Gonzalo
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AF/KL : More Cost Cutting Measures Announced

Fri Jul 26, 2013 12:09 pm

The measures to be taken are not very clear : "The airline said the plan would include voluntary departures as well as industrial and commercial initiatives."

How is the management expecting to seduce someone to make a " voluntary departure" in the current scenario with jobless numbers rising all over Europe ?

And what kind of industrial and commercial actions are they planning ? ....Would the in flight experience be the next victim of the cost cutting fever ?

Thoughts??

http://news.airwise.com/story/view/1374819588.html


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varig md-11
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 7:44 am

Voluntary departure can work if you are 50 something of age and AF gives you a big check to help you terminate you house loan, otherwise I agree with you....who wants to voluntary leave nowadays....and being an ex-AF is not necessarily positive on the market.

The "industrial action" is probably a sophisticated term for what will happen: it's now out of the bag that some lines will be transferred to Transavia, meaning some AF employees will be given the opportunity to leave the real AF and become Transavia employees.

Just an idea, but I wonder if at the end of the day all the flights "la navette" at ORY (domestic flights between French big cities and ORY) will be transferred to a parallel structure where you can utilize better/more the crew and airplanes, it could be Transavia or a new "la navette France". Staff would not be real AF staff anymore meaning more hours, less corporate advantages, etc
AF TW AA NW DL UA CO BA U2 TP UX LH SK AZ MP KL SN VY HV LS SS TK SQ PC RG IW SE LI TN
 
mozart
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 7:59 am

Why does AFKL only act on the cost side? Do they do anything to increase the top line? Or have they decided to remain an only mildly attractive carrier and see the big spend go to other competitors?
 
sebolino
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 8:14 am

Quoting Gonzalo (Thread starter):
How is the management expecting to seduce someone to make a " voluntary departure" in the current scenario with jobless numbers rising all over Europe ?

Well, we know what means "volontary departure". They will offer incentives for people ready to leave the group, but if they can't find enough people, the volontary part will disappear ...
If some people can find a job before leaving, or if they have already a project of enterprise creation, this system can be very interesting. For other people, it has generally no real interest.
 
IndianicWorld
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 9:32 am

Quoting mozart (Reply 2):
Why does AFKL only act on the cost side? Do they do anything to increase the top line? Or have they decided to remain an only mildly attractive carrier and see the big spend go to other competitors?

To do anything but control costs is only going to increase risk. To throw money at the potential to increase return is likely not a position AFKL are in right now.

This would take substantial additional investment and change that can often take a few years to see any benefit.
 
PH-BFA
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 10:38 am

Quoting mozart (Reply 2):
Why does AFKL only act on the cost side? Do they do anything to increase the top line? Or have they decided to remain an only mildly attractive carrier and see the big spend go to other competitors?

KLM has introduced a new business class (first aircraft is currently being retrofitted) and AF will unveil new business and first class cabins next year. KLM also became a Skytrax 4 star airline again just recently.

PH-BFA
 
starbucks
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 12:36 pm

Quoting PH-BFA (Reply 5):
first aircraft is currently being retrofitted

Slightly off-topic (sorry) but indeed...

Aircraft is PH-BFB, new businessclass debuts tomorrow (28th) on KL605 to SFO, departure: 09:50(Local)

Thereafter a new 747 will follow every 2 weeks
 
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par13del
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 1:04 pm

Quoting Gonzalo (Thread starter):
How is the management expecting to seduce someone to make a " voluntary departure" in the current scenario with jobless numbers rising all over Europe ?

Europe has a government social structure which provides benefits to jobless persons, the voluntary package offered by AF/KLM combined with government support may be attractive to someone who has worked for 10 to 20 years, time to get a break.
It is not always about the max amount of money one can receive, if your bills are being paid and you are comfortable without having to get up everyone morning and go on the job for 8 to 10 hours...........
 
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Aesma
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 3:36 pm

That only works if you're pretty sure you can get a job after your "sabbatical", not really realistic in current times.

In France "voluntary departure" has often meant "early retirement". I know several people who have retired at 55 that way (and they were not pilots or miners), and now the national pension system is deep in the red...
New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
 
sebolino
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 4:57 pm

Quoting par13del (Reply 7):
Europe has a government social structure which provides benefits to jobless persons, the voluntary package offered by AF/KLM combined with government support may be attractive to someone who has worked for 10 to 20 years, time to get a break.

You have some part of your former salary during a few months, then nothing ... I don't think it's a very tempting situation when it's so hard to find another job.
 
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par13del
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 5:09 pm

Quoting sebolino (Reply 9):
You have some part of your former salary during a few months,

If it is early retirement one would commence receiving pension benefits.

Quoting sebolino (Reply 9):
then nothing ...

This is the government portion I was talking about, if one has been in the labour force for a number of years they are also entitled to benefits.
Early retirement can serve multiple benefits for government and private industry, create more avenues for advancement for new staff, lower the cost of employment as new staff usually cost less, tax payors pick up the benefits of "old folks" so private industry can continue and grow.

Now in nations where government is the largest employer you will have a more serious problem, hence the mantra that it is always better for government to control the economy by laws, rules and regulations versus being an active participant as a major employer.
 
bmibaby737
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 5:52 pm

Quoting starbucks (Reply 6):
Aircraft is PH-BFB, new businessclass debuts tomorrow (28th) on KL605 to SFO, departure: 09:50(Local)

Off-topic I know, but has the configuration changed for the aircraft or is it just a refresh with the same seating config?
 
