Air France's new strategy: focus on premium segment

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Old Jan 23, 19, 8:46 pm
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Air France's new strategy: focus on premium segment

(Surprised to see that noone has opened a thread on this yet - or have I missed something?)

Article (in french) here: https://www.latribune.fr/entreprises...on-804782.html.

Thoughts?
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Old Jan 23, 19, 8:49 pm
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In terms of profitability, it makes sense, but what will the protestors in yellow vests say?
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Old Jan 23, 19, 11:58 pm
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B. Smith has reached the same conclusion as the one we have made repeatedly in this forum :
- inhomogeneity of the J seats offer across the fleet
- too few planes equipped with the BEST seat
- outdated seats in about 50% of the long-haul fleet

And also, the need for AF to have more spare aircrafts. They have way too many heavy delays and last minute cancellations in long-haul due to plane going tech and no spare aircraft available.

AF needs to do better on the J-class hard product to attract new customers and magnetize the existing ones and this will bring more revenue and profitability. This is key when your costs are high (case of AF).

Last edited by Goldorak; Jan 24, 19 at 2:34 pm
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Old Jan 24, 19, 12:24 am
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Originally Posted by Goldorak View Post
B. Smith has reached the same conclusion as the one we have made repeatedly in this forum :
- inhomogeneity of the J seats offer across the fleet
- to few planes equipped with the BEST seat
- outdated seats in about 50% of the long-haul fleet

And also, the need for AF to have more spare aircrafts. They have way too many heavy delays and last minute cancellations in long-haul due to plane going tech and no spare aircraft available.

AF needs to do better on the J-class hard product to attract new customers and magnetize the existing ones and this will bring more revenue and profitability. This is key when your costs are high (case of AF).
You’ve summarized almost everything that has driven me in the arms of LH lately. Only thing that could be added to this is a the flaky Ultimate program that requires some rethinking.
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Old Jan 24, 19, 1:34 am
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I am by no means a business traveller like you guys, but was surprised by the statistic that less than half of the long-haul had the BEST cabine. I guess my impression is that way because my TATL flights are always to premium destinations (New York and IAD) with the BEST product on the 777. I know they have the COI fleet of 777s and the ageing A380 but thought they were a small minority of the long-haul fleet.

I would like to see them fix the Premium Eco seat.......

But yes, agree with a lot of the comments both here and in the article- work on the premium segment- without sacrificing what's already in Y, please, for those of us who only fly Y.
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Old Jan 24, 19, 3:13 am
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So does this mean they will finally have a flatbed throughout the entire fleet?
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Old Jan 24, 19, 3:16 am
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Originally Posted by MSPeconomist View Post
In terms of profitability, it makes sense, but what will the protestors in yellow vests say?
They might do another "full monty"!!

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Old Jan 24, 19, 3:20 am
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Originally Posted by mlin32;30693767[...
without sacrificing what's already in Y, please, for those of us who only fly Y.
The article suggests that one should not be too optimistic on that front:
Originally Posted by La Tribune
au détriment de la classe économique, dont le service devrait être par ailleurs réduit.
[...]
La différence de service avec la classe économique sera beaucoup plus marquée qu'elle ne l'est aujourd'hui.
On the latter, the article suggest a relative increase in the number of PE seats but is totally silent on changes to the product (in contrast to J, where it clearly speaks of improvements with the aim of generalising Best), Reading between the lines, this would seem to suggest that the "greater service differentiation" between PE and Y may well be, at least in part, attributable to a lower quality of service in Y. I fear that BoB might be on its way...

The article makes many points which regulars on this board have made but it also makes a good point in the latter part which is never referred to in discussions here, which is that a full-on premium-oriented strategy is easier to implement where you have a strong premium market at your base and your network is clearly oriented towards that. This is easier to do in some places rather than in others and it is not clear that Paris has such a strong premium demand compared to somewhere like London, for instance.
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Old Jan 24, 19, 3:24 am
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So much common sense again.
Y s a fairly standardized product across airlines and price is the major choice determinant. Few will choose AF because of a slightly better food (still mediocre Y food) or service. Other parameters are much more important (schedule,routing, price,...). And AF already had 10 accross on 777, which BA and some others do not have yet. The basic AF problem is that it is a high cost airline, so competing on Y is hard and no profitable.
SUch a high-cost airline can benefit from the French luxury image, but it needs a consistent and good product. Consistency is a key.
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Old Jan 24, 19, 4:57 am
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Originally Posted by mlin32 View Post
I would like to see them fix the Premium Eco seat........
They would need first to overcome their fear that W would canibalise C.

