Air France-KLM’s pilots have prevailed. A strike that crippled air traffic to, from and within France and the Netherlands for the better part of two weeks—and led to staggering financial losses—has forced the airline to back down on an ambitious plan to regain competitiveness by expanding its low-cost subsidiary, Transavia. 
That has set the stage for the pilots to return to work on Sept. 30, though even that is far from certain, given that the strike already has been extended twice. The retreat is a catastrophe for Air France-KLM Chairman/CEO Alexandre de Juniac and could ultimately prove to be the same for the storied carrier.
The pilots, who are angry about plans to set up a lower salary structure for Transavia employees and create new bases outside France and the Netherlands, are putting parochial interests ahead of reality. Once upon a time, Air France operated as a protected and favored national jewel. But those days are gone. Europe’s legacy airlines are under a ferocious competitive assault from low-cost carriers (LCC) such as Ryanair and EasyJet. LCCs are rapidly expanding service beyond secondary airports and introducing services aimed at business travelers, such as premium seating and same-day flight changes. And EU rules strictly prohibit direct state aid to bail out struggling national airlines.
One need only look at recent financial results to see the inroads that European LCCs have made. In its last quarter, Ireland-based Ryanair reported a hefty increase in net income and 15% operating margins, bolstered by more passengers, higher fares and improved load factors. It has laid the foundation for continued growth, beginning to take delivery of 180 new Boeing 737-800s and ordering up to 200 737 MAXs. By contrast, Air France-KLM and Lufthansa Group have lowered profit outlooks, and only one of Lufthansa’s four airlines, Swiss, made money in the first half of the year.
Growing Transavia, which has yet to show a profit, was always going to be an uphill battle. Air France-KLM and Lufthansa—which plans to launch its low-cost platform, Wings, next year—are late to the game. That is not the fault of pilots but of complacent management teams that for too long ignored the challenge from low-cost startups. It is encouraging that they finally recognize the urgent need to lower costs to remain competitive, except that now labor unions are standing in the way.
If Air France one day goes the way of Pan Am, its pilots will have to share the blame.