Air France-KLM Implements Cost Savings

Air France-KLM has announced that it will reduce investment and impose €1 billion of cost savings, effective immediately. The austerity measures will include a wage and recruitment freeze in an attempt to turn around its revenues. The decision comes as the company says it’s seeking to reduce net debt from €6.5 billion to €4.5 billion by the end of 2014. The Franco-Dutch carrier is the largest in Europe by revenues.

The root-and-branch restructuring will put Air France-KLM’s new management team in a new dispute with its French unions ahead of the forthcoming presidential elections in the country. In October, chief executive Pierre-Henry Gourgeon was ousted by the company’s board in a brutal coup, as the airline was losing ground with Lufthansa and International Airlines Group (IAG), its two largest European rivals. Jean-Cyril Spinetta, who helped create the airline in a 2004 merger, was reinstated as chief executive.

Although all flag airlines in Europe are struggling with the higher cost of fuel and are braced for a slowing of economic growth, Air France has been doing rather badly due to its labour costs and high debts. Shares in the group have dropped 71% in the last year, but rose ahead of the restructuring announcement on Thursday by 7.5% to €4.29. Spinetta met the airline’s board members on Wednesday to get approval for the plan before telling staff representatives. He said that they have to adjust capacity for the coming few years, whether it’s passengers or cargo. The offer of transport is more than demand and weighing down on carriers.

Spinetta didn’t announced any job cut but said the €1 billion in cost-cutting measures will be effective immediately. This includes freezing pay and recruitment at Air France. A policy of wage moderation will be implemented at KLM, which recognises that the French half of the carrier has a worse performance. Speaking to French unions, the carrier said that a substantial improvement in productivity throughout the group will be needed to achieve a satisfactory level of profitability. This implies the renegotiation of employment rules, which were included in existing collective deals with staff. The unions and airline have been in a dispute over changes to working practices as of late.

The group says further plans will be carried out later to generate another €1 billion in cash flow for three years. They plan to cut capacity expansions between now and 2014, which will lead to its fleet shrinking. Capacity is anticipated to rise by just over 5% during the period, which means the airline will defer some Airbus and Boeing orders for long-haul planes. Additionally, the group had spent €6 billion on its 2009-2011 investment programme, but says its investments for the next two years will be less than €5 billion.

Air France-KLM confirms order for 25 Boeing 787 Dreamliners

Air France-KLM on Tuesday confirmed it is to buy 25 Boeing 787-9 Dreamliners, part of a major order for 50 long-haul carriers split with European rival Airbus announced last year.

"Air France-KLM confirms the signing with Boeing of a firm order contract to acquire 25 Boeing 787-9s and 25 options to buy," a spokesman told AFP.

The planes are part of an order for 50 aircraft agreed in September worth $12 billion (9.4 billion euros), with delivery between 2016 and 2026.

The deal includes options to purchase a further 60 aircraft, making the order potentially worth $27 billion.

"The first Boeing 787-9 will enter service with KLM in 2016 and then with Air France later," the spokesman said.

Negotiations are also underway with British engine manufacturer Rolls Royce as part of finalising the purchase of Airbus A350-900s, the direct rival to the 787, he said.

Air France-KLM is on Thursday to hold a board meeting in Amsterdam to look at austerity measures, particularly for the loss-making Air France part of the business.

Air France-KLM Dec. Passenger Traffic, Capacity Rise

Franco-Dutch airline Air France-KLM on Monday reported increases in passenger traffic, capacity and load factor for the month of December mainly on strong growth in Europe and Americas. Meanwhile, cargo traffic and load factor were virtually stable. Passenger traffic for the month of December grew 7.5 percent to 17.97 billion revenue pax-kilometers, or RPKs, from 16.71 billion RPKs in the prior year.

In order to facilitate year-on-year comparisons, passenger traffic data since November 2011 is restated to include the business of Martinair, the company said.

Capacity measured in available seat-kilometers, or ASKs, was up 6.3 percent to 22.05 billion ASKs from 20.75 billion ASKs a year ago. Load factor for the month increased one point to 81.5 percent from 80.5 percent last year.

The number of passengers stood at 6.11 million, up 11.7 percent from 5.47 million a year earlier. Unit revenue per available seat kilometre, or RASK, excluding currency was stable relative to last year.

The company noted that activity in December 2010 was affected by severe weather conditions in Europe and the United States that led to the cancellation of 5,100 flights, flattering the year-on-year comparison.

The European network, including France, recorded a 14.8 percent rise in traffic and a 14.9 percent increase in capacity, while load factor declined 0.1 points to 71 percent. The European network was the most affected by the severe weather December 2010, contributing to the sharp year on year rise.

On the Americas network traffic and capacity rose 9 percent and 6.7 percent respectively, driven mainly by Latin America. The load factor gained 1.8 point to 86.7 percent.

In the Asia network, traffic rose 4 percent and capacity grew 3.2 percent leading to a 0.7 point rise in load factor to 83 percent. However Japanese activity has yet to recover to the levels prior to last year's earthquake and tsunami, the company noted.

Traffic on the Africa and Middle East network grew 5.1 percent and capacity edged up 0.8 percent. The load factor gained 3.4 points to 82.1 percent. The Africa network continues to recover, but the Middle East remains affected by political instability.

Caribbean and Indian Ocean network recorded a 3.6 percent rise in traffic and 4.1 percent rise in capacity. The load factor was 83.3 percent, down 0.4 points.

In December, cargo traffic edged down 0.3 percent to 932 million revenue tonne-km, while capacity edged up 0.1 percent to 1.37 billion available tonne-km. The load factor dropped 0.3 points to 68.1 percent.

Air France-KLM’s long-haul network: a major Group asset

Air France-KLM’s powerful network, serving 254 destinations in 124 countries from Paris-Charles de Gaulle and Amsterdam-Schiphol, is a major strategic, competitive asset, according to Air France.

The company reinforced its position in 2011 in key growth markets, opening a number of long-haul routes to destinations that include Kigali, Freetown, Monrovia , Phnom Penh and Xiamen. Air France-KLM will continue its development in China in 2012 opening service to Wuhan, located at the crossroads of central China.

Air France-KLM’s powerful joint venture operated with Delta and Alitalia also paved the way for the opening of two new destinations: Orlando and Cancun.

In addition to these route openings, the Group strengthened its presence in strategic locations where demand is strong, providing service from both its Paris-Charles de Gaulle and Amsterdam-Schiphol hubs to Miami, Punta Cana, Buenos Aires , Rio de Janeiro, Havana, Lima and Cape Town.

With over 30,000 long-haul/medium-haul connections, Air France-KLM also offers the best connections in Europe from its hubs at Paris-CDG and Amsterdam Schiphol.

Air France-KLM, BA To Operate UK Flights Normally Wednesday

Air France-KLM (AF.FR) and British Airways Tuesday said they plan to operate normal services to and from the U.K. on Wednesday despite planned strikes at airports.

Public-sector workers in the U.K., including border-control officers, are striking over pension changes, likely causing disruptions to passenger flow at airports.

The three airlines are offering passengers the option of switching their bookings to Tuesday or after Wednesday with no penalties for those with non-switchable bookings. However, they aren't offering cancellations because flights schedules are being maintained.

The strike action by immigration officials will actually start on Tuesday evening because of the workers' staggered shift system.

"But we're not expecting any particular issues tonight," a BA spokesman said.