Despite this further contretemps, Air Liberté, AOM and TAT remain sanguine. A complaint was filed last November at the French Council of State and a ruling is expected within the next 18 months. The three carriers have formed a comité de défense to lobby in Paris and Brussels and its president, Air Liberté president Lofti Belhassine, says the lobby is considering a possible anti-trust case against Air France's domination of both Orly and Charles de Gaulle. The case could be extended to encompass similar dominance by other carriers like Lufthansa at Frankfurt and British Airways at London/ Heathrow, he adds.
Meanwhile domestic and European carrier Air Inter, which holds 37 per cent of the existing slots at Orly, is being assaulted on every front by the growth constraints at its main hub, tough competition from the TGV, and competition from Orly to Marseille, Toulouse and Nice. That competition was allowed in before the slot cap took hold, with new AOM and Air Liberté services on Marseille and Toulouse. AOM was already an established competitor to Nice with 12 daily flights versus Air Inter's 15.
TAT, in which BA has a 49.9 per cent interest, is transferring its existing domestic and European services from Paris/CDG to Orly, where it is the second largest carrier. The carrier expects to begin serving Orly-Marseille by mid-1995 and Toulouse will follow later, says TAT president Michel Marchais. 'The CDG to Marseille and Toulouse services will be suspended and the Paris network transferred to Orly South,' says Marchais. Most of the carrier's unprofitable European services out of CDG had been closed before access to Orly became available. The only remaining service was to Stockholm and this is expected to be relaunched from Orly.
Air Inter's overall growth in Paris will be negligible until the end of 1996, when Air France plans to merge it with its Europe-North Africa Centre de résultats (CDR). As well as its extensive domestic services, Air Inter operates from Orly to a number of Spanish destinations and from the French provinces to North Africa. Its European services out of CDG are to Dublin and Shannon only.
Route transfers from Air France have been limited with the most recent being from Orly to Amsterdam and Madrid, though the carrier is launching a new service to Lisbon. Air Inter has not responded to the Orly launches by British Airways, TAT and British Midland to London, and by Lauda Air to Vienna.
There is unlikely to be any backpeddling on the merger decision: Air France and Air Inter executives say the plan will definitely go ahead. The only real issue is whether Air Inter's employees will succeed in pressuring Air France Group into developing Air Inter in the meantime. However, unless the slot restriction is lifted, any new services will mean a reduction elsewhere.
At best, Air Inter can batten down the hatches and hang on until the joint company is established in 1997. Hence a plan to cut costs by 10 per cent, including 600 voluntary job losses, that is being hotly contested by the unions. In March strike action grounded most of the carrier's aircraft and further action was planned.
Christian Boireau, joint director general for strategy and commercial affairs, recognises the short-term restrictions but defends plan to cut costs and merge with Air France's CDR. He cites increasingly aggressive pricing competition from the TGV, competition at Orly and the fact that Air Inter's cost advantage would almost certainly be eroded if it expanded significantly into Europe alone.
Air France's experience in Europe and synergies between Air Inter and the CDR's fleet are cited as further reasons for the merger. The future joint 120-130 aircraft fleet will come from the A300, A320 and B737 families. The joint company will have combined traffic of some 57 million passengers.
Cost comparisons have started as part of a detailed study into the structure of the future company. Air Inter's fast turnround times, high aircraft utilisation, domestic seating densities, and lower distribution costs give it a distinct edge in its current markets. 'The idea is to keep the effectiveness of Air Inter in less complex markets. It is not true that we will do the same as Air France everywhere,' says Patrick Alexandre, deputy executive vice president at the CDR Europe/North Africa. Half the joint company will remain at Orly, says Alexandre, adding that CDG is well served by around 15 per cent of Air Inter's domestic flights.
Though movements have also been capped at CDG, there is more room for growth than at Orly and Air Inter may add a few domestic services there, says Boireau. Elsewhere, the focus will be on the development of point to point services in the provinces and on overseas services from provincial cities: Bordeaux-London and Nice-Casablanca will be added from this summer. Air Inter also plans to develop its secondary hub in Lyons which currently connects 14 domestic destinations.
