It seems Air France, a once-proud flag carrier with an impressive history, may never see the light at the end of the tunnel. In the next few days it is expected to unveil another severe cost-cutting plan, the third in a row, and more job cuts. Ground staff and flight attendants will be involved but not cockpit crews.
The carrier, despite Herculean efforts, is unable to regain profitability because its traffic growth remains below the European average. Domestic traffic is lagging, while low-cost carriers, chiefly EasyJet and Ryanair, are posting robust results, mainly by attracting more high-yield business passengers.
The Franco-Dutch Air France-KLM group is rapidly losing ground. It is now the smallest of the European majors, behind Lufthansa and the International Airlines Group (IAG) comprising British Airways and Iberia. This year, IAG will acquire control of Aerlingus—a major coup. Over the past several years, Ryanair desperately tried, but failed, to buy the Ireland-based Aerlingus. Now that airline will help IAG to strengthen its market share in the European market, thanks to an efficient hybrid economic model that is close to the low-cost principle.
Transavia’s long-term plan is to expand its fleet to 80 Boeing 737-800s in the next six years. Credit: Transavia
Is Air France doing too little, too slowly? Experts and airline analysts maintain divergent views, although it is obvious that company executives earlier in this century largely underestimated the threat from low-cost carriers. Jean-Cyril Spinetta, then-Air France-KLM chairman/CEO, now fiercely disputes the accusation. But the recently deceased Robert Esperou (a noted aviation authority) was convinced the French carrier was paying the high price for underestimating the clout of low-cost competitors.
Today, the future largely depends on Transavia’s French unit, the group’s newly reactivated low-cost subsidiary. Initially, Transavia was a charter airline serving leisure destinations from the Netherlands and France. In the last few years, it gradually evolved into a scheduled carrier operating an all-Boeing fleet of 21 737-800s, with eight more soon to come. Based at Paris Orly International Airport, Transavia is expected to carry about 4.6 million passengers this year. Clearly, it is no longer a minor player. However, despite the claims of Air France-KLM executives, the relaunched carrier is far from having the size and power to launch a counterattack against low-cost giants. According to company executives, by 2020 Transavia will operate 80 aircraft, although it is not expected to achieve profitability until 2017.
But Air France-KLM leadership has additional reasons to worry. The group’s strategy depends on its long-haul route system, and yet the key factor facing them now is the rapid proliferation of more lower-cost competitors on the horizon. 
European legacy carriers are lobbying against Norwegian Air International, which is seeking transatlantic traffic rights. And other newcomers such as Air Canada’s low-cost affiliate Rouge, which serves a number of European destinations, have entered the game.AirAsia X also could become a competitive threat.
But the most ominous rumors are coming from Amstelveen, near Amsterdam, home of KLM Royal Dutch Airlines’s corporate headquarters. Although its top executives are maintaining a stoic face in public, their deep disappoint about the Air France-KLM merger is becoming increasingly apparent. The group’s Dutch arm was always profitable. Its French branch, however, has consistently posted heavy losses, and this has led to resentment.
As soon as the merger agreement was unveiled, eyebrows were raised about the parties’ cultural dissonance; keep in mind the Netherlands’ “northern” and France’s “southern” temperaments. Although company governance was combined and unified, both parties had to relinquish their working language in favor of English, the sole workable solution. Do cross-border mergers really work? Suddenly, the question is taking on new urgency.