Air France med LCC - Low Cost Carrier - Curt Lewis

Air France Plans No-Frills Airline to Serve Asia, U.S.

New airline would start flying to Asia cities from winter 2017

Air France-KLM plans a new medium-haul and long-haul budget airline that could tap the lucrative market serving cities in the U.S. and Asia to recapture lost market share. 

PARIS-Franco-Dutch airline operator Air France-KLM is rolling out a new medium-haul and long-haul budget airline that could service cities in the U.S. and Asia, its latest maneuver to take on low-cost rivals and Middle Eastern carriers.

The new airline, set to start flying on routes to Asia in the winter 2017, would take over some of the least profitable Air France services and will operate them with staff on lower salaries, the company said on Thursday. While the new airline would focus on flights to Asia initially, it could later fly planes across the Atlantic, the carrier said.

The move comes as airlines on both sides of the Atlantic search for ways to fight back against discount carriers.

In Europe, the competition is especially cutthroat, with fast growing Ryanair Holdings PLC and other discount airlines pushing aggressively into the traditional turf of the continent's legacy carriers.

Several big carriers, including British Airways parent International Consolidated Airlines Group SA, Deutsche Lufthansa AG and Air France-KLM, have already rolled out their own short-haul budget subsidiaries to compete. Air France is now targeting typically more profitable medium- and long-haul business with a lower-cost offering of its own.

If Air France eventually turns some of its transatlantic flights into discount services, it will be flying into a crowded market.

Discount carrier Norwegian Air Shuttle ASA is already operating cheap flights to North America from Europe, including from France to destinations such as New York and Los Angeles. Canada's WestJet Airlines Ltd. and Iceland's WOW air also offer discount transatlantic flights.

Air France is playing catchup with Lufthansa, which has set up a discount long-haul business within its low-fare Eurowings unit, and with Air Canada's Rouge unit also has begun transatlantic service.

Air France said it would transfer some of its pilots to the new unit. They would fly more hours for the same pay. The new airline would recruit new flight attendants, with fewer benefits than Air France crew currently enjoy.

That is all likely to set up the airline for new tensions with labor union, exacerbating tensions that have embroiled the airline for years. Last year, protests by employees turned violent, with executives fleeing protesters who ripped the shirt off one manager.

Service on the new line would be less lavish than on board Air France planes, but won't be as austere as on discount carriers, the company said.

Air France-KLM has lost ground over many years to budget carriers within Europe such as Ryanair and U.K.-based easyJet PLC while it has faced rising competition from carriers such as Dubai-based Emirates Airline and Qatar Airways on long-haul routes in the relatively lucrative Asian market.

The carrier, which operates the low-cost, short-haul Hop and Transavia brands within Europe, in addition to its flagship network carriers Air France and KLM, has undertaken several restructuring programs to improve efficiency and cut costs without narrowing the gap in competitiveness with its most important European rivals.

Air France management is counting on the new airline to help it increase the number of passengers it flies to 100 million a year by 2020 from around 91 million today, to generate revenue of 28 billion euros ($31.14 billion), up from €26.1 billion in 2015.

Earlier Thursday, Air France said net profit rose in the third quarter on lower fuel costs and cost-cutting which more than offset losses from strikes and dimished travel to France after terrorist attacks in the past year. Air France-KLM, Europe's largest airline group by traffic, said net profit rose to €544 million in the three months to end-September though revenue contracted 5.1% during the period to €6.94 billion.