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Analysis: New Air France-KLM CEO must avert slow descent in France

Reuters  |  PARIS/BERLIN 

By and Cyril Altmeyer

PARIS/(Reuters) - Air France-KLM's next faces an unenviable task if they want to avoid the fate of The needs to deal with union resistance to restructuring at its core Air France brand, keep increasingly frustrated staff onside and battle rising

The Franco-Dutch on Tuesday named as as part of a transitional team, replacing Jean-Marc Janaillac, who quit earlier this month after he lost a vote on a pay proposal.

Air France-KLM, hamstrung by strikes that have cost it around 400 million euros ($477 million) this year, has watched from the sidelines as Lufthansa, IAG, and have driven European consolidation.

"Because Air France has had problems at home, they've been less able to take advantage of the opportunities in European consolidation. It would have made perfect sense for them to go after or and they were not able to," said Samuel Engel, of the aviation practice at London-based consultancy

German rival found a way out of its own legacy labour issues by setting up a separate low-cost airline, showing a potential path for if it is able to get beyond its current impasse with the trade unions, said

French unions have staged 15 days of walkouts since February, demanding a pay hike after six years of pay freezes.

"It needs to mimic the strategic development that undertook moving on from its initial low cost business, which was tied to labour terms, to which is an independent entity," Lobbenberg wrote in a note.

could therefore consider buying an existing stand-alone business, he said, with other options being to start up a new carrier itself or use a Dutch platform.


Back in 2005, Air France was riding high. Thanks to a deal to buy struggling KLM, it was the world's leading group by sales and it paved the way for rivals to follow with mergers of their own.

Fast forward a decade and the Franco-Dutch airline has fallen back to fifth place in terms of revenues, behind American Airlines, Delta, Lufthansa and United, which have all grown via mergers.

Industry experts fear it could face the same fate as Italian flagship carrier - currently being propped up by the and seeking investors - unless drastic restructuring occurs.

"The most likely outcome is a slow decline, a slow attrition, like Alitalia," said a former who asked not to be named.

KLM is now the more profitable part of the business, while years of slow progress in cost cutting at Air France have hampered growth at the French airline.

Looking within the Franco-Dutch group shows how the more efficient airline, KLM, has grown its fleet and maintained market share, even in the light of the rise of low-cost carriers at both and

The KLM fleet including has risen 20 percent to 208 aircraft since 2004, the year of the merger, ICF's Engel said. Meanwhile, the Air France fleet including aircraft allocated to new lower cost brand Joon has shrunk 8 percent to 227 planes.

"If you are Air France-KLM management and you're unable to restructure labour inside Air France, you do the rational thing, which is to shift as much capacity as possible into the Dutch entities," he said.

This decline was partly to blame for the ejection of Janaillac as CEO, said the former

"The no vote reflected a deeper malaise, beyond that of pay; a malaise linked to the feeling of decline within the company," he said.

Still, KLM's does not believe it is feasible for the Dutch airline to go it alone, he told Dutch in an interview aired this week.

"If I had to go up against all by myself with 200 airplanes, against their 1,300 airplanes, then it's nice to have a French brother next to me," he said. "He does have to be a strong brother, because then we can face that fine."

($1 = 0.8387 euros)

(Editing by Alexandra Hudson)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, May 15 2018. 18:04 IST