Air France-KLM has announced plans to launch a new airline that will operate ten long-haul aircraft by 2020, aiming to better compete with fast-growing Gulf and other international carriers. The initiative responds to pressure from expanding Middle Eastern airlines such as Emirates and growing low-cost competition that have eroded market share on many long-haul routes.
The new carrier will combine existing and new KLM services with some routes previously suspended for lack of profitability. Positioned as a cost-conscious long-haul operator, the airline will offer a modern product and service standards aligned with those of Air France rather than being a bare-bones low-cost carrier.
Air France-KLM is targeting group revenues of €28 billion by 2020, up from €26.1 billion last year, and aims to increase annual passenger numbers toward 100 million from roughly 91 million today. The new airline is one element of a broader strategy to boost efficiency and expand reach in key markets.
Operations are scheduled to begin in winter 2017. Initially the airline will recruit volunteer pilots from within the Air France-KLM group as management works to mend industrial relations after a period of strikes. Staff joining the new operation will face different contractual terms, including longer hours and reduced pay, as part of the cost-saving model.
With a particular focus on Asia as well as medium- and long-haul markets, the carrier is designed to lower unit costs and improve fleet utilization. Industry observers have reacted cautiously, questioning whether the new structure and cost base will be sufficient to deliver improved profitability in the face of intense competition.
For now, the success of the new airline remains uncertain. Management expects it to strengthen KLM’s network and competitiveness, but achieving sustainable margins will depend on execution, market response and the ability to contain labor and operating costs while maintaining service levels.
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