Air France-KLM Puts Brakes on Alitalia, Looks to Add Long-Haul Muscle

 - September 30, 2013, 11:45 AM
Air France-KLM became the first European carrier to operate an Airbus A380 to Shanghai early this month. (Photo: Air France-KLM)

Facing high costs and increased competition, Air France-KLM’s management must pick its battles. Having announced plans for up to 2,800 job cuts on September 18, the European airline this week deferred a decision on whether or not it will provide further investment to plug holes in the sieve-like balance sheet of Alitalia. It holds a 25-percent stake in the Italian carrier, and Italy’s government has indicated it would be willing to see the Franco-Dutch group increase that share to 50 percent. French unions, who have already threatened strike action over the job cuts at home, appear unlikely to view favorably any effort to prop up perennial struggler Alitalia.

Meanwhile, Air France-KLM is boosting efforts to compete more effectively in the long-haul market with the launch on September 24 of its new premium economy and economy seats. As part of its Best & Beyond service upgrade program, which also includes improved catering, the airline has committed to investing $674 million in its 44 Boeing 777s. It plans to announce upgrades to its business- and first-class products next year.

“With 55 percent of our passengers passing through [Paris] Charles de Gaulle and [Amsterdam] Schiphol airports, revenue management is being encouraged on the long-haul sector,” said Patrick Alexandre, sales and marketing executive vice president.

In response to growing competition from Arabian Gulf-based carriers such as Qatar Airways and Emirates, Air France-KLM has restructured its operations in that part of the world to create a new group defined as Middle East, Gulf and India (MEGI)–as opposed to the more traditional organizational grouping of Europe, Middle East and Africa. “This shows the interest we have in the region where we are highly challenged,” Tjalling Smit, the carrier’s senior vice president for the new MEGI division, told AIN. But for now, Air France-KLM continues to wait for the Dutch government to secure additional traffic rights that would allow it to increase service to India.

Air France-KLM plans to increase the number of routes beyond the present 18 on which it code-shares with Abu Dhabi-based Etihad, which holds a 24-percent stake in India’s Jet Airways. Plans to shift Jet Airways’ European hub in Brussels to Amsterdam might stall beyond the winter of 2014 as Etihad, having shown an interest in acquiring a stake in Alitalia itself, waits to see whether Air France-KLM will make its own move to boost its holding in the Italian carrier.