"An ambitious three year plan to restore profitability"
#1
Original Poster
Join Date: Apr 2010
Location: BOS
Programs: UA Premier 1K, DL Platinum Medallion, AF Platinum, Hyatt Platinum, Hertz President's Circle
Posts: 592
"An ambitious three year plan to restore profitability"
AIR FRANCE-KLM: AN AMBITIOUS THREE YEAR PLAN TO RESTORE PROFITABILITY
Thursday 12 January 2012
At its meeting on 11 January 2012, the Board of Directors of Air France-KLM examined the transformation plan over three years (2012-2014) for the Group, and the implementation of the three priorities set out on 9th November last year: restoring competitiveness through cost-cutting, restructuring the short- and medium-haul operations and rapidly reducing debt.
Downward revision of capacity growth and investments
The Board of Directors first examined the Group’s growth prospects for the next three years. Given the uncertain economic environment and the ongoing imbalance between transport supply and demand, the Board deemed it necessary to opt for quasi stable capacity for the Air France-KLM Group in both passenger and cargo. Consequently, over the next three years (2012-2014), the Group will only increase capacity by a little over 5% on a cumulative basis.
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. The investment program will be reduced from over 6 billion euros over the period 2009-2011 to below 5 billion euros for the coming three years. This decision has led the Group to adjust its medium-term fleet plan combining, amongst others, the deferral of aircraft deliveries and the non-exercise of options.
Two billion euros debt reduction by end December 2014
The Board of Directors also considered as a key priority the reduction of the Group’s net debt by two billion euros to some 4.5 billion euros by end December 2014. Over the period 2012-2014, two billion euros in net cash flow will be generated through a combination of immediate actions and a transformation plan.
Immediate cost reduction measures
New cost cutting measures amounting to some one billion euros will be implemented immediately. They include a freeze on general pay rises in 2012 and 2013 at Air France and a policy of wage moderation at KLM. The hiring freeze introduced in September 2011 will also be pursued. Additional productivity measures, a further reduction in overhead costs and network adaptations will complete the measures.
These measures, the components of which have already been fully identified, will be implemented with immediate effect, in compliance with regulations concerning the information or consultation of the Group’s social partners.
Transformation plan
These improvements on their own, however, are not sufficient to guarantee the durable restoration of the Group’s competitive position and financial strength. The Board of Directors therefore decided to implement a transformation plan, encompassing all its businesses, with a target of generating an additional one billion euros in free cash flow over three years.
Improved productivity
The return to a satisfactory level of profitability will require a significant improvement in productivity in all parts of the Group, which will imply the renegotiation of the employment rules contained in the existing collective agreements. Negotiations with the organisations representing the various categories of employees concerned will begin rapidly.
Although the passenger business will be the primary focus with the restructuring of the short- and medium-haul operations, cargo and maintenance will also have to redefine their conditions for profitability.
Break-even of medium-haul within three years
The short and medium-haul network remains indispensable to the Group’s development, assuring not only its presence throughout Europe, but also feeding the long-haul operations of the two hubs, Paris-CDG and Amsterdam.
Since the financial crisis of 2008-2009, the structural decline in unit revenues has led, despite the NEO plan, to deepening losses in this business, estimated at some 700 million euros in 2011. As the financial results of recent quarters demonstrate, the long-haul operations, also subject to increasing competition, cannot alone offset these losses.
To restore the medium-haul business to breakeven, the Group is working on the following structural measures:
******
The Board of Directors considers this progress report has enabled the definition of ambitious but realistic objectives for the three year transformation plan. The implementation of these measures will contribute to reinforcing the Group’s financial position and preserving the current level of liquidity. It will be the subject of regular updates in order to measure its progress.
Thursday 12 January 2012
At its meeting on 11 January 2012, the Board of Directors of Air France-KLM examined the transformation plan over three years (2012-2014) for the Group, and the implementation of the three priorities set out on 9th November last year: restoring competitiveness through cost-cutting, restructuring the short- and medium-haul operations and rapidly reducing debt.
