Job cuts likely at Air France-KLM despite cheap oil

GMT 04:33 2015 Wednesday ,21 January

Arab Today, arab today Job cuts likely at Air France-KLM despite cheap oil

European giant Air France-KLM
Paris - AFP

Cheap fuel prices are doping the finances of airlines, but analysts say European giant Air France-KLM may still be forced to make further job cuts to cope with stiff competition and a sluggish economy.
Despite the company's assertions that no decisions have been taken, the leaders of Europe's second -argest airline have for months seemed to be preparing the ground for the inevitability it will have to shed further staff.
Last May, Air France chief executive Frederic Gagey said during a visit to Shanghai that the company aimed for an operating profit in 2014. Air France-KLM, which lost 1.8 billion euros in 2013, hasn't turned a profit since 2010.
"If we were in the red we would be at more of a disadvantage, which would change the terms of social dialogue," Gagey told reporters.
He said the heavily indebted French flag carrier would make its decision solely on the basis of annual results to be announced on February 19, hinting that new red ink would lead to new job cuts.
Since then the airline has suffered a crippling strike and warned that results will fall short of targets.
Unions are expecting bad news at a meeting with management on Thursday.
Under its Transform 2015 restructuring programme, Air France-KLM already cut 8,000 jobs in the three years to the end of 2014 -- through a voluntary departure scheme -- or 10 percent of a workforce today estimated at some 95,000.
The French daily Le Figaro reported recently the French-Dutch group plans "in the coming months" to cut another 5,000 jobs.
But a company spokesman told AFP: "Nothing has been decided regarding a possible new voluntary departure plan; so it is completely premature to talk about one, either about whether it will happen in principle or about its size."
However Air France-KLM boss Alexandre de Juniac complained to investors last September of a "difficult" environment, with geopolitical instability in several markets.
He called for "strict financial discipline" and stressed the need to maintain the pace of "reducing unit costs by 1.0 to 1.5 percent per year" through improved productivity.
- Productivity gains = job cuts? -
Air France-KLM has reduced its unit costs by 8 percent since 2012. But it's not enough, according industry experts, as Gulf and Asian airlines have unit costs 30 to 40 percent lower than their European rivals.
Analysts say productivity gains are often a code word for job cuts.
"When you talk about productivity gains you are talking about excess manpower," said an aviation sector analyst who asked not to be named.
"So a voluntary departure plan is absolutely among the various measures that could be taken," he added.
Job cuts are not the only option open to the airline group. In December AirFrance-KLM financial director Pierre-Francois Riolacci said the group was thinking of freezing some investments and postponing the delivery of new aircraft.
The intensely competitive air travel sector is especially saturated in Asia and North America, forcing companies to keep fares down, hurting revenues.
- Cheap fuel 'passing relief' -
Air France-KLM has also had to absorb the cost of September's strike by French pilots -- more than 400 million euros.
The strike, combined with the economic doldrums of the past nine months, virtually wiped out the gains of the past two and a half years, according to some analysts, judging it unlikely that the group will be able to rein in its debt of some four billion euros.
The recent plunge in fuel prices will help the bottom lines of airlines, but only as long as they don't cut ticket prices to gain market share.
"We think falling kerosene prices (halved since June 2014) provide only passing relief as we see these competed away in still fragmented European markets," analysts at RBC Capital Markets noted recently.
They said pursuing further cost reduction would be helpful and given recent comments by airline executives it expected AirFrance-KLM would cut routes and aircraft.
"However, what AF-KLM really needs is better demand -- that only an improved GDP outlook for Europe can deliver," said the analysts.
Eurozone growth ground to a near halt in 2014, and only a tepid recovery is expected this year.
Unions are concerned about the prospect of further job cuts.
The secretary general of Air France's CFDT union, Beatrice Lestic, said the figure of 5,000 job cuts cited by Le Figaro "seems totally disproportionate" and would cripple the French carrier.
Mehdi Kemoune of the CGT union said the Transform plan had "resolved nothing with regard to Air France's problems vis a vis the competition" as foreign airlines enjoy lower labour costs.
Pilot unions had blocked one of the airline's efforts to improve its competitiveness by expanding its low-cost subsidiary Transavia with the costly strike last year.

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