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Aesma
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 6:11 pm

Well here the pension system is that people working pay for retired people, you don't put money aside for your retirement (well you can, but on top of the significant contributions taken from your paycheck regardless). So if you make working people retire early, you instantly create an imbalance, less people paying into the system, while more are living off it.
New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
 
factsonly
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Jul 27, 2013 8:21 pm

The number of seats in KLM World Business Class will be reduced from 42 to 35 aboard the Boeing 747-400.

http://nieuws.klm.com/klm-nieuw-cabi...full-flat-world-business-class-en/
 
AF185
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RE: AF/KL : More Cost Cutting Measures Announced

Mon Jul 29, 2013 3:29 am

AF seems to be on right track. Cost-cuttings and Transform Plan helping to generate an expected profit this year, while also focusing on a major product improvement to be initiated as of 2014.

The additional measures will be focusing on Medium-Haul ops as well as cargo, which are still struggling.

From Bloomberg:

Quote:
While progress on the Transform 2015 cost-savings program is on schedule, the company plans “additional major measures” from 2014 to address lagging performance in medium-haul passenger operations as well as in cargo, Juniac said. Those will be announced in the autumn.

“Short- and medium-haul operations are not a lost cause,” Juniac said, pointing to improvements KLM had made in its European network. Air France has already sought to lower costs with the introduction of Hop!, a low-cost, point-to-point operation. The savings plans will improve use of the capacities of low-cost subsidiary Transavia in France, Air France CEO Frederic Gagey said today.

Whole story here: http://www.bloomberg.com/news/2013-0...ofit-on-cost-cuts-and-traffic.html

As for the early voluntary retirement plan, it is a tricky calculation for employees:
-> Early retirement $ incentives Vs. number of years left to regular retirement (salary + seniority bonus)
-> Medical checks: if someone has doubts on his/her ability to pass the annual health checks, you might consider accepting this plan as losing his/her license means 0 bonus / incentives anymore (real factor especially for senior staff)
-> Trust in future: this plan with incentives might simply be cancelled if not working well enough and if AF keeps losing $ ; in addition, it is not excluded the French government could increase tax on those early retirement $ bonus
 
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Alsatian
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RE: AF/KL : More Cost Cutting Measures Announced

Tue Jul 30, 2013 5:59 pm

Some AF / HOP routes are not bookable from september : LYS-BCN , BOD-BCN , SXB-VIE or SXB-VCE. Not official yet but if these cancellations are comfirmed that could be a result of the next cost-cutting plan.

Current schedules :

AF 5488 / A5 4602 LYS 0835 - 0955 BCN 123456- CRJ
AF 5464 / A5 4606 LYS 1535 - 1655 BCN 12345-7 CRJ
AF 5460 / A5 4608 LYS 2005 - 2125 BCN 12345-7 CRJ

AF 5300 / A5 3224 BOD 1545 - 1650 BCN 12345-7 ER4

AF 5471 / A5 3502 SXB 1015 - 1140 VIE -2-4-6-- ER4

AF 5452 / AZ 7369 SXB 1025 - 1140 VCE 1---5-- ER4
Ok I am French but I am not on strike
 
goldorak
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RE: AF/KL : More Cost Cutting Measures Announced

Tue Jul 30, 2013 6:15 pm

Quoting Alsatian (Reply 15):
Some AF / HOP routes are not bookable from september : LYS-BCN , BOD-BCN , SXB-VIE or SXB-VCE. Not official yet but if these cancellations are comfirmed that could be a result of the next cost-cutting plan.

BCN-LYS and BCN-BOD are indeed axed from sept 2. It was posted yesterday on AF travel agent portal. There was no mention of the 2 other routes you mentioned.
 
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Alsatian
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RE: AF/KL : More Cost Cutting Measures Announced

Tue Jul 30, 2013 6:23 pm

Quoting goldorak (Reply 16):
BCN-LYS and BCN-BOD are indeed axed from sept 2. It was posted yesterday on AF travel agent portal. There was no mention of the 2 other routes you mentioned.

Thank you. Any other interessant news in this AF travel agent portal ?
Ok I am French but I am not on strike
 
mozart
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RE: AF/KL : More Cost Cutting Measures Announced

Tue Jul 30, 2013 7:58 pm

Quoting AF185 (Reply 14):

AF seems to be on right track. Cost-cuttings and Transform Plan helping to generate an expected profit this year

I agree that the direction is right. But I remain skeptical that the magnitude is sufficient. The half year results that they just published to not look good at all. Better than last year, but still bleeding a lot.¨

Quoting AF185 (Reply 14):
while also focusing on a major product improvement to be initiated as of 2014.

What other product improvements will there be other than the limited roll-out of a new longhaul Business Class cabin? Do they have plans that go beyond that?
 
Azure
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RE: AF/KL : More Cost Cutting Measures Announced

Tue Jul 30, 2013 9:25 pm

Quoting mozart (Reply 2):
Quoting mozart (Reply 18):
I remain skeptical that the magnitude is sufficient. The half year results that they just published to not look good at all. Better than last year, but still bleeding a lot.¨

It depends on how you read these results, as always : haven't they posted a positive result for this second quarter (the first time in 5 years), reduced their debt and increased their cash flow? But we agree this is not sufficient : their medium-haul ops are still loss-making, mostly due to AF P2Ps within Europe. Their cost base is not competitive yet. They are getting ready to transfer these ops to Hop! and Transavia hence the announced measures.


Quoting mozart (Reply 18):
What other product improvements will there be other than the limited roll-out of a new longhaul Business Class cabin? Do they have plans that go beyond that?