Downward revision of capacity growth and investments
The Board of Directors first examined the Group’s growth prospects for the next three years. Given the uncertain economic environment and the ongoing imbalance between transport supply and demand, the Board deemed it necessary to opt for quasi stable capacity for the Air France-KLM Group in both passenger and cargo. Consequently, over the next three years (2012-2014), the Group will only increase capacity by a little over 5% on a cumulative basis.
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. The investment program will be reduced from over 6 billion euros over the period 2009-2011 to below 5 billion euros for the coming three years. This decision has led the Group to adjust its medium-term fleet plan combining, amongst others, the deferral of aircraft deliveries and the non-exercise of options.
Two billion euros debt reduction by end December 2014
The Board of Directors also considered as a key priority the reduction of the Group’s net debt by two billion euros to some 4.5 billion euros by end December 2014. Over the period 2012-2014, two billion euros in net cash flow will be generated through a combination of immediate actions and a transformation plan.
Immediate cost reduction measures
New cost cutting measures amounting to some one billion euros will be implemented immediately. They include a freeze on general pay rises in 2012 and 2013 at Air France and a policy of wage moderation at KLM. The hiring freeze introduced in September 2011 will also be pursued. Additional productivity measures, a further reduction in overhead costs and network adaptations will complete the measures.
These measures, the components of which have already been fully identified, will be implemented with immediate effect, in compliance with regulations concerning the information or consultation of the Group’s social partners.
Transformation plan
These improvements on their own, however, are not sufficient to guarantee the durable restoration of the Group’s competitive position and financial strength. The Board of Directors therefore decided to implement a transformation plan, encompassing all its businesses, with a target of generating an additional one billion euros in free cash flow over three years.
Improved productivity
The return to a satisfactory level of profitability will require a significant improvement in productivity in all parts of the Group, which will imply the renegotiation of the employment rules contained in the existing collective agreements. Negotiations with the organisations representing the various categories of employees concerned will begin rapidly.
Although the passenger business will be the primary focus with the restructuring of the short- and medium-haul operations, cargo and maintenance will also have to redefine their conditions for profitability.
Break-even of medium-haul within three years
The short and medium-haul network remains indispensable to the Group’s development, assuring not only its presence throughout Europe, but also feeding the long-haul operations of the two hubs, Paris-CDG and Amsterdam.
Since the financial crisis of 2008-2009, the structural decline in unit revenues has led, despite the NEO plan, to deepening losses in this business, estimated at some 700 million euros in 2011. As the financial results of recent quarters demonstrate, the long-haul operations, also subject to increasing competition, cannot alone offset these losses.
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.
******
The Board of Directors considers this progress report has enabled the definition of ambitious but realistic objectives for the three year transformation plan. The implementation of these measures will contribute to reinforcing the Group’s financial position and preserving the current level of liquidity. It will be the subject of regular updates in order to measure its progress.
#2
Join Date: Mar 2010
Location: France
Programs: FB Plat for Life, UAMP, BAEC, Accor ALL Platinum, Marriott silver, Hilton, Meliá silver.
Posts: 3,119
[B](...)
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.
(...).
Here are a few things which would sure go towards increasing revenue behind the curtain:
- offer seat reservation for a fee at time of booking
- offer seat reservation with extra leg room for a higher fee at time of reservation
- offer full meal for a fee for a fee at time of booking
NB : all three above are practised at AB and make the travelling experience more enjoyable.
- offer the choice for higher fares in return for higher FB miles earnings (right now, it is either ludicrously expensive full fare or lowest possible fare).
Of course, this would not spare them the efforts of offering better product/service at no extra costs in order to gain market share.
@:-) no?
#3
FlyerTalk Evangelist
Join Date: Apr 2001
Location: Reality, Freedom • Fly Tarom •
Programs: AF FB Platinum For Life (F+ Rouge Vintage®) / Hertz President's Circle / SNCF Grand Voyageur Le Club
Posts: 10,077
From Le Monde:
... Pour améliorer sa productivité, Air France va dénoncer les accords collectifs existants et organisant le travail des personnels navigants (pilotes, hôtesses et stewards) et au sol, ce qui aura des conséquences encore inconnues en matière d'emploi.
#4
Join Date: Oct 2009
Location: ORY
Programs: Flying Blue Ivory, EasyJet Plus, Club Corsair Gold, Thalys TheCard Platinum, Navigo 1-5
Posts: 1,990
CGT Regional was at AF headquarter with megaphones, flags and all the package, asking for interim people that have been terminated to be hired (CDI) by Air France.
