (e.g. pax flying from MAN or NCE). Then BA, LX, LH or some US/Asian/Gulf airline prove more attractive in terms of quality/price.
AF faces a huge uphill fight in premium classes, but it is a hopeless fight if they do not have the money to invest in better quality. It is a hopeless fight if they compete on price alone as 1) they have higher cost structure and 2) premium pax are less sensitive to price and more sensitive to quality given the huge money spent anyway.
I agree fully.
This move also leads me to wonder if KLM's new WBC seat will be put on hold too.
Jan 14, 2012, 12:17 pm
#17
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Clearly, the "ambitious plan" differs considerably between AF and KL where only "moderation" in wages is called for. Whether the new WBC will be postponed is another question. But AF has already invested in an "updated" seat, the light-weight NEV4 angled seat. KL has announced its choice for a new flat bed to be installed first on its aging 747s in 2013. AF & KM seem to be diverging on product quality, so it is conceivable that KL will stick with its flat bed plan. Unless the AFKL group runs out of cash....
Jan 14, 2012, 3:34 pm
#18
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This will lead to a shrinkage of the Group’s fleet with an attendant reduction in the investment program, with the exception of spending targeted at the ongoing improvement in operational safety and client service.
Jan 16, 2012, 9:47 pm
#19
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AF faces a huge uphill fight in premium classes, but it is a hopeless fight if they do not have the money to invest in better quality. It is a hopeless fight if they compete on price alone as 1) they have higher cost structure and 2) premium pax are less sensitive to price and more sensitive to quality given the huge money spent anyway.
Jan 17, 2012, 3:33 am
#20
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From Les Echos:
... Parmi les nombreuses mesures du plan d'économies, la suppression d'une catégorie de billets ŕ tarif réduit, le R1 high, est celle qui suscite le plus de réaction chez les personnels et les syndicats d'Air France.
Si le plan d'économies « Transform 2015 » d'Air France-KLM a suscité, dans l'ensemble, des réactions mesurées de la part des syndicats, il est une mesure qui semble cristalliser les oppositions : la suppression du tarif R1 high. A savoir un tarif réduit parmi d'autres, permettant aux personnels d'Air France d'obtenir des sičges réservés sur des vols trčs demandés, pour moins de 30 % du prix public pratiqué.
Annoncée parmi les mesures d'augmentation de la recette, la suppression du R1 high permettrait, selon la direction, de générer 30 millions d'euros de recettes supplémentaires, en libérant des places pour la clientčle. Peu de chose, en apparence, au regard de plus de 2 milliards d'euros d'économies ŕ réaliser d'ici ŕ 2014. Mais le sujet pourrait bien devenir le premier point d'affrontement entre syndicats et direction. « On ne parle que de ça », indiquait vendredi un responsable syndical, tandis que les premiers tracts appelant ŕ « sauver le tarif R1 high » commençaient ŕ fleurir.
Si le plan d'économies « Transform 2015 » d'Air France-KLM a suscité, dans l'ensemble, des réactions mesurées de la part des syndicats, il est une mesure qui semble cristalliser les oppositions : la suppression du tarif R1 high. A savoir un tarif réduit parmi d'autres, permettant aux personnels d'Air France d'obtenir des sičges réservés sur des vols trčs demandés, pour moins de 30 % du prix public pratiqué.
Annoncée parmi les mesures d'augmentation de la recette, la suppression du R1 high permettrait, selon la direction, de générer 30 millions d'euros de recettes supplémentaires, en libérant des places pour la clientčle. Peu de chose, en apparence, au regard de plus de 2 milliards d'euros d'économies ŕ réaliser d'ici ŕ 2014. Mais le sujet pourrait bien devenir le premier point d'affrontement entre syndicats et direction. « On ne parle que de ça », indiquait vendredi un responsable syndical, tandis que les premiers tracts appelant ŕ « sauver le tarif R1 high » commençaient ŕ fleurir.
Jan 17, 2012, 9:51 am
#22
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Break-even of medium-haul within three years
To restore the medium-haul business to breakeven, the Group is working on the following structural measures:
To restore the medium-haul business to breakeven, the Group is working on the following structural measures:
- better utilization rate of aircraft and assets;
- significantly improved productivity in all employee categories;
- redefinition of certain activities, potentially leading to more extensive outsourcing in some areas.
