Business

Smith's “one step at a time” strategy for Air France

Neither Transform 2015, nor Perform 2020, nor Trust Together for Benjamin Smith. The General Manager of Air France-KLM does not believe in the effectiveness of the major plans put in place by his predecessors to recover the French airline. “It's no good if they are first imposed by management and discussed with employees.We did the opposite,” he said on November 5, in the margins of a meeting with analysts of the in which it set out its objective of doubling the operating margin of the Franco-Dutch group by up to 8% by 2024.

In fact, since his arrival thirteen months ago, the former number two of Air Canada has opted for the “one step at a time” method. Focusing on the turnaround of Air France, still lagging behind KLM. It works “in sequence, confirms a member of the executive committee, seeking to break the blocking points one after another rather than put everything on the table.” His analysis is clear: faced with repeated conflicts, low competitiveness and increasingly tough competition, Air France needs to regain the trust of its employees and instil flexibility and simplicity in all the workings.

Renegotiate contracts

Renewing the dialogue with the unions took a long time. But “it was fundamental to move forward,” says the boss today, who renegotiated no less than 26 agreements in thirteen months! Starting with the pilots, defended by the powerful SNPL, whose new office shows – a chance for Ben Smith – more pragmatic than the previous one. Faced with some critics who believe that “he bought the social peace” by offering a wage increase of 4% over 2018 and 2019, and increased costs by nearly 200 million euros, the boss defends himself: “This frees us from unimaginable operational constraints. “

Upgrade to a higher range

The agreement signed in February with the SNPL makes it possible to lift a clause that linked the development of Air France to that of KLM based on the number of passengers transported. Because of the saturation of Schiphol Airport in Amsterdam, the Dutch tended to densify their aircraft, forcing Air France to do the same to preserve the balance negotiated by the French pilots during the merger with KLM. “This situation thwarted his plans to boost the offer of business and premium eco classes to Air France, more greedy space, says a director. His idea is to target more high-margin segments to compensate for the competitive disadvantage related to high social security charges and French taxes. “

A figure ticks the direction: between 2014 and 2019, the premium long-haul from Paris rose 9%, while that of Air France fell by 4%. “An additional market share point makes us earn 10 million,” says the boss, who now has a free hand to arrange his cabins as he wishes. In October, the unions of cabin crew (PNC) have also accepted the reinforcement on long-haul flights of a stewardess or steward in business class, taken on the eco class. By 2024, this move upmarket is expected to yield 400 million additional revenue. “This does not mean that we leave the cabin behind, says Anne Rigail, CEO of Air France. There will always be champagne for the aperitif and comfort even improved thanks to the new devices that arrive little by little in the fleet and renovations of cabins. “

The focus is clearly on high-paying passengers. With, for example, the return of the business class on domestic flights from 2020 to ensure the same level of service throughout the customer's journey. “They do not take too much risk in doing this, says a French competitor, it is only a question of placing a curtain of separation and to remove the seat of the middle by improving a little snacking. “

Reduce the number of brands

In addition to flexibility, Ben Smith is looking for more simplicity within the group. On the commercial front, first, by reducing from five to three the number of brands. He signs the death sentence of Joon, the low-cost subsidiary, launched at the end of 2017 by Jean-Marc Janaillac, which is supposed to redress the long-haul deficit lines competing with the Gulf companies. The chopper also falls on Hop!, Whose brand federating domestic activities fades in favor of Air France. Heavily in deficit (from 189 million in 2018), the subsidiary is the subject of a severe restructuring plan with a 15% decrease in capacity and a voluntary departure plan for 465 people.

Management is relying on Transavia to build momentum on point-to-point medium-haul operations from Orly and the province where EasyJet, Vueling and other low-cost airlines thrive. In May, the second agreement signed with the pilots finally makes it possible to blow up the historical clause limiting to 40 the number of devices of the subsidiary at low cost. Transavia has just announced the opening in 2020 of a third base in the province of Montpellier, after those of Nantes and Lyon. “It's good, but it's still very slow,” said a staff member. Easyjet and its six hexagonal bases, already has as many planes posted in France as us! “

Optimize the fleet

Time will also be needed before enjoying the benefits of an optimized fleet within the group as desired by Ben Smith. The decision to get out by 2022 the ten A 380 wide-body, difficult to make profitable and too expensive to renovate to reach the standard of business classes of the company, is a first step. Anyway, “the timing is perfect to negotiate the price” of new aircraft, recalls the CEO of Air France-KLM, who ultimately wants to reduce the number of types of cockpits from 9 to 5 at Air France and from 5 to 3 at KLM. Because it reduces the costs of maintenance and training. By 2024, 350 million could be saved thanks to the new fleet.

For now, if they recognize the changes, investors remain cautious. “The goals for 2024 are ambitious, says Yan Derocles, analyst at Oddo BHF. But everyone is wondering about the risk of unions demanding a piece of the pie. “A concern that, combined with the disappointing results of the third quarter, explains the low market valuation of the group, 40% lower than that of Lufthansa and 60% to that of IAG, parent company of British Airways.

Neither Transform 2015, nor Perform 2020, nor Trust Together for Benjamin Smith. The General Manager of Air France-KLM does not believe in the effectiveness of the major plans put in place by his predecessors to recover the French airline. “It is useless if they are first imposed by management and discussed with employees. We, we did the opposite, “he confided on November 5, in the margins of a meeting with industry analysts to which he set out his goal of doubling the operating margin of the Franco-Dutch group up to 8%. here in 2024.

In fact, since his arrival thirteen months ago, the former number two of Air Canada has opted for the “one step at a time” method. Focusing on the turnaround of Air France, still lagging behind KLM. It works “in sequence, confirms a member of the board of directors, seeking to break the blocking points one after another rather than put everything on the table.” His analysis is clear: faced with repeated conflicts, low competitiveness and increasingly tough competition, Air France needs to regain the trust of its employees and instil flexibility and simplicity in all the workings.

Renegotiate contracts

Renewing the dialogue with the unions took a long time. But “it was fundamental to move forward,” says the boss today, who renegotiated no less than 26 agreements in thirteen months! Starting with the pilots, defended by the powerful SNPL, whose new office shows – a chance for Ben Smith – more pragmatic than the previous one. Faced with some critics who believe that “he bought the social peace” by offering a wage increase of 4% over 2018 and 2019, and increased costs by nearly 200 million euros, the boss defends himself: “This frees us from unimaginable operational constraints. “

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