Yes, AF will update not only its business class, but all the classes of service (which means more Champagne for everyone according to this video!) We will see... http://corporate.airfrance.com/en/pr...e-upgrades-its-long-haul-services/
 
mozart
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RE: AF/KL : More Cost Cutting Measures Announced

Wed Jul 31, 2013 6:35 am

Interesting, thanks for that.

So they will improve the product on longhaul and at the same time compete with LCC on shorthaul? What about transfer passengers that use longhaul and then shorthaul flights?

Regarding how to read their financial results: I read them the same way you do. THey have improved a lot, but are still weak. If they weren't there wouldn't be a reason to initiative further cost reduction measures and job cuts.

My gut tells me that with the customer base and yield mix that they have they would need to radically change their entire model. AF is no longer what BA and LH/LX still are, i.e. network carriers with a very very big portion of premium class passengers. AF (and KL?) are more and more an Eco carrier with a smallish add-on in premium classes. That hurts revenues, and indeed their latest numbers show that the average revenue per ticket has decreased by almost 2%. They had launched some "MiNi" fares to compete with LCCs. Result: planes filled up, but with passengers whose LCC yield is not sufficient to cover the high costs of a legacy airline.

So they have a choice to either cut costs but by much much more and try to become an LCC so as to match their revnue structure which resembles more and more that of an LCC - but their employees won't like that, already now the unions are on record with their opposition against what they call "becoming more and more like an LCC and against increasing outsourcing". Or they choose to do something to do something and become more attractive to high yield pax, that howvever will cost money, which they don't have right now especially as they are making a very successful effort to reduce their debt. Not a comfortable situation to be in.

[Edited 2013-07-31 00:26:24]
 
AF185
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RE: AF/KL : More Cost Cutting Measures Announced

Wed Jul 31, 2013 8:23 am

Quoting mozart (Reply 20):
Regarding how to read their financial results: I read them the same way you do. THey have improved a lot, but are still weak. If they weren't there wouldn't be a reason to initiative further cost reduction measures and job cuts.

A committee is actually held today at AF with the unions, and a further early retirement plan is expected to be announced. Around 2,500 to 3,000 staff are rumored not to be replaced, and additional measure will be taken to reduce costs especially on medium haul and cargo activities.
All the details will further be submitted on 4th October.

Quoting mozart (Reply 20):
AF is no longer what BA and LH/LX still are, i.e. network carriers with a very very big portion of premium class passengers. AF (and KL?) are more and more an Eco carrier with a smallish add-on in premium classes

The new CEO wants to "re-position" AF as it should be: a premium oriented legacy. Hence all the products improvements planned on the Long Haul ops as of next year. As for the short/medium haul ops, AF has no choice but go lower cost in order to compete with the LCC's. I believe having a Premium long haul product allied with a low cost short/medium haul can be compatible and makes sense considering the competition
 
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usdcaguy
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RE: AF/KL : More Cost Cutting Measures Announced

Wed Jul 31, 2013 10:26 am

Quoting Alsatian (Reply 15):
AF 5488 / A5 4602 LYS 0835 - 0955 BCN 123456- CRJ
AF 5464 / A5 4606 LYS 1535 - 1655 BCN 12345-7 CRJ
AF 5460 / A5 4608 LYS 2005 - 2125 BCN 12345-7 CRJ

AF 5300 / A5 3224 BOD 1545 - 1650 BCN 12345-7 ER4

AF 5471 / A5 3502 SXB 1015 - 1140 VIE -2-4-6-- ER4

AF 5452 / AZ 7369 SXB 1025 - 1140 VCE 1---5-- ER4

These strike me as highly seasonal and low-yielding, with competition from LCCs on LYS-BCN. BOD-BCN is an old Regional Airlines route; demand would likely be insufficient in the off-season.
 
goldorak
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RE: AF/KL : More Cost Cutting Measures Announced

Wed Jul 31, 2013 2:01 pm

Quoting Alsatian (Reply 15):
Some AF / HOP routes are not bookable from september : LYS-BCN , BOD-BCN , SXB-VIE or SXB-VCE. Not official yet but if these cancellations are comfirmed that could be a result of the next cost-cutting plan.
Quoting goldorak (Reply 16):
BCN-LYS and BCN-BOD are indeed axed from sept 2. It was posted yesterday on AF travel agent portal. There was no mention of the 2 other routes you mentioned.

More news posted today on AF travel agent portal :
- SXB-VCE indeed axed from 26 August
- SXB-VIE Indeed axed from 3 sept
An additional axed route, not mentioned previously in this thread : LYS-BUD from 3 november
 
mozart
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RE: AF/KL : More Cost Cutting Measures Announced

Wed Jul 31, 2013 3:21 pm

Quoting AF185 (Reply 21):
I believe having a Premium long haul product allied with a low cost short/medium haul can be compatible and makes sense considering the competition

But this is *NOT* what the competition is doing. British Airways has a full service shorthaul product, and so does Lufthansa, and so does Swiss, and so does Austrian. There is some degree of consistency between longhaul and shorthaul.

Unless you consider "the competition" being LCC, but if LCCs are the competition then what is the point of upgrading the product?
 
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Alsatian
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RE: AF/KL : More Cost Cutting Measures Announced

Wed Jul 31, 2013 3:57 pm

Contrary to expectations, the MRS TLS and NCE bases will not be closed according to the CEO :

In french : Air France devrait supprimer 2500 postes d ici 2014
Ok I am French but I am not on strike
 
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Aesma
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RE: AF/KL : More Cost Cutting Measures Announced

Wed Jul 31, 2013 4:02 pm

Quoting mozart (Reply 20):
So they have a choice to either cut costs but by much much more and try to become an LCC so as to match their revnue structure which resembles more and more that of an LCC - but their employees won't like that, already now the unions are on record with their opposition against what they call "becoming more and more like an LCC and against increasing outsourcing". Or they choose to do something to do something and become more attractive to high yield pax, that howvever will cost money, which they don't have right now especially as they are making a very successful effort to reduce their debt. Not a comfortable situation to be in.