That's a bit lol regarding AF situation.
That's a bit lol regarding AF situation.
#5
FlyerTalk Evangelist
Join Date: Jul 2006
Location: Hong Kong, France
Programs: FB , BA Gold
Posts: 15,555
Nothing good for customers.
More cost-cutting, no investments in longhaul product. Quite different from recent quotes about raising AF to SQ quality.
And a lot of industrial actions in the near future.
More cost-cutting, no investments in longhaul product. Quite different from recent quotes about raising AF to SQ quality.
And a lot of industrial actions in the near future.
#7
Join Date: Apr 2005
Programs: Eurostar Carte Blanche, SBB-CFF-FFS GA-AG, SNCF Grand Voyageur LeClub
Posts: 7,836
Indeed very LOL.
#8
Join Date: Apr 2005
Programs: Eurostar Carte Blanche, SBB-CFF-FFS GA-AG, SNCF Grand Voyageur LeClub
Posts: 7,836
An interesting article, actually more like a blog (although only in French):
http://thewingman.blog.lemonde.fr/20...nouvel-espoir/
http://thewingman.blog.lemonde.fr/20...nouvel-espoir/
#9
Join Date: Oct 2009
Location: ORY
Programs: Flying Blue Ivory, EasyJet Plus, Club Corsair Gold, Thalys TheCard Platinum, Navigo 1-5
Posts: 1,990
An interesting article, actually more like a blog (although only in French):
http://thewingman.blog.lemonde.fr/20...nouvel-espoir/
http://thewingman.blog.lemonde.fr/20...nouvel-espoir/
Nothing about Air France pilots working 620 hours whereas the average is 800 for european majors for example.
#10
FlyerTalk Evangelist
Join Date: Jul 2006
Location: Hong Kong, France
Programs: FB , BA Gold
Posts: 15,555
#11
Join Date: Oct 2009
Location: ORY
Programs: Flying Blue Ivory, EasyJet Plus, Club Corsair Gold, Thalys TheCard Platinum, Navigo 1-5
Posts: 1,990
My comments (in french sorry) available here :
http://voyageforum.com/v.f?post=4770271#4770271
http://voyageforum.com/v.f?post=4770271#4770271
#12
Join Date: Dec 2010
Location: Paris
Programs: Accor Le Club
Posts: 147
Notwithstanding the crisitism brought up by former posters, the blogger makes an interesting argument:
This argument is clearly valid for bargain-seekers Y travellers, but these customers do not contribute to the profit margin of the airline. So what about business travellers, have they changed their patterns, prefering price to travel time? Judging by posts of C-travellers on this forum I quite doubt it but it is a pertinent point.
When the hub concept was drawn up, its success would be based on the optimisation of transit time, which passengers seek to reduce. Nowadays passengers prefer a lower price than a lower travel time. Middle-Eastern carriers have understood this as their transfer times can reach 7 hours.
#13
FlyerTalk Evangelist
Join Date: Jul 2006
Location: Hong Kong, France
Programs: FB , BA Gold
Posts: 15,555
My comments (in french sorry) available here :
http://voyageforum.com/v.f?post=4770271#4770271
http://voyageforum.com/v.f?post=4770271#4770271
#15
FlyerTalk Evangelist
Join Date: Jul 2006
Location: Hong Kong, France
Programs: FB , BA Gold
Posts: 15,555
Notwithstanding the crisitism brought up by former posters, the blogger makes an interesting argument:
This argument is clearly valid for bargain-seekers Y travellers, but these customers do not contribute to the profit margin of the airline. So what about business travellers, have they changed their patterns, prefering price to travel time? Judging by posts of C-travellers on this forum I quite doubt it but it is a pertinent point.
This argument is clearly valid for bargain-seekers Y travellers, but these customers do not contribute to the profit margin of the airline. So what about business travellers, have they changed their patterns, prefering price to travel time? Judging by posts of C-travellers on this forum I quite doubt it but it is a pertinent point.
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.
Last edited by brunos; Jan 13, 2012 at 9:59 am