Air France Faces Ruin

If you ask a millennial what he knows of TWA, Pan Am or Swissair, he will shake his head and ask what you’re talking about. They were three of the world’s most famous airlines, all of which went bankrupt. Is the same fate in store for Air France-KLM, one of the pillars of Europe’s aviation industry?

At midnight on July 27, 45 percent of the carrier’s 14,000 male and female flight attendants began a controversial strike at the height of the summer holiday season. On the first day, 30,000 passengers saw their flights cancelled. The staff have vowed to continue the strike until August 2.

It is the worst possible start for new chief executive Jean-Marc Janaillac, who took up the post in early July.

“The idea that Air France could disappear still remains foreign to certain employees, although we have seen famous national carriers like Pan Am and Swissair go bankrupt,” he told Le Figaro on the first day of the strike. “If we do not take good decisions and if the teams do not work together, there is a strong danger of decline. One does not know where the decline may lead.”

Formed in 1933 from an amalgam of Air Orient, Air Union, Compagnie Générale Aéropostale, Compagnie Internationale de Navigation Aérienne (CIDNA) and Société Générale des Transports Aériens (SGTA), Air France was one of the world’s storied airlines, with networks across Europe to French colonies in Southeast Asia. It is majority held by the French gove;rnment.

At the end of June, Air France-KLM had outstanding debt of €4.04 billion (US$4.51 billion. In the first half of 2016, it carried 44.2 million passengers, an increase of 3.9 percent over the same 2015 period, and lost €114 million, compared to a loss of €752 million in the same 2015 period.

Air France’s most serious competitors are the low-cost carriers like Ryanair and Easy Jet and Gulf airlines like Emirates and Qatar, which enjoy the backing of their oil-rich governments, which regard aviation as a critical sector to develop ahead of the time when their oil runs out.

Air France has a long history of strikes, starting in 1971, when all of its planes were grounded for 26 days in February and March. In 1998, the pilots went on strike for 10 days and returned to work only on the first day of the football World Cup which France was hosting. In the autumn of 2014, the company lost €500 million when the pilots went on strike for 14 days – and obtained nothing.

This year the pilots went on strike for three days until June 14, the day before the opening game of Euro 2016.

The staff have long seen their airline as an extension of the country’s Foreign Ministry, a symbol of the nation which takes its art, culture and style to the far corners of the world. Wearing Dior, Balenciaga or Nina Ricci, its flight attendants are ambassadors of French design and elegance. The pilots are among the best paid in the global aviation industry.

But the era of mass travel has changed everything. “Before, the passengers earned more than the pilots and the hostesses,” said Pascal Perri, a transport analyst. “Now it is the opposite. The conditions of production have changed and the services offered by the staff have been devalued. The demands of the passengers have fallen, especially for the short and medium-haul routes.” Last year 3.5 billion people took an airplane; in 2035, the figure will reach 7 billion.

“The view which the staff of Air France have of their situation and conditions of work does not correspond to reality,” he said. “The staff believe that bankruptcy is unthinkable and that Air France is immortal. But this is false. It could become like Alitalia, a small regional carrier. In Alitalia, the culture of strikes was part of the spirit of the staff.”

Janaillac said that his employees must give up the conviction that the airline is permanent. “They must stop thinking that the new actors – the Gulf companies and low-cost carriers – are only marginal competitors when they are attacking us front on. There is always over-capacity in the market. The global economy is complex, especially in Latin America and Britain. The security situation in Europe, especially in France, weighs on our business in Japan, China and North America.”

Within the group, there are sharp differences between Air France and KLM, the Amsterdam-based carrier which merged with Air France in 2004. Of the 564 planes in operation, Air France accounts for 231 and KLM 172; two subsidiaries, Hop and Transavia have 108 and 53 respectively.

The staff of KLM, as well as the Dutch government, do not understand the culture of conflict and confrontation among their French colleagues and fear for their future. “The Netherlands has historically favored dialogue and compromise,” said Janaillac. “In KLM, the pilots and others are angry (at the strikes in France). It would be much easier if the performance of Air France approached that of KLM.”

He said that this strike would have a heavy financial cost. “It can only complicate the work we have to do to make the company profitable. There is clearly a lack of trust between the management and the unions. I must devote all my energy to re-establishing this trust,” he said.

Mark O’Neill, a Hong Kong-based writer, has published recent books on Chinese history; the latest is “The Miraculous History of China’s Two Museums” (Joint Publishing), with editions in English and Chinese. He can be reached at ros8@netvigator.com.