Well I'm not high yield for sure (unemployed) but I fly AF, one of the main reasons being that it is not an LCC. Sure I look for good deals (in fact AF emails them to me) and might not make them much money (although usually those deals fill empty middle of the day seats). But if they go the LCC route, they will get no money at all from me, and probably not from a lot of people, because they will never be competitive against Ryanair and U2.
New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
 
RGFC
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RE: AF/KL : More Cost Cutting Measures Announced

Wed Jul 31, 2013 4:13 pm

Quoting mozart (Reply 24):
and so does Lufthansa

Actually LH has switched most of its short-haul flights to Germanwings
 
mozart
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RE: AF/KL : More Cost Cutting Measures Announced

Wed Jul 31, 2013 6:39 pm

You did not read or chose only to quote part of my sentence out of context. The statement was about coherence between long haul and short haul offering for transfer passengers. Lufthansa has not outsourced it short haul feeders into the long haul hubs to Germanwings. All these flights Into Frankfurt and Munich are operated by Lufthansa itself with a full business class offering.
 
mozart
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RE: AF/KL : More Cost Cutting Measures Announced

Wed Jul 31, 2013 6:45 pm

@Aesma: You prove my point. I am of course individually happy for you
You fly Air France and enjoy it. However, what is your happiness is actually a problem for the company: there are many people like you, and a few people paying hi shares. Problem is, the company's cost base is geared towards people paying high fares, not low fares. There is a strong Probability that by transporting you they are actually increasing their losses.

I think it's great for an airline to be accessible for everybody. But then it should adapt its operations and cost structure accordingly. Air France has not done that
 
factsonly
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RE: AF/KL : More Cost Cutting Measures Announced

Wed Jul 31, 2013 7:57 pm

July 31, 2013 Press Release AF/KLM:

Transform 2015 plan: progress report at Air France

Within the framework of the scheduled progress report on Transform 2015, the Air France
Group today informed the Central Works Council of its decision to implement additional
measures.

Within a difficult economic environment particularly in France and South Europe, the Air
France Group needs to implement the measures required to ensure an enduring turnaround
in its short and medium-haul and cargo businesses.

As a result, the Group plans a re-sizing of these businesses, requiring a further targeted
reduction in staff. The over-staffing could be slightly more than 50% of the level of overstaffing
identified in 2012 at 5,100 jobs. The measures to accompany this reduction in staff
will be comparable to those already in place, i.e. the non-replacement of natural departures,
voluntary departures, part-time working and unpaid leave.

All of the measures will be the subject of an in-depth dialogue with the staff and union
representatives over the next few months for implementation on 1st January 2014.
 
AF185
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RE: AF/KL : More Cost Cutting Measures Announced

Thu Aug 01, 2013 2:58 am

Quoting mozart (Reply 24):
But this is *NOT* what the competition is doing. British Airways has a full service shorthaul product, and so does Lufthansa, and so does Swiss, and so does Austrian. There is some degree of consistency between longhaul and shorthaul.

When I said competition, I was referring to the LCC's operating in France in general, and putting more pressure on AF's fares and profitability.
AF is not planning to end its regular short/medium haul ops, instead they're planning to transfer some of the routes which are under greater competition or simply not making any profits to its low cost subsidiaries (HOP, Transavia). Pretty much what LH has been doing with Germanwings.
 
mozart
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RE: AF/KL : More Cost Cutting Measures Announced

Thu Aug 01, 2013 9:25 am

Quoting AF185 (Reply 31):
When I said competition, I was referring to the LCC's operating in France in general, and putting more pressure on AF's fares and profitability.
AF is not planning to end its regular short/medium haul ops, instead they're planning to transfer some of the routes which are under greater competition or simply not making any profits to its low cost subsidiaries (HOP, Transavia). Pretty much what LH has been doing with Germanwings.

Two things then:

First, this is not what Lufthansa has done. It has basically transferred all its shorthaul flying to Germanwings, except for hub routes where you have passengers continuing to longhaul. They did that because they wanted a higher level of quality and not at all an LCC experience for those transfer passengers, especially those that are continuing in First or Business. Lufthansa has realised that on longhaul they are competing with other high quality carriers (British Airways, Emirates, Qatar, ...) and therefore could not let the level drop too deep - for the entire trip, not just the longhaul part. So that logic has nothing to do with LCC competition, even if these short haul routes are losing money.

If Air France did the same thing it would keep all CDG-based flying on Air France with the Air France brand and would increase the standard and quality of that product. And it would then outsource all other non-CDG hub based flying to Transavia and merge HOP into Transavia. Instead, what it has done so far is to create an additional brand for its regional flying without merging the operating entities behind it (so more marketing cost for the new brand but same operations cost as before) and kept the Bases de Province under the main Air France brand. On top of that it has more and more LCC-ized its mainline flying to the CDG hub.

So at least so far Air France has not at all done what Lufthansa has done. And if it wants to do the same it would mean raising standards on its shorthaul routes to CDG to be consistent with the improved offering on longhaul.

