Air France-KLM Announces Five-Year Restructuring Plan

Air France-KLM Group has embarked on an ambitious five-year plan aimed at reinventing itself to regain a leadership position among European airlines. The initiative, announced at a November 5  investor presentation, includes maximizing the role of air cargo in generating revenue. 

Air France-KLM is the fifth-largest global air cargo carrier, based on freight-ton kilometers, according to the International Air Transport Association. It has a 3.8% global market share and moves 1.1 million tons of cargo annually, generating about €2.3 billion ($2.5 billion) in revenue.

The goal of the restructuring agenda, which is short on specifics, is to increase revenue, regain market share and restore dividends when the group's after-tax earnings exceed €1.9 billion. Investors initially were unimpressed, with shares diving more than 4% in Paris trading immediately following the announcement. Air France last paid a dividend in 2008, before the financial crisis coupled with labor unrest led to losses and a series of strikes by Air France workers. 

CEO Benjamin Smith said executing the plan is centered around optimizing operations, concentrating on the most profitable passenger segments, developing customer data initiatives, the Flying Blue loyalty program, maintenance, cargo and assessing consolidation opportunities.

The plan calls for achieving an operating margin of 7% to 8%. The 4.8% margin for the first nine months of 2019 reflects the global economic slowdown, ongoing trade tensions and higher fuel costs. The group's margins trailed those reported by rivals International Consolidated Airlines Group (IAG), parent of British Airways, Lufthansa Group and other carriers.

The overall plan also identifies the roles to be played by Air France, KLM and low-cost carrier Transavia. Air France is tasked with leveraging its local market and premium strength, with France recognized as the world's leading inbound destination. KLM is charged with strengthening its leadership position at Amsterdam Schiphol, with the aim of becoming the go-to carrier for connecting traffic to and from European destinations.

Transavia management is charged with consolidating its position as a top low-cost operator in The Netherlands, and becoming the leading low-cost carrier in France. Making inroads in France will be a tall order for Transavia, as much larger low-cost operators EasyJet and Ryanair also serve that market. One way Air France and Transavia plan to strengthen their positions at Paris-Orly is to better leverage slot portfolios at the congested airport.

The overall roadmap also calls for accelerating fleet renewal, implementing unspecified group synergies and lobbying the French government to create a more competitive airline business environment. 

One consolidation opportunity that won't be available is Air Europa. IAG said November 4 it would acquire the airline from privately held Spanish tourism group Globalia for €1 billion ($1.1 billion).

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