Alexandre de Juniac, chief executive of Air France-KLM, is negotiating with Air France pilots, who have threatened to stage widespread strikes next week.
PARIS — Struggling to recapture market share from rivals like Ryanair and EasyJet, Air France-KLM on Thursday unveiled a restructuring plan that aims to further shave operating costs while transferring a large part of its European operations to a growing low-cost subsidiary.
The move, which includes investments of up to 1 billion euros, or about $1.3 billion, over the next five years, aims to build the unprofitable unit Transavia into one of Europe’s largest budget carriers. But it also threatens to aggravate tensions with the group’s French pilots’ unions, who oppose shifting existing services to Transavia, where crew members are paid less. Air France pilots have threatened to stage widespread strikes next week in protest.
“The ambitious initiatives we are launching today will go hand in hand with redoubled efforts to reduce costs and restructure activities which remain loss-making,” Alexandre de Juniac, the group’s chief executive, said in a statement.
Air France-KLM, Europe’s third-largest carrier by number of passengers, after Ryanair and Lufthansa, will double the size of Transavia’s fleet to more than 100 planes by 2017, from around 50 today, with a target of carrying 20 million passengers a year. The group expects to hire up to 250 new pilots by 2019.
The strategic shift by Air France-KLM comes as most of the region’s full-service airlines are scrambling to wrestle down operating costs while fighting a two-front battle against budget carriers on European routes and fast-growing Middle Eastern rivals on long-distance services.
It also follows a similar move by Lufthansa of Germany, which over the past year has transferred much of its domestic and short-haul Europcanean services to two low-cost subsidiaries. One of those units, Germanwings, now operates virtually all the carrier’s domestic routes outside its main hubs in Frankfurt and Munich. The other is Eurowings, a Düsseldorf-based carrier that serves around two dozen destinations in northern and Eastern Europe. Workers at those affiliates are paid less than their peers at Lufthansa, and many are on temporary contracts.
Air France-KLM said it would finance the new investments in the low-cost business in part through the disposal of noncore assets, including €339 million from the recent sale of a stake in Amadeus, a travel technology company. It predicted that Transavia would return to operating profit by 2018, while core profit for the group would improve up to 10 percent a year through 2017.
Air France’s largest pilots’ unions are demanding that Transavia pilots be employed under the same labor contract as those flying under the Air France brand. Last month, they announced plans for widespread strikes from Sept. 15 to Sept. 22, in the hope of securing concessions from management.
In an interview this week with the business newspaper Les Échos, Mr. de Juniac said he was willing to consider sweetening incentives for Air France pilots who transfer to Transavia. However, he said he would not accept a single contract for all of the group’s pilots.
While Air France said it hoped to reach a deal to avert a strike, late Wednesday the carrier began offering passengers the chance to modify their reservations, at no cost, for flights booked for the proposed strike period.
The new investments in the company’s European budget operations follow other initiatives aimed at improving the quality of its service and raising fares on long-distance routes. Earlier this year, Air France-KLM began a €1 billion upgrade to its first- and business-class cabins to better compete with the amenities offered by Persian Gulf rivals that have become direct competitors on certain lucrative long-haul routes, particularly between Europe and Asia.
After nearly three years of cost-cutting and staff reductions, Air France-KLM has made progress toward a goal of paring debt and reducing costs by more than €2 billion, with an eye to returning to profitability by the end of 2015. The airline reported a net loss in 2013, but recorded its first annual operating profit in three years.
In July, the group lowered its earnings forecast for the current year, citing the effects of overcapacity in its passenger business during the peak summer travel period as well as persistently weak demand for air cargo amid a tepid global economic recovery.
In addition to bolstering its Transavia business, Air France-KLM said it would continue to reduce costs and restructure service on short routes in France that do not connect through a hub, with an eye to restoring them to break even by 2017. The group said it would continue to shrink its unprofitable cargo business, while steadily building its modest aircraft maintenance unit, in part through acquisitions.