While Air Inter contemplates the future, the rest of the independent sector has its collective hackles raised. AOM, Air Liberté and TAT have all been hit hard financially in the last few years and badly need to build a profitable scheduled Orly base.
Bur there is trouble in the ranks: AOM is considered part ally and part traitor by its two peers. Currently almost 100 per cent owned by state bank Credit Lyonnais, its regular capital injections over the past two years are being viewed as state aid by rivals. Marchais says TAT plans to file a complaint at the European Commission to make the carrier refund some of the monies received. He claims AOM behaves in the market like a state carrier, conniving with Air Inter 'under the table' and favouring competition on service rather than fares on Orly-Marseille.
TAT has lost money heavily on its European routes from CDG, where it was forced to go until Orly opened up. 'TAT was profitable before launching European routes,' says Marchais. The Commission ruling to force France to grant access to Orly was a personal victory for Marchais, who initiated the complaint. The move of the scheduled Marseille and Toulouse routes and European base to Orly from CDG means a fresh start for the carrier.
Marchais will not say how much TAT lost in the past two years but the target of a 30 per cent annual reduction in losses between 1994/5 and 1996/7 are revealing enough. Cost levels are being addressed through a 20 to 30 per cent reduction this year and next, says Marchais.
But TAT has plenty to build on, with Orly in hand, a well established domestic network, a profitable express door to door parcel operation, its operating lease companies AIR and JTLC, and a maintenance joint venture with Changi airport in Singapore.
Air Liberté has also used the last few years to get into shape. From losing FFr164 million ($33 million) in an 18 month period spanning 1991/2, the carrier expects a 1994 net consolidated profit of FFr14 million on turnover of FFr1.2 billion. After cutting costs and boosting productivity by 35 per cent over the last three years, Air Liberté now considers itself a low-cost airline. Some 40 per cent of sales are direct and the carrier is experimenting with season tickets on the Orly-Toulouse route.
Around 75 per cent of Air Liberté's services are scheduled and the carrier serves a variety of destinations from Orly including London/ Gatwick airport, Toulouse, Portugal, Réunion, the French Caribbean and Montreal. Ironically, the slot restrictions at Orly have convinced Air Liberté to start a few flights from CDG to Toulouse and some Mediterranean countries, something it had refused to do in the past. 'We have not been able to do all our programme from Orly, so we are opening a new base at CDG,' says Belhassine. Regional departures from Toulouse, Nantes and Bordeaux to holiday destinations are also being developed. 'They were started before the artificial scarcity of slots but now they have become a necessity,' says Belhassine.
Air Liberté typically competes on fares and when the carrier entered the Orly-Toulouse route in January, the ensuing fares fight with Air Inter received ample publicity. Air Inter matched and undercut its competitor's FFr280 return fare, a move which has led to a complaint by Air Liberté to the French competition watchdog, Conseil de la Concurrence.
AOM, the product of a merger between the two long-haul airlines Minerve and Air Outre Mer in 1991, has gradually reduced its losses since then from FFr704 million to FFr57 million on turnover of FFr2.7 billion in 1994. Cost-cutting measures have included the setting up of separate subsidiaries for its catering, maintenance, part of its ground handling and even its sales offices. Direct sales through the home telephone data system Minitel are being looked at and the fleet has been kept to two aircraft types, the DC-10-30 and MD-83.
The carrier's first domestic route, Orly-Nice, is breaking even and should be profitable this year, says chairman and CEO Marc Rochet. Orly-Marseille services began in January and these could break even by the end of the year, he believes. 'After Marseilles, we will attack a third route,' he adds. The carrier has no plans to enter European routes but will continue to develop its long-haul routes, which currently encompass Los Angeles, Bangkok and island destinations in the Caribbean, the Pacific and the Indian Ocean.
Source: Airline Business
