On paper Air Canada chief operating officer and president Benjamin Smith appears to have the skills needed to become the next group chief executive of Air France-KLM, but whether he can overcome the opposition of Air France's combative trade unions and win their trust will be the real test.
Air France-KLM late on 16 August confirmed the appointment of Smith as its new group chief executive, filling the role left vacant since Jean-Marc Janaillac's two-year tenure ended when he stepped down in May after unions at the French carrier voted down a new pay deal.
Smith's CV suggests that he has the experience and skills the Franco-Dutch carrier is seeking to expand and develop its international joint ventures around the world, rejig its budget sector offering and secure long-term labour agreements with staff.
He has been one of the leading architects of the financial and structural transformation of Air Canada in the last ten years. While chief executive Calin Rovinescu has captained the ship, Smith has been Rovinescu's right-hand man. The transformation has seen Air Canada expand into a true global airline by acquiring Boeing 787s, launching dozens of new international routes and strengthening hubs in Toronto, Montreal and Vancouver. Meanwhile, Air Canada successfully cut costs and renegotiated contracts with major employee groups and with regional partner Jazz Aviation.
In addition, several years ago Air Canada launched discount subsidiary Rouge – a move aimed at countering ever-increasing threats from low-cost rivals.
"As an outsider to the group he will bring valuable external perspectives and differentiated experience. While this was also the case with his two predecessors, in this case it is within an airline industry context," says Gerald Khoo, transport analyst at Liberum Capital.
PARTNER PACTS
Air Canada also closed a joint venture with Air China on Smith's watch. That deal, finalised on 6 June, enables the carriers to co-ordinate transpacific and domestic flights and to market themselves as one airline.
Such experience could prove invaluable as Air France-KLM prepares for an overhaul of its transatlantic joint venture with Delta Air Lines. The US carrier's respective joint ventures with Air France-KLM and Virgin Atlantic are being brought together – though Air France-KLM's existing partner in the agreement Alitalia has initially been left out of the new venture amid its restructuring efforts.
Air France-KLM also recently disclosed plans to establish a joint venture next year with Spanish carrier Air Europa covering service to Latin America.
In addition, it is in the process of bringing existing partnerships with China Southern and Xiamen Airlines into a single joint venture. It has previously said it wanted to consolidate its joint-venture partnership with SkyTeam partners China Southern and China Eastern. Closer co-operation with China Eastern will no doubt be a priority following the Chinese carrier's taking an almost 9% stake in the carrier group.
And in a market highly familiar to Smith, Air Canada's prime competitor WestJet is trying to create a joint venture with Air France-KLM.
LOW-COST ROLE
As low-cost competition on short-haul European routes has intensified, Air France-KLM has reacted with an ever-growing line-up of initiatives and units to counter them. It revamped its regional operations under the new Hop brand and embarked on an expansion of its leisure operation Transavia, both through the Dutch operation and establishing a French counterpart Transavia France.
Despite some initial ambitions to develop Transavia into into a pan-European low-cost carrier to take on the likes of Ryanair and EasyJet – which included a short-lived Munich base – those plans were refocused when a new labour deal was struck unions. Its growth has since largely focused on defending the group's French and Dutch markets.
Most recently, Air France-KLM started the millennial-targeted Joon under Janaillac's watch, which it describes as a lower-cost airline for medium- and long-haul routes.
Smith's experience in launching Air Canada's own low-cost offering in the form of Air Canada Rouge could prove useful in any potential future development of these units.
UNION POWER
Daniel Roeksa, an analyst at Bernstein, says Smith's CV ticks several "important boxes", citing his experience dealing with unions, his time developing Rouge and a background in operations which makes it harder for unions to dismiss his expertise.
Roeska says Smith's ability to speak French and his being a "known quantity to the guys from Delta" will also help. "So, even though it will be a tough cookie to find good solutions to the current issues, I would take his as an encouraging choice by the Air France board," he adds.
Without doubt, Smith's most pressing priority will be ending the internecine conflict between the embattled group and a coalition of Air France unions whose opposition to a pay deal led to the downfall of Janaillac.
SNPNC – which represents Air France cabin crew – is among 10 trade unions involved in the industrial action, as a syndicate seeking a 6% salary increase to recover real-terms pay losses caused by inflation since 2012. After conducting multiple strikes in the summer they have held off from further action until a new group head is appointed.
The unions rejected Air France-KLM's previous salary offer and after Janaillac's resignation the group's board indicated that the next chief executive would have very limited freedom to negotiate new terms.
Labour relations have long been challenging at Air France in particular, perhaps most publicly signified in the scenes of two Air France-KLM executives having their shirts torn from them during an angry confrontation with workers during a dispute in 2015.
Smith becomes the group's first non-French chief executive; Air France has never had one. He is also the first appointment to the top job at Air France-KLM since Delta took a 10% stake in the group. Against this backdrop, unions have already been publicly critical of the appointment process and the lack of an internal candidate.
However, Smith brings plenty of experience of negotiating successfully with unions at Air Canada. According to his CV on the Montreal-based carrier's website he was chief negotiator during the airline's labour negotiations with the two unions representing pilots and flight attendants, which culminated in landmark 10-year agreements with both groups.
As Smith will have to hit the ground running, possibly arranging immediate talks with unions to avoid the risk of further strikes at Air France, he will need to rely on the experience and support of the existing management team – notably Pieter Elbers, chief executive of KLM, and Frederic Gagey, Air France-KLM's chief financial officer.
"Ultimately, running any business is a team effort," says Khoo. "The chief executive sets the strategic direction, and can shape the corporate culture, but he or she needs to delegate to capable executives to implement decisions."
Additional reporting by Jon Hemmerdinger
Source: Cirium Dashboard
