Low-cost airlines cause tumult for big carriers

PARIS - Agence France-Presse

Travelers wait in a lounge at Orly airport, south of Paris, as an Air France’s A321 plane is seen parked on the tarmac. AFP photo

With low-cost airlines on the cusp of dominating Europe’s skies, turbulent times are in store for traditional carriers that are finding it hard to adapt, as the ongoing strike at Air France shows.

Air France pilots are now into the second week of a strike over management plans to step up development of its budget Transavia unit where pilots are paid considerably less.          

The strike has forced Europe’s second largest airline after Lufthansa to ground around half of its flights and is costing it 20 million euros ($25.7 million) per day, which Prime Minister Manuel Valls said Tuesday “represents a real danger for Air France.”

Air France-KLM has only recently recovered from a severe financial crisis at the end of 2011, thanks to a deep restructuring program that has seen it reach pay and voluntary departure deals with employees.

In the second quarter of this year it nearly tripled operating profit to 238 million euros ($306 million) but posted a small net loss of 6.0 million euros as it had to take a 106-million-euro write-down of assets in its freight division.

But that doesn’t mean clear skies ahead for Air France, as well as other traditional carriers, as budget airlines are relentlessly expanding their market share.         

“Low-cost airlines now represent between 25 and 45 percent of air traffic in Europe, depending on the country,” said Didier Brechemier, an aviation expert at consultants Roland Berger.

They are no longer minnows in the industry. Irish low-cost airline Ryanair, with a fleet of 300 Boeing 737 medium-haul aircraft, serves 186 airports in 30 European countries.

Ryanair’s fleet is set to soon expand to 400, which would take it above Air France’s stable of 350 aircraft. Air France-KLM together have over 550 planes.

British low-cost airline easyJet is also not far behind with a fleet of 226 Airbus A320 planes, carrying out more than 1,400 flights per day on average.

The low-cost model is changing how people fly and traditional carriers are being forced to adapt their business models.

Since they can’t beat low-cost airlines, traditional carriers seem intent on joining them.

Air France’s intended expansion of Transavia is only following moves by British Airways and Lufthansa.
British Airways first created its own budget airline Go Fly in 1998, later selling it to easyJet. But with its merger with Spain’s Iberia in 2011 to create the International Airlines Group, it also picked up the low-cost airline Veuling which has a fleet of 90 aircraft.

Air France-KLM now wants to expand Transavia in France, where it has had around only 10 of its roughly 40 aircraft based.

Air France pilots, who can earn up to 250,000 euros a year, fear that the group will shift flights to Transavia and its lesser-paid pilots and they have so far rejected overtures by management.