May 25, 2012 / 9:36 AM / 7 years ago

Air France outlines plans to return to growth

PARIS (Reuters) - Air France said it will reduce staff numbers and its short-haul and medium-haul fleet in an effort to cut costs and return the airline to growth in the face of rising competition and fuel bills.

Passengers check-in at Air France desk in Nice International airport February 7, 2012. REUTERS/Eric Gaillard

As it overhauls its unprofitable French operations, the airline plans to beef up its Transavia low-cost airline.

It also wants to add new routes on its long-haul network, while loss-making services without any prospect of making money will be suspended, the airline said in a statement.

Air France, which employs more than 70,000 of the 103,000 workers at Franco-Dutch carrier Air France-KLM (AIRF.PA), confirmed that it had “excess staff” but said it would not give details until the second half of next month.

“The objectives are ambitious but feasible,” Air France Chief Executive Alexandre de Juniac said. “Air France needs to renovate its organisation and increase productivity by 20 percent.”

Juniac added that he aimed to return Air France to profitable growth against a backdrop of “extremely fierce international competition”. The airline is targeting break-even in 2014.

Air France-KLM, which is 15.9 percent state-owned, wants to shed 2 billion euros of both debt and operating costs over three years by cutting fleet and staff spending.

Talks have been underway with ground staff, flight deck and cabin crew unions since the end of March, and Air France said it hopes to sign new labour agreements by the end of next month.

Air France says it wants to avoid forced redundancies, but needs 20 percent efficiency gains by 2014. It says long-running labour accords are hindering its attempts to compete with low-cost carriers, while fuel bills are soaring.

The airline’s staff costs are higher than at Germany’s Deutsche Lufthansa (LHAG.DE) and the International Airlines Group (ICAG.L) IAG.L, which includes British Airways and Spain’s Iberia.

Air France is expected to cut 2,400 jobs over the next three years by not replacing staff, while media reports have suggested there may be a voluntary redundancy plan for a further 2,500 staff. The company has denied this.


Lufthansa, which fared better in the global economic crisis than its two main European rivals, said earlier this month it would cut 3,500 jobs as it wrestles with the impact of a previous acquisition spree, as well as tough competition from low-cost and Middle Eastern airlines.

IAG has predicted it will struggle to make money this year in the face of a 1 billion-euro rise in its fuel bill and restructuring costs from the purchase of loss-making carrier bmi.

Air France said on Thursday it intends to group together its regional operations - Regional, Brit Air and Airlinair.

It also plans to increase the Transavia France fleet to 20-22 Boeing (BA.N) 737 aircraft by 2015-16 from eight currently, with a focus on Mediterranean leisure destinations.

Air France is attempting to take on dominant European low-cost carriers Ryanair (RYA.I) and EasyJet (EZJ.L) with the help of new regional bases in Marseilles, Toulouse and Nice, where it is attempting to reduce costs by 15 percent through more effective use of crews and planes.

The carrier said it would be able to remove 34 aircraft from its short- and medium-haul fleet by 2014 by increasing plane use and assigning crews more flights per rotation.

Air France also added that it would cut its all-freighter fleet to four aircraft from five as its cargo business faces a “difficult economic environment”.

Air France-KLM swung to an operating loss of 353 million euros last year and scrapped its dividend. The carrier has warned fuel costs would hit profits again this year, with the bill expected to increase by more than 1 billion euros.

Shares in the carrier rose 0.3 percent to 3.401 euros on Thursday for a drop of some 14 percent this year after a 71 percent plunge last year. Its market value has fallen to just over a billion euros.

Editing by Elaine Hardcastle

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