Second, not sure you realize the contradictions that are inherent in your statements - in fact, nothing wrong with you or your statements, but the situation you are describing has an inherent contradiction:

1) Air France wants to raise standards on longhaul flying. Fine, if it really wanted that it would roll out a new Business cabin across the entire fleet. Instead it is just rolling out the new Business cabin across a sub-segment of the longhaul fleet. Not a contradiction, but not very consequential either
2) If Air France wanted a bigger share of the premium traveler market it would need to have and to fill more premium seats on its planes. However it doesn't, the number of premium seats has been reduced constantly over the past couple of years. Contradiction here
3) The reason Air France wants to improve its premium offering is because it wants to catch up with British Airways, Swiss, Austrian, Emirates, etc. So it considers these airlines its competitors. Fine
4) But then it lowers standards on the feeder flight, creating a big inconsistency with the longhaul product. Why? According to them (and to you) because their competitors are the LCCs.

So for a Business Class passenger flying Beijing-Paris-Lisbon he may be able to enjoy an improved longhaul product - because here AF considers that its competitors are BA, LX, LH, EK etc. Then he changes planes in Paris and gets to experience a very very poor shorthaul Business Class which has been stripped down because of competition with the LCC.

So when you said before

Quoting AF185 (Reply 21):
I believe having a Premium long haul product allied with a low cost short/medium haul can be compatible and makes sense considering the competition

then I just pointed out that this is not what the competition is doing, because the competition does not send its premium passengers onto shorthaul LCC flights. To which you said that "the competition" were the LCCs - but they don't combine their LCC offering with a premium long haul product either.

So which one is it? See the contradiction?

And that is precisely the contradiction in AF's strategy. And when you say you believe that such a model can work then may I contrast your belief with hard facts about the one company that has tried that (it happens to be AFKL):

Losses in 2008-2009: EUR 810 Million
Losses in 2009-2010: EUR 1,559 Million
Profit in 2010-2011: EUR 613 Million
Losses in 2011: EUR 809 Million
Losses in 2012: EUR 1,192 Million

You can also look at other measures (operating income, etc), the fact remains that they earn little because people don't pay a lot for their flying with AFKL but at the same time they have costs which are as high as that of the airlines who in fact have higher revenues. Hence the losses.

So combining an LCC product (which they insist is not LCC) and a premium long haul product (which they believe is really premium) has produced losses of EUR 3.8 Billion. So no, I do not think this works.
 
TYCOON
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RE: AF/KL : More Cost Cutting Measures Announced

Fri Aug 02, 2013 9:36 am

A couple of points:
-AF is not planning to stop flying on key short-haul market segments within Europe and transfer them all to HOP! and/or Transavia. The idea is to eventually transfer those routes that are lower yielding (more tourist/VFR market) than higher yielding. The plan doesn't call for AF to end European level business class offerings to cities such as LHR, FRA, LIN, BCN, MAD, ARN, etc... but perhaps rethink its offer to domestic airports (essentially out of ORY) and secondary European airports, which they have been doing for some years now (switching to either TO or HOP! or their Spanish ST partner UX a number of Portuguese and Spanish cities as an example).
-Mozart, can you provide us statistics on your claims that AF is not selling their premium cabins or decreasing their offer in the premium segment? Every time I fly them in the front the cabin is full, and a number of them business clientele... you just have to check availability and fares to Latin America or the US to see that they are doing quite well in the front. Furthermore, France is the second largest economy in Europe with a number of global companies flying their personnel around the world on business. In fact, flying out of Paris long-haul is cheaper on BA, LH or LX than it is on AF...
-In the past six months, in addition to a number of other airlines, I have flown AF, BA, LH and LX a number of times "up-front" in business or in first. And in my view, AF has the best service, BA the worst, LH has by far the worst Business class seat (and some really atrocious wines!) and LX perhaps the coldest flight attendants (although LH not far behind). But that is my personal opinion...
-One of the real issues for AF is one that they cannot necessarily solve themselves and that is the social charges the airline has to pay the government which are significantly higher than what BA, LH or LX have to pay.... and until that is solved (or they get wage concessions (unlikely) or reduce the workforce (underway)) profitability will take a hit at AF
 
mozart
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RE: AF/KL : More Cost Cutting Measures Announced

Fri Aug 02, 2013 11:46 am

Quoting TYCOON (Reply 33):
Mozart, can you provide us statistics on your claims that AF is not selling their premium cabins or decreasing their offer in the premium segment?

Sure.

Proportion of Premium revenues of total revenues (I picked this up in another forum, someone there looks at annual reports and industry studies)

Swiss 57%
British Airways 53%
Lufthansa 52%
Air France 38%

Conclusion: a higher proportion comes from economy pax.

Also if you look at other things like number of premium seats on an aircraft type it often is lower on AF, and has been reduced in recent years. There are only a handful of destinations in the AF network that have First Class, whereas all but 3 or 4 max in the Lufthansa network offer it. More and more planes even in the 777 range join the fleet with smaller J and no P class.

Quoting TYCOON (Reply 33):
you just have to check availability and fares to Latin America or the US to see that they are doing quite well in the front.

There is a much better indicator: average revenue per seat kilometer. AF is much lower than BA or LH Group. Because of the many low yield pax.

Quoting TYCOON (Reply 33):
In fact, flying out of Paris long-haul is cheaper on BA, LH or LX than it is on AF..

