Air France-KLM sets scene for ‘Perform 2020’ growth strategy

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Air France-KLM’s new five-year strategy is based on the “metallic alloy” of growth and competition, says chief executive Alexandre de Juniac.

Replacing its “Transform 2015” restructuring programme, which de Juniac says has now achieved most of its objectives, the new “Perform 2020” is to have several “levers” and “focuses”, including more effective marketing, enhancement of partnerships in Asia and the Middle East, the expansion of low