I agree.
There are several considerations that I would like to add.
- The hub concept is here to stay for a while. CDG needs to be a decent hub though. It majorly stinks. Buses, long taxi times, more buses, lack of signage, more buses, impractical/imbecile architecture, and more importantly - the most awful staff on the planet. They are careless and often rude, and always act is if they're doing every pax a HUGE favor for just being there and hardly doing their job. That's why I avoid CDG like the plague and I know many people who do the same. Offer a more pleasant transfer experience and you stand a better chance.
- I agree with brunos - AF is not exactly at the top of the game when it comes to premium services. Lie flats are a must now, and service consistency is huge. (While on the topic of premium pax - people who value their time don't want to spend a ridiculous amount of time in the CDG buses and queuing at all the long and s-l-o-w CDG lines.)
- The short and medium haul flights do need some reconsideration. Everybody changed their game and I feel that AF is lagging behind. It's not just the prices - although they really need to abandon the outdated Sat night stay concept - that alone has pushed me to LX on occasion. AF needs to understand that they have THE most uncomfortable seats on their A320 family. Short/medium haul flights on AF are not exactly pleasant. Maybe work on a plan to make these flights more bearable. For premium pax: those who connect to long haul flights get the shaft with crammed seats and inconsistent service. I think those pax deserve better treatment. I think only a few travel O/D on short/medium haul C and those get a pretty poor product. I say drop the price for that product and maybe even get more aggressive with paid UGs, the way KLM upsells their empty EBC seats.
Jan 19, 2012, 5:48 pm
#23
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SWU's should be a given. Cost-cutting is great but it won't matter unless they can be competitive.
Jan 26, 2012, 1:19 pm
#24
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What I really miss in this plan is a vision on how to attract more paying passengers. This plan is obviously dictated by accountants.
I have never heard of company that became big and hugely profitable because of endless cost savings and cutting back investments. The companies of this world that grow fast and/or sustain considerable profitability are the ones that innovate. The moment the accountants start to dictate the course to stop making losses you have lost that game, imho.
I have never heard of company that became big and hugely profitable because of endless cost savings and cutting back investments. The companies of this world that grow fast and/or sustain considerable profitability are the ones that innovate. The moment the accountants start to dictate the course to stop making losses you have lost that game, imho.
Jan 28, 2012, 1:14 am
#25
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What I really miss in this plan is a vision on how to attract more paying passengers. This plan is obviously dictated by accountants.
I have never heard of company that became big and hugely profitable because of endless cost savings and cutting back investments. The companies of this world that grow fast and/or sustain considerable profitability are the ones that innovate. The moment the accountants start to dictate the course to stop making losses you have lost that game, imho.
I have never heard of company that became big and hugely profitable because of endless cost savings and cutting back investments. The companies of this world that grow fast and/or sustain considerable profitability are the ones that innovate. The moment the accountants start to dictate the course to stop making losses you have lost that game, imho.
BTW I met some airline CEOs last night and we chatted informally about the industry and also what they thought about some of the players. No one expected AFKL to wipe itself out but with varying degrees of concern all expected AFKL to go through a prolonged period of turmoil, longer than the company itself anticipates due to some indecisive trial and error of some approaches and strategies. Some also expect rising tensions between KLM and AF. Two quotes were "they are the American Airlines of Europe" and "They've done it to themselves". Still, by the sheer size of the airline and by the capacity reserves of CDG airport they are still a force to reckon with. Note that none of them was in the least familiar with the different product offerings on the market, they only knew about them in terms of "it seems their service has suffered", but everybody knew AFKL's financials
Jan 28, 2012, 1:53 am
#26
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What I really miss in this plan is a vision on how to attract more paying passengers. This plan is obviously dictated by accountants.
I have never heard of company that became big and hugely profitable because of endless cost savings and cutting back investments. The companies of this world that grow fast and/or sustain considerable profitability are the ones that innovate. The moment the accountants start to dictate the course to stop making losses you have lost that game, imho.