Sure. And it is cheaper to fly out of Frankfurt on any thing other than Lufthansa, cheaper to fly out of London on anything other than British Airways, etc. Airlines operating nonstop are always more expensive than the ones which require a transfer. Nothing AF or Paris-specific

Quoting TYCOON (Reply 33):
AF is not planning to stop flying on key short-haul market segments within Europe and transfer them all to HOP! and/or Transavia. The idea is to eventually transfer those routes that are lower yielding (more tourist/VFR market) than higher yielding. The plan doesn't call for AF to end European level business class offerings to cities such as LHR, FRA, LIN, BCN, MAD, ARN, etc... but perhaps rethink its offer to domestic airports (essentially out of ORY)

So will they mix full service and LCC operations at their CDG hub? Not so wise. And before someone says it: no, this is not what LH has done. They have left the entire hub traffic full service, and transferred the entire non-hub traffic to their LCC subsidiary. It will be very different to market and position a product in foreign markets which is "fly from Tokyo to Europe via Paris with great Business fares. If you continue to Madrid we^'ll give you a Business Class cabin and service throughout the entire journey. If you continue to Valencia your journey from Paris will be in our own LCC." Really?
 
TYCOON
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RE: AF/KL : More Cost Cutting Measures Announced

Fri Aug 02, 2013 1:13 pm

Mozart, thanks for the figures, but only hearsay... You haven't proven anything other than you haven't studied them yourself - so no authority to opine.
How do you figure Premium Economy into the equation? BA and AF have them, LH and LX don't... BA is also decreasing FC service on their aircraft to a number of destinations. Isn't the 787 only going to be a 3-class lay-out? Business, WTP and Economy?
And again, yield is a function of costs... so if your operating costs are higher than your competitors (and I already provided for an important reason why), then even if premium passengers still continue to flock to AF (and I do believe they do) your yields are still going to be lower than other airlines with lower costs... You can't make the statement that yields are lower on AF since they only appeal to low fare paying passengers... It is simple math and plane economics.
I do realize that AF or LH offer cheaper airfares out of London long-haul or that AF and BA offer cheaper ones out of Frankfurt... but my point was that if there was very little local demand for the AF premium product, than prices out of CDG for AF would equally be low... but trust me... they are not.
Valencia is actually served from Paris by Air Europa and they offer a business class service on both the B738s and E-195s.
I am not convinced personally that the business traveller today cares much about the tag-on flight if it is a short hop (or "HOP!")... what is the prime consideration is convenience, all-in travel time from Point A to Point B. But as I stated before, I believe we will increasingly see Transavia and HOP! take over more of the operations out of ORY than in CDG... Long-haul connectivity is minimal for AF at ORY.
 
mozart
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RE: AF/KL : More Cost Cutting Measures Announced

Fri Aug 02, 2013 2:11 pm

Quoting TYCOON (Reply 35):

Mozart, thanks for the figures, but only hearsay... You haven't proven anything other than you haven't studied them yourself - so no authority to opine.

Excuse me? Numbers from companies' annual reports are only "hearsay"??? What would you like me to do, hack into their accounting systems?

Do you have any other numbers that prove your points? "Planes look full", "Tickets are expensive", "BA also has 3 class aircraft"... show me the numbers! The ones we need to debate are load factor, RASK, number of premium seats in the market (P+J) per airline, proportion of premium travel as part of total revenues, and so on.

I'll go and find some of these numbers, maybe you could do the same, and then you see that Air France has a problem on the top line. They have costs as high as others but revenues per pax that are lower. I think they actually said it themselves in their press conference last week.
 
TYCOON
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RE: AF/KL : More Cost Cutting Measures Announced

Fri Aug 02, 2013 2:27 pm

Mozart, if you quote somebody else on another forum who "gets his/her numbers from ..." that is the definition of hearsay.
 
mozart
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RE: AF/KL : More Cost Cutting Measures Announced

Fri Aug 02, 2013 3:21 pm

So here we go, some hard facts.

1) Costs are not that different, AF very similar to LH, LX and OS; BA better by about 11%: All numbers for December 2012, Source: Centre of Aviation

- CASK Air France: 9 Cts.
- CASK British Airways: slightly above 8 Cts
- CASK Lufthansa, Swiss, Austrian: each one slighly above 9 Cts


Thus, if cost is not the issue, it must be revenue. Let's look at this analysis:

2) Revenue per ASK, exactly what I said, AFKL is last of the three. All numbers for December 2012, Source: Centre of Aviation

- RASK AFKL 6.7 Ct
- RASK IAG 11.7 Ct
- RASK Lufthansa Group 11.6 Ct

Thus, AFKL on average attracts less high paying passengers.

This also shows in the operating margin:

- Operating margin AFKL: -1.2%
- Operating margin IAG: -0.1%+
- Operating margin Lufthansa Group: +1.7%

3) What is behind that? I said "more premium pax for BA and LH". Admittedly I use BA instead of IAG, simply because I have found the numbers. Premium travel is First and Business, that is the way the industry defines it. Numbers for December 2012, Source Equity research report

- Premium pax revenue as % of total revenue AFKL 39.2%
- Premium pax revenue as % of total revenue Lufthansa Group 54.2%
- Premium pax revenue as % of total revenue British Airways 52.8%

So I think it is established that AFKL has a top line problem.

I then tried explaining why that is. One factor I believe is just the number of premium seats that they each have in the market. I don't have the time right now to pull together the numbers but you'll see that in the longhaul market both IAG and LH Group have a much higher proportion of their seats be premium seats.

Please feel free to comment or challenge these numbers, I really am curious to learn more about this topic and there may be things that I haven't seen.

And for your other comments: fares may be high, but what if most travelers in the premium cabin are on discounted corporate fares? Cabins may be full in J but they are often empty in P, and also if the cabin is smaller it is fuller with less people. And so on... The numbers here give a more complete and transparent picture.
 
