Air France-KLM: An Unhappy Marriage

Air France and KLM merged in 2004, following the trend of consolidation in the airline industry. Twelve years after the merger, Air France-KLM is facing major competition from Gulf carriers on the long haul operations and competition from low-cost carriers on the operations on the European mainland.

KLM

The airline group is currently working on a turnaround plan, but is facing increased difficulties in restructuring Air France, the most inefficient part of the airline group.

KLM’s restructuring and Air France’s strikes

In 2014, an Air France strike resulted in a €425 million lower income. The strike was called for amidst plans of Air France-KLM to rapidly expand its low-cost carrier Transavia. In 2015, Air France announced it would be cutting 2,900 jobs. At the same time, its Dutch counterpart had reached an agreement with unions to freeze wages and aim for a 4% increase in productivity. Additionally, the Dutch carrier would cut away management layers, shrink its cargo activities and maintenance facility. These steps should realize a €700 million cost savings in 5 years.

Air France, on the other hand, is an airline that has been operating inefficiently for years, but the airline is facing resistance from the unions which are afraid that jobs are being carried over to KLM and Transavia. This makes the restructuring of Air France a slow one and combined with strikes, even an expensive one.

Conclusion

Air France-KLM is operating in an environment where it has to compete with low-cost carriers such as Wizz Air and Ryanair, and the Gulf carriers. Where KLM has started restructuring the airline, unions have tried to keep cost reductions for Air France out of the door, refusing lower wages, productivity increases and removing flights that are operated at loss or carry them over. The resistance against shrinking activities has now changed into unions demanding that operations from KLM, which is doing relatively good, are carried over to Air France in order to protect French jobs. In essence the unions are demanding that operations from a more cost efficient part of the holding are carried over to a highly inefficient and inflexible part of the holding. KLM probably would not have existed today without Air France, but the demands from the French unions is unrealistic given the resistance against any form of restructuring… a restructuring that is required if the airline wants to exist in years from now.

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