So, they need to shelve their monopoly mentality and realise that Pax don't have the choice between AF C and AF W, but between AF W and XY W.

There is a long way to go...

​​​​​​without sacrificing what's already in Y, please, for those of us who only fly Y.
Unfortunately, for most Y pax, price is THE determining factor. In order to reduce price, one way is to reduce costs. So don't hope too much.
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Old Jan 24, 19, 5:33 am
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I guess I'm in the minority of Y pax then I don't mind paying a bit more for AF for my travels or adding the connection at CDG (being based out of FRA) because their Y product is better than LH.

But I guess I'm a disappearing type of customer. *sigh*

It would be disappointing to have Buy on board for intra-Europe flights, as I think other full service carriers (LH) offer a snack and beverage. I guess the answer really is to buff up the C and W class offerings.
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Old Jan 24, 19, 9:42 am
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Originally Posted by mlin32 View Post
I guess I'm in the minority of Y pax then I don't mind paying a bit more for AF for my travels or adding the connection at CDG (being based out of FRA) because their Y product is better than LH.

But I guess I'm a disappearing type of customer. *sigh*
I am afraid yes. Look at search engines, OTA etc. They ALWAYS advertise "lowest fare to XYZ" and put low price first when you say you want to go from A to B. I don't agree with MOL on everything, but he was right when he said that pax would be ready to crawl naked on shattered glass for the sake of a cheaper ticket. This does not apply to you of course (nor does it to me lol), but ti applies to many.

I guess the answer really is to buff up the C and W class offerings.
Agree. A solid W aiming at SME, cost conscious larger ones (especially on TATL routes with such short flights) or better off pleasure travellers has a market.

Look at the success of "La Compagnie" with angled flat beds, priced accordingly (soon they will have lie flat, this is another story).
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Old Jan 24, 19, 11:04 am
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I find Ben Smith's strategic approach interesting.

