Alexandre de Juniac, the Chairman and CEO of merged airline giant, Air France-KLM, took to the stage after TFWA President, Erick Juul-Mortensen’s opening address to discuss the uphill struggle to reform the business – which at the time he took it over three years ago was on the verge of insolvency.

 

“Our costs were 15% higher than those of competitor airlines and we needed to restructure,” he told the packed auditorium. “At that time, to change a comma in an agreement took 18 months,” he quipped, “but we organised new agreements within six months.”

 

In what was an often witty assessment of the airline industry, and his own airline in particular, de Juniac pointed to the need for transparency and the judicious use of the right people in order to effect change which he was clearly proud to have achieved.

 

“We built our credibility – and with not strikes,” he said of the airline [one of the biggest in terms of international destinations at 115] during the process of transformation. That changed in September, however, when the carrier was plunged into crisis during a two-week pilots’ strike that cost the company €500m ($668m). “It was unexpected. We had to reroute 50,000 passengers a day and it put the company back in the red,” de Juniac admitted.

 

Such apparently out-of-the-blue events have been testing for the airline’s board and its crisis management skills. But the CEO pointed to even larger scale issues that face the airline business in general and which indirectly touch on the travel retail channel.

 

Fuel, in 1999, was 8% of the carrier’s costs but today it has ramped up to 33% and the gas-guzzling four-engine aircraft that were being bought 15 years ago have now become “a nightmare” in terms of costs says de Juniac.

 

With the strike still a sore point, he saved some ire for the unions. “We are a labour intensive business and heavily unionised. They are not totally collaborative with management,” he said in ironic fashion.

 

PINCER PRESSURE

The airline business is a fragile one he said and added that competition, particularly from the low-cost sector, was putting even greater pressure on carriers. He noted that core US carriers from a previous era – PanAm, TWA and Eastern – were not around today, while European players such as Sabena and Swissair have gone the same way.

 

Air France-KLM is stepping up the development of its own low-cost carrier, Transavia, given that the LCC segment has moved from 39% to 46% in three years in Europe.

 

But there is also pressure at the high-end from Asian and Gulf carriers which as he put it “have totally reinvented airline marketing”. So between the unbundled pick-and-choose offers of LCCs, to the bundled upscale services of players like Emirates, regular legacy carriers are being squeezed hard.

 

The answer? Aside of strategic moves such as developing your own LCC and taking passenger services more seriously, de Juniac believes that core fundamentals must be adhered to. These include winning the communications battle [due to the influence of the media]; timing, especially when it comes to avoiding making hasty ill-thought out decisions; and teams, with the best people often showing their real merit in crisis periods.

 

[Note: TRBusiness will bring you commentary on the keynote speech from US army veteran, General Colin L. Powell and former Secretary of State in the Bush administration tomorrow.]