I have never heard of company that became big and hugely profitable because of endless cost savings and cutting back investments. The companies of this world that grow fast and/or sustain considerable profitability are the ones that innovate. The moment the accountants start to dictate the course to stop making losses you have lost that game, imho.
Jan 28, 2012, 2:54 am
#27
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What I really miss in this plan is a vision on how to attract more paying passengers. This plan is obviously dictated by accountants.
I have never heard of company that became big and hugely profitable because of endless cost savings and cutting back investments. The companies of this world that grow fast and/or sustain considerable profitability are the ones that innovate. The moment the accountants start to dictate the course to stop making losses you have lost that game, imho.
I have never heard of company that became big and hugely profitable because of endless cost savings and cutting back investments. The companies of this world that grow fast and/or sustain considerable profitability are the ones that innovate. The moment the accountants start to dictate the course to stop making losses you have lost that game, imho.
In the airline industry, most innovations were not really successful and low costs are a must..not only to prosper, but to survive.
It would be ludicrous to advise AF to rely on improving their product without cutting a certain amount of fat...it will probably take 4-5 years for a complete refurbishment of the fleet, 15-20 years to change the attitude of the service personel and billions of Euro to rebuild CDG to become a customer-friendly airport.
Again, it sounds nice on paper, but is impossible to do.
If a take a look of what is still done inhouse and what the competition has done in the last 10 years ( ranging from more or less a complete outsourcing of all ground services like Alaska to less radical approaches like AF/KL's Swissport deal ) one has to conclude that AF is still fat and expensive, which is only partly a result from being incorporated in France ( Kudos to the French approach, as long as they can sustain it ^ )
I fear AF is somehow synonymous for France in general. Some cuts are necessary in the near future and it will become very difficult to force them upon the workforce and French citizen...
History repeats itself nicely in this case and AF faced the same situation already twenty years, when revenues also faltered and nearly killed the airline. Some radical steps were only possible after major labour action and major subsidies by the taxpayer...
Will be interesting to see how the labour force reacts to this 'ambitious plan'
Jan 28, 2012, 5:53 am
#28
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It would be ludicrous to advise AF to rely on improving their product without cutting a certain amount of fat...it will probably take 4-5 years for a complete refurbishment of the fleet, 15-20 years to change the attitude of the service personel and billions of Euro to rebuild CDG to become a customer-friendly airport.
Let's hope they do not turn it into the same downwards spiral Alitalia had to go through...
Last edited by Zembla; Jan 28, 2012 at 6:13 am
Jan 28, 2012, 8:01 am
#29
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AA is in reorganization under Chapter 11. AF would probably like to have such a legal framework to extract concessions from unions after two years of big losses (excluding unusual items).
Note the recent article in the IHT:
"Despite everything that has been working against them, from a dismal global economy to rising fuel prices, the nation’s top airlines — United Continental Holdings, Delta Air Lines, US Airways, and Southwest Airlines — all turned a profit last year. "
...
"“If anything, the new year has seen a step-up in business demand,” the US Airways president, Scott Kirby"
http://www.nytimes.com/2012/01/27/bu...irlines&st=cse
Jan 28, 2012, 8:39 am
#30
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I don't think Zembla or anyone else said that AF should forget about cost optimisation and succeed its turnaround solely on the basis of revenue increases. What I understood from his post is that AF will not be able to save its way into performance, it *also* needs to strengthen the top line. Even a cost-optimised Air France will require healthier yields than today to be financially performant. All the suggestions you are making are good as far as we can tell from the outside. But chasing LCC cost structures (not that you suggested that, but i continue your logic) and productivity whilst at the same time having another starting position (not a blank sheet but a legacy of structures, costs and culture) as well as another ambition (hub carrier also targeting premium pax) is doomed to fail.
Also: you are right in pointing out that fundamental changes that will strengthen the revenue generating capacities will take years. But so will fundamental changes affecting the cost side. Quick wins won't suffice and I suspect many of them have already been reaped
Lastly: not sure you mean the same thing by "lean" as everybody else.
Also: you are right in pointing out that fundamental changes that will strengthen the revenue generating capacities will take years. But so will fundamental changes affecting the cost side. Quick wins won't suffice and I suspect many of them have already been reaped
Lastly: not sure you mean the same thing by "lean" as everybody else.