TYCOON
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RE: AF/KL : More Cost Cutting Measures Announced

Fri Aug 02, 2013 3:44 pm

Thanks Mozart... your argument is now clearer... I will look into it on my side as well... I, like you, find the whole issue fascinating....
 
mozart
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RE: AF/KL : More Cost Cutting Measures Announced

Fri Aug 02, 2013 3:57 pm

One more footnote regarding above numbers: the CASK number is for British Airways, not all of IAG including Iberia. Once you include Iberia the cost number is higher, which then also explains their negative operating margin

And here is another datapoint: you said that AFKL probably had higher cost per employee because of social charges in France. True, their cost per employee are higher than most European airlines, but almost identical to Lufthansa. And still Lufthansa makes healthy profits.

Employee cost/ATK (i.e. including cargo) in 2012

- AFKL Group 17.67 Cts
- Lufthansa Group 17.60 Cts
- British Airways 10.84 Cts
- Iberia 19.34 Cts

However, if you only look at the employee cost of Lufthansa's flying segments, then it is 10.74 Cts. I don't have comparable numbers for the other airlines.
 
Azure
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Aug 03, 2013 10:55 am

Quoting mozart (Reply 38):

Mozart, can you please state your sources precisely ? I've just had a look at CAPA and the figures I have found differ from yours, RASK-wise :

LH group RASK (2012) : 8.38 c.€ - Source : http://centreforaviation.com/analysi...ig-three-is-not-good-enough-101279 (chart 1)

IAG RASK (2012) : 7.01 c.€ - Source : http://centreforaviation.com/analysi...ity-will-be-needed-all-round-99433 (chart 1)

AFKL RASK (2012 proforma) : 6.63 c.€ - Source : http://centreforaviation.com/analysi...1q-2013-with-lufthansas-but-108274 (chart 4)

So while AFKL RASK is significantly lower then LH group's, it is very close to IAG's.
Please note :
- The LH group RASK is probably impacted in a very favorable way by LX (good for them) while neither AFKL or IAG can rely on another premium carrier to improve their respective RASK.
- AF itself has an extensive long-haul "holiday" market (French West Indies, Reunion and Guyane mainly) with tough competition from other French holiday carriers and low fares relatively to the distance flown that can impact the RASK (we are talking of several 77Ws COI with 468 seats daily all year long, with no F and a small C cabin). So does BA but to a lesser extend.

In fact the network structure of AF may explain the lower RASK which as you know depends on the number of kilometers flown by passenger. The more passengers you fly on "cheap" routes, the lower your RASK gets.

It has nothing to do with your ability to fill your F and C cabins on your whole network !
(For that matter, please check AFKL load factor and you will note they are not lower than LH's, BA's, but slightly higher).

Therefore your conclusion that their lower RASK comes from alleged difficulties to fill their front cabins is a bit premature. You cannot not take into consideration their different network structure especially compared with LH's.


Quoting mozart (Reply 38):
Premium travel is First and Business, that is the way the industry defines it.

Really ? Where is this defined ? I was under the impression that any class higher than coach was premium (and sold as is btw).
 
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Aug 03, 2013 11:40 am

Quoting Azure (Reply 41):
AF itself has an extensive long-haul "holiday" market (French West Indies, Reunion and Guyane mainly) with tough competition from other French holiday carriers and low fares relatively to the distance flown that can impact the RASK (we are talking of several 77Ws COI with 468 seats daily all year long, with no F and a small C cabin). So does BA but to a lesser extend.

If these types of markets are driving down profitability, why does AF serve them? The problem is that few legacy carriers fly to long-haul tourist markets; most of that flying is the domain of lower cost carriers due to the less efficient cost structure of the legacies. I realize those places are part of the DOM-TOM and that some connection must be maintained, but if they can be served by Corsair (already present in many cases) or some other carrier, what's the point in AF serving them? Also, I'd be curious to know what the profitability is on routes such as NDJ, JIB, CKY, BGF, etc. Many of those markets are not business markets (no oil); they would mostly be VFR due to the old colonial ties or would only be supporting the French military.
 
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Alsatian
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Aug 03, 2013 12:07 pm

Quoting usdcaguy (Reply 42):
If these types of markets are driving down profitability, why does AF serve them?

This is France. You cannot imagine the mess in the political / medias sphere is AF would just consider to drop these markets. French government still owns 16% of AF-KLM.
Ok I am French but I am not on strike
 
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usdcaguy
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Aug 03, 2013 12:55 pm

[quote=Alsatian,reply=43]
This is France. You cannot imagine the mess in the political / medias sphere is AF would just consider to drop these markets. French government still owns 16% of AF-KLM.
/quote]

If AF were to exit the markets, there might be an article or two written and some words exchanged, but people would move on. Corsair is French, as is XL Airways France. Why should it matter who flies in those markets? If AF is not making a profit, will the French government cover the losses? AF/KL have more profitable places to fly their aircraft (China, India, Brazil), and freeing themselves of imaginary political obligations would be a good start in the transformation plan.
 
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Alsatian
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Aug 03, 2013 1:18 pm

Quoting usdcaguy (Reply 44):
Corsair is French, as is XL Airways France. Why should it matter who flies in those markets? If AF is not making a profit, will the French government cover the losses? AF/KL have more profitable places to fly their aircraft (China, India, Brazil), and freeing themselves of imaginary political obligations would be a good start in the transformation plan.

I totally agree with you.

