Air France-KLM may find itself prone to deja vu as it pins its hopes on a change in chief executive to resolve labour unrest at its French mainline operation – which continues to be outperformed by its Dutch counterpart.
Group chief executive Jean-Marc Janaillac delivered his resignation on 9 May, days after workers at the French carrier rejected a pay deal aimed at resolving the industrial dispute, which has repeatedly caused flight disruption this year.
His resignation comes less than two years after he took up the position, in which he has attempted to restore relations with French staff. A high-profile flashpoint was reached in the autumn of 2015, when protesting Air France staff literally ripped the shirts off the backs of two managers who had presented cost-saving proposals.
In the current pay dispute, unions are seeking to secure gains amid the improved financial performance of Air France-KLM – which, in keeping with the wider improvement in the European airline sector driven by low oil prices and strong demand, has posted record results.
In 2017, the group improved operating profit 40% to almost €1.5 billion ($1.8 billion), a third consecutive surplus in excess of €1 billion.
But further restructuring, this time related to de-risking pension schemes, dragged it to a net loss for the year. The group has now lost money at a net level in seven of the last 10 years.
Similarly, the group's 2017 operating margin of 5.8%, while its highest in the past decade, lagged the 8.4% and 11.9% that rival European network carrier groups Lufthansa and IAG posted for the same year.
Addressing the French senate at the start of the year, Janaillac warned of the impact of intensifying competition, rising oil prices and taxation challenges, which he said would make the operating environment this year "less favourable" for Air France-KLM.
Against this backdrop, the group has so far maintained that it cannot meet union pay demands, prompting the prolonged stand-off over industrial action.
The company has said it expects industrial action to cost €300 million and has already warned that its 2018 full-year result will be "noticeably down" on the previous year as the impact of strike action took a toll.
All this has led to Janaillac's resignation. "The board recognises Jean-Marc Janaillac's courageous decision and sincerely hopes that it will open the way to the conditions for a transformation at Air France and fresh momentum for Air France-KLM," the company says.
The group will in the interim be run by the respective heads of Air France and KLM, as well as group finance chief Frederic Gagey, who will act as a spokesman.
Pointedly, though, the group indicates that it is not relenting in its approach to the pay dispute, stressing that Air France chief executive Franck Terner "does not have a new mandate to take decisions that would jeopardise the growth strategy approved by the Air France-KLM board of directors".
During his tenure, Janaillac did broker a deal with staff to launch Joon, its hybrid operation aimed directly at millennials and intended to provide a different product and cost base – cabin crew were employed on a separate deals – to improve profitability on some of Air France's most challenged routes.
Janaillac made improving trust within the different factions of the group a key part of his strategy, but acknowledged that efforts to "recreate trust" between the two mainlines would require "much time".
Speaking last summer Janaillac said the objective of his flagship "Trust Together" initiative was to rebuild faith – both among staff and external partners and customers – in the airline group and its ability to grow.
He admitted that relations between Air France and KLM had been strained, and that "the roots lie in the difference of growth and the results of the two companies".
That was illustrated last year when KLM again outperformed its the French operation in posting a full-year profit of €910 million in 2017, compared with the Air France contribution of €588 million. The operating margins for Air France and KLM were 3.7% and 8.8%, respectively. In the first quarter, KLM posted a €60 million profit, compared with a loss of €178 million at Air France.
KLM was one of the first European majors to embrace partnerships, linking up with Air France in 2004. But as a result of the continued lag in financial performance, together with the volatile labour relations at Air France, the notion that KLM could seek a fresh partner has been floated in some quarters – in particular given its previous courtships with British Airways.
But KLM chief Pieter Elbers has dismissed the idea that the Air France partnership could be abandoned. "Just as it's not feasible for KLM to continue independently, it's also not feasible for Air France to go on alone," he is reported as having told Dutch media ahead of the 9 May board meeting. "That's the strength of the combination: we need each other badly."
Source: Cirium Dashboard
