French gamble on growth

Are Air France's fortunes looking up? Strong fourth quarter performance partially compensated for the pilots strike of mid-1998, limiting the damage to a 11% drop in profits. Higher load factors, meanwhile, have been aided by transatlantic codeshares and the its expanding Charles de Gaulle hub.

The carrier has so far benefited handsomely from a strong expansion in market share. Its gamble is that there is considerable distance in this strategy. Erosion of yields and profits last year have persuaded some competitors to cut back on capacity. But given the long period under European Commission restrictions on growth, Air France believes rapid expansion makes sense. "It will take another year to reap all the advantage of our comeback on the market," says chief operating officer Pierre-Henri Gourgeon.

With the opening of the third runway at Charles de Gaulle earlier this year, the carrier is shifting the focus of growth from the long-haul - transatlantic growth was 9% last year - on to short-haul, says Gourgeon. Franchise partners, which flew 1.4 million passengers last year and earned the firm Fr250 billion ($40 billion), will feed ever larger amounts of European traffic into Paris and on to its expanded intercontinental network.

According to President Jean-Cyril Spinetta, transatlantic codeshares generated Fr500 million in revenues in the year, to March 1999. The relationship with Delta will no doubt bear more fruits.

The carrier's fleet development is also full of promise. The company began replacing its older Boeing 747s with new Boeing 777s on its transatlantic routes in March last year, cutting the proportion of economy class seats to less than two thirds of capacity.

"We have increased the capacity of premium class dramatically. Air France has been doing for one year what BA has been saying its will do two years from now," says Gourgeon.

The new fleet will also help reduce costs, which fell marginally last year, and, says Air France, are on target to fall by Fr500 million by April 2001.

With the risk of rising costs and diluted yields that the search for market share brings, Delta, and any prospective future partners, will be checking that Air France has done its sums right.

Source: Airline Business