Quoting usdcaguy (Reply 44):
If AF were to exit the markets, there might be an article or two written and some words exchanged, but people would move on

I am really less conviced with this statement...
Ok I am French but I am not on strike
 
Azure
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Aug 03, 2013 2:21 pm

Quoting usdcaguy (Reply 42):
If these types of markets are driving down profitability, why does AF serve them?

With all my due respect, I believe you too are drawing conclusions too fast. It has not been said these leisure markets were driving down AF's profitability, but their RASK, which is the revenue per pax per kilometer flown. As you know, profitability depends on revenue AND cost. AF operates high density 77Ws on these routes, their unit cost per passenger is certainly low.



Quoting usdcaguy (Reply 42):
f they can be served by Corsair (already present in many cases) or some other carrier, what's the point in AF serving them

Good question, but the answer seems pretty obvious : they still make a profit out of these leisure destinations. AF does not hesitate to axe long-haul routes if they are loss-making, even in the French West Indies : Last year, they ceased to serve FDF from CDG after just one year of service. Did you hear a single politician complain about that ? No.

I think Alsatian is overestimating the consideration that the French politicians bring to AF... Indeed the government has still a 16% stake in AFKL, which means that 84% of the capital is not state-owned. What decisive influence can you have when you own such a minority stake ?




Quoting usdcaguy (Reply 42):
I'd be curious to know what the profitability is on routes such as NDJ, JIB, CKY, BGF, etc. Many of those markets are not business markets (no oil); they would mostly be VFR due to the old colonial ties or would only be supporting the French military.

Profitability of such routes is certainly excellent. AF faces absolutely no competition, which helps keep the fares quite high : I just checked a return ticket for JIB in october : € 1,200+ - NDJ : € 1,100. That is twice as much as what I'd pay for FDF the same month.
These countries have no oil indeed, which does not mean there is no business. French firms are active all over Africa. And the VFR traffic has to cope with the high fares anyway.
The French Military does not fly with AF IIRC, but with its own equipment.
 
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Alsatian
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Aug 03, 2013 2:42 pm

Quoting Azure (Reply 46):
I think Alsatian is overestimating the consideration that the French politicians bring to AF... Indeed the government has still a 16% stake in AFKL, which means that 84% of the capital is not state-owned. What decisive influence can you have when you own such a minority stake ?

Hello Azure. Don't you remember for example when AF decided to order B787s ?

Quoting Azure (Reply 46):
AF does not hesitate to axe long-haul routes if they are loss-making, even in the French West Indies : Last year, they ceased to serve FDF from CDG after just one year of service. Did you hear a single politician complain about that ? No.

You are giving here the best argument as these routes have been re-opened under political pressures !

La Tribune AF Antilles CDG

[Edited 2013-08-03 07:44:27]
Ok I am French but I am not on strike
 
Azure
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Aug 03, 2013 3:48 pm

Quoting Alsatian (Reply 47):
Hello Azure. Don't you remember for example when AF decided to order B787s ?

Bonjour l'Alsace ! I do remember the AF 787s example and this has been discussed at length in other threads, notwithstanding it is slightly off-topic here. But to answer your point, what have we seen when AF decided to order the so-called Dreamliner ? Just a bunch of right-wing, nationalist politicians claiming that AF should order only Airbus for the sake of employment (as if Airbus was relying on AF for its destiny). These members of parliament wrote a letter or a petition to the government whom they were closed to at that time. Big deal ! Did that stop AF from ordering the 787 ? No. Actually they ordered it before the A350.
Politicians always try to take advantage of a situation. It does not mean they are successful, and I do even think they are not looking for being successful. What matters is that the media talk about their action in a way that suits their personal (often local) agenda.

Quoting Alsatian (Reply 47):
You are giving here the best argument as these routes have been re-opened under political pressures !

La Tribune AF Antilles CDG

Please read the article again. These routes have re-opened under pressure from politicians AFTER an intense lobbying from the Hotel Industry (which the article you quote mentions). On these markets, as you probably know, AF sell their seats mainly to tour operators, hotel chains, etc. They certainly did not want to displease their largest customers on these routes. Sarkozy as always was quick to recuperate the deal for its own profit but this does not mean it was his decision. The reality is quite different and has more to do with economy than politics.
 
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Alsatian
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RE: AF/KL : More Cost Cutting Measures Announced

Sat Aug 03, 2013 4:20 pm

Quoting Azure (Reply 48):
Please read the article again. These routes have re-opened under pressure from politicians AFTER an intense lobbying from the Hotel Industry (which the article you quote mentions). On these markets, as you probably know, AF sell their seats mainly to tour operators, hotel chains, etc. They certainly did not want to displease their largest customers on these routes. Sarkozy as always was quick to recuperate the deal for its own profit but this does not mean it was his decision. The reality is quite different and has more to do with economy than politics.

That is another way to analyse this situation but it is clear that these routes were from the start an economical non-sense for the AF management. If the carrier does not want to displease their largest partners, why drop the routes ?

Quoting Azure (Reply 48):
But to answer your point, what have we seen when AF decided to order the so-called Dreamliner ? Just a bunch of right-wing, nationalist politicians claiming that AF should order only Airbus for the sake of employment (as if Airbus was relying on AF for its destiny). These members of parliament wrote a letter or a petition to the government whom they were closed to at that time. Big deal ! Did that stop AF from ordering the 787 ? No. Actually they ordered it before the A350.
Politicians always try to take advantage of a situation. It does not mean they are successful, and I do even think they are not looking for being successful. What matters is that the media talk about their action in a way that suits their personal (often local) agenda.

Things are slowly moving in the good direction about the company own managing but politics will still get an (poor) influence on some decisions for quite some period of time.
Ok I am French but I am not on strike