PARIS (Reuters) – Air France-KLM (AIRF.PA) is opening talks with its French unions on workforce cuts, Chief Executive Ben Smith told Reuters, as the airline group warned of mounting losses with no clear end in sight to the coronavirus crisis.
The airline has scheduled a strategic workforce planning meeting in June to discuss capacity cuts and their consequences for staffing, Smith said in an interview as the group’s quarterly results offered a foretaste of the pandemic’s impact.
The meeting, known by its French acronym GPEC, often provides an early indication of significant redundancy plans. Smith did not elaborate on the size of likely cutbacks but said the company had identified opportunities for voluntary layoffs.
Air France-KLM has long trailed European rivals Lufthansa (LHAG.DE) and British Airways parent IAG (ICAG.L) on profitability. But under Smith, who joined in 2018 from Air Canada, the Franco-Dutch group had struck productivity deals with its French pilots and begun to cut unit costs, a key aviation metric.
Unions have praised Smith’s transparency. But cuts required to survive the coronavirus may yet test his approach and the labour peace it ushered in after years of industrial action that culminated in the abrupt resignation of his predecessor.
“So far he has done OK at keeping the unions onside,” said aviation consultant John Strickland. “The question is whether he can build on that and convince them to go as far as possible.”
Competitors are moving faster to reduce staff numbers in the face of a travel slump that many expect to last years. British Airways, Ryanair (RYA.I) and Virgin Atlantic [VA.UL] have announced 18,000 job cuts between them.
Besides its powerful unions, Air France-KLM must answer to the French and Dutch governments, which each own close to 14% of the group and have pledged up to 11 billion euros ($11.9 billion) in rescue aid. Air France employs 45,000 workers to KLM’s 35,000.
Reacting to Smith’s comments, French Transport Minister Jean-Baptiste Djebbari said the CEO was right to be “lucid” about the airline’s staffing levels. “I’m confident Ben Smith will lead this discussion responsibly,” Djebbari said.
Smith said the French airline’s relatively high average staff age would allow it to make cuts through voluntary redundancy but did not disclose numbers.
“There are a lot of people that are close to retirement, so we have that advantage,” he said. “In France you go to the GPEC, you explain the situation, you negotiate it with the unions and you put it into place – you don’t just come out and say, ‘I want to cut a thousand jobs’.”
The Air France-KLM boss will present an updated strategy in mid-July that is expected to accelerate expansion of low-cost division Transavia and shrink Air France’s domestic network, which lost 200 million euros last year.
“Ninety-five percent of the domestic routes do not make money,” Smith said, adding that Air France’s recent improvement on operating costs had helped to make the case for government support.
“I believe that was a major component in securing the loan from the French state,” he said.
Structural fleet capacity will be cut by 20% by next year, the group said in its quarterly results announcement, offering a hint at the potential scale of staff reductions.
Additional savings may be found within a combined fleet that includes dozens of older planes that can be withdrawn from service at little cost, Smith said.
The group also has a higher percentage of leased aircraft, “which by default gives us more flexibility”, he said, adding that there is no writedown on a leased plane.
Reductions to flight and cabin crew will depend on fleet decisions, said Guillaume Schmid, an official with the SNPL pilots’ union, which is ready to consider voluntary layoffs.
“Our competitors have announced quite radical measures,” he said, and staff are “aware that we need to move quickly”.
However, cuts could be deeper and more contentious among ground staff and administrative jobs open to outsourcing, unions fear.
“Up to now Smith has succeeded in keeping all the unions with him,” Schmid said. “We’ll see how he manages this stage.”