Whilst at least for my remaining working life I probably fall into the customer segment that they target and therefore welcome that move, I also see all the challenges. Air France is caught between a rock and a hard place:
  • They'll never win on cost. The France-specific labour cost issues and the deeply engrained conviction not to be an LCC just won't allow them to go there. That doesn't mean that they don't have to make efforts on the cost side, they do, because whatever other strategy they pick none will generate a top line that will be strong enough to eliminate any cost disadvantage
  • Recognizing that AF cannot win with a cost-based strategy is lucid - but then, is a strategy that is merely "let's go premium" the only possible answer? They run away from one problem - and possibly straight into the wall. To be fair, I suspect (at least I hope) that their strategic thinking is more sophisticated and not a simplistic "let's be premium", but also has elements around network management, alliances, operating model, etc. Being premium could be the overarching motto, but if all they do is take the current operations of the airline, put in new seats and pay higher salaries then they'll fail.
  • Especially on the network there may be some quite drastic changes. Saying goodbye to "we cover so much of Latin America" and pulling out of Cancun, Santo Domingo and Fortaleza may dent the ego of some people who think that France's flag has to be seen all around the world or that feel that they work for a second class company only because it has a smaller network; LatAm is just an example. Being able to fill more flights to Chicago, Mumbai, Houston and Chengdu (to just pick some which are currently served with little capacity but that are bigger for some of their Euro competitors) will be the thing to achieve. Positioning KLM as the not-so-premium carrier may be part of the solution, whereby the AFKL group can still serve some places with less frequency and smaller premium cabins whilst still offering them.
  • What "being more premium" will mean beyond putting in BEST or similar cabins remains to be seen. On the hard product side BEST is already pretty good and definitely doesn't have to hide itself behind what other European players have to offer. Some touch-ups on catering would be nice (it's actually not as good as people sometimes want to believe, but it isn't terrible either), and some elements of the service protocol. The Non-BEST business class product is of course spectacularly sub-par and needs to be kicked out ASAP. The question of having on-board WiFi then becomes more relevant as well.
  • More work needs to be done on the ground: lines at security and immigration are simply too long, and lounges too underwhelming. Transfer services, a layout that allows for OSS transfers also for some intercontinental connections, better IRROPS management - these are some elements that spring to mind right away.
  • Also the FFP is still short on offering some of the things that others (in this especially the US carriers and the Lufthansa Group airlines) have put in place to serve the premium/business segment much better. Ultimate was supposed to solve some of these things but is largely a failure (do you know any business/premium traveler that picks AF just to access the benefits of Ultimate?), whilst Platinum is a bit closer. Elements such as offering lounge access upon arrival (I don't mean the longhaul arrivals lounge, but being able to access the lounge in Berlin, Marseille, Paris or Amsterdam after arriving on AFKL to spend productive/pleasant time before leaving the airport for a meeting which only starts later) or booking guarantee (I can be as willing as I want to rely on an airline to get me to where I need to go when I need to go and pay premium fares for it - if they don't sell me a seat then that's all useless) are practical perks to frequent travelers
  • Lastly, I see some real challenges for AF to make this strategy a success. Not to say it's impossible, but if not recognized their attempt may end up as a failure:
    • Paris isn't London, so the premium market is smaller. But then, Frankfurt, Zurich or Munich are even smaller premium markets and there the local carriers manage to have a premium-oriented offering
    • Financial stamina: before reaping the rewards (=attractive margins) of a premium-heavy carrier they first need to invest. The time lag between investing and seeing return on those investments may be in the order of 4-5 years, possibly even more. Things will even evolve slower if there is a longer period where only a part of the offering can keep up with the aspiration and marketing. AF doesn't have the deep pockets to fund that transition, at least not without hitting their bottom line
    • Culture, v1: when AF says "premium" and then talks about their natural right to win because France (and thus by extension Air France) is good in luxury and taste I am afraid that they miss the point. The majority of premium travelers are not people that pick the front section of the plane because of the tasteful choice of colours in the cabin or the stylish uniforms of the FAs - those things don't compensate for a SNAFU when bad weather, tech problems or a strike hits or when having to waste time because of chaotic boarding processes or slow luggage delivery. To attract premium travelers AF needs to work on reliability and being "practical" and easy to use, giving time back to travelers and avoiding to stress them with fears of what configuration the next flight will be on. However, being pragmatic, efficient, reliable and consistent is as much an Air France strength as being fuel-saving is a strength of Ferrari cars. This is not to say that the practical elements are sufficient, absolutely not. There needs to be a minimum level of comfort and style - but beyond a certain point it becomes useless if the practical/consistency elements is a failure.
    • Culture, v2: the behaviours that come from people employed at a state-owned monopoly carrier do still exist in AF, in too many places. Treating the company like one's own property (upgrading friends and family) but at the same time being reluctant to make extra efforts for its success is something that is still wide-spread. Less so in customer-facing staff maybe, but definitely in other parts of the airline. That is a handicap.
I wish them luck. (And I wish for myself BEST on all longhaul planes, WiFi on all planes, shorter wait lines, and an attractive program of benefits for very frequent travelers).
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Old Jan 25, 19, 1:54 am
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Originally Posted by brunos View Post
So much common sense again.
Y s a fairly standardized product across airlines and price is the major choice determinant. Few will choose AF because of a slightly better food (still mediocre Y food) or service. Other parameters are much more important (schedule,routing, price,...). And AF already had 10 accross on 777, which BA and some others do not have yet. The basic AF problem is that it is a high cost airline, so competing on Y is hard and no profitable.
SUch a high-cost airline can benefit from the French luxury image, but it needs a consistent and good product. Consistency is a key.
To me for an airline to be able to have the correct Premium and Y balance without and still getting the Y passengers to choose them is very difficult. To me the only airline which has succeeded in this is Singapore Airlines (sadly Cathay has dropped out) in my opinion.
I know a lot of people will go for Singapore Airlines even for Y and paying a slight premium for it because they know that they are going to get the service.
For me in order for AF to succeed on finding this balance, they do need to up their game from these points - but it will be difficult especially from seat pitch, FA attitude and service.

As for improving the Premium cabins, indeed for J - the offerings is already quite ok. I just hope that they will improve the soft service in Prem Y which for now is one of the worst in both hard and soft product (at least in my opinion).

Can't wait to see how this whole strategy will turn out.

Cheers!
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Old Jan 25, 19, 2:37 am
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Originally Posted by mlin32 View Post
I guess I'm in the minority of Y pax then I don't mind paying a bit more for AF for my travels or adding the connection at CDG (being based out of FRA) because their Y product is better than LH.

But I guess I'm a disappearing type of customer. *sigh*

It would be disappointing to have Buy on board for intra-Europe flights, as I think other full service carriers (LH) offer a snack and beverage. I guess the answer really is to buff up the C and W class offerings.
Nope, you're not.
Although I just booked a W fare on SU because the price was right and I had an Amex travel offer to use (600£ spent, 200£ back).
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