UPDATE 1-Air France-KLM accelerates low-cost plans, cargo cuts

Thu Sep 4, 2014 1:53pm EDT

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By Tim Hepher

PARIS, Sept 4 (Reuters) - Air France-KLM announced plans on Thursday to speed up the development of its low-cost unit and cut back freighter operations in its latest efforts to boost competitiveness.

Europe's second-largest traditional carrier by revenue said its board had approved a plan to open new bases under the Transavia low-cost brand in Europe.

By expanding its low-cost operations, Air France-KLM is following the example of German rival Lufthansa, which is expanding budget services via its little-known Eurowings carrier and considering a budget long-haul unit.

The project is part of the Franco-Dutch group's new strategic plan, Perform 2020.

Few details of the plan were announced ahead of a presentation on Sept 11. French daily Les Echos earlier reported that new bases would be opened in Lisbon, Porto and Munich.

In July, Air France-KLM had pledged action to recapture market share from low-cost rivals.

Meeting on Thursday, the airline's board also agreed to reduce its fleet of all-cargo planes following a strategic review of the loss-making business.

By the end of 2016, the group expects to have cut the fleet to five full freighters - two Boeing 777Fs in Paris and 3 Boeing 747ERFs in Amsterdam - from 14 in 2013.

Full-service European airlines have been squeezed by competition from both low-cost carriers and fast-growing Middle East rivals.

Freight carriers have also lost business to shipping and to the bellies of larger passenger planes, hurting volumes and profits for cargo-only airlines.

But Lufthansa and Air France, which have both warned on profit in recent months, are hampered by powerful unions in their efforts to lower costs.

Pilots at Lufthansa on Thursday announced more strike action in a row over retirement benefits, while Air France pilots are planning a week-long strike later this month.

Stepping up the pace of full-freighter cuts already underway, the airline said it had been forced to act by a "slower-than-expected recovery in demand". (Reporting by Tim Hepher, Victoria Bryan, Maya Nikolaeva, Editing by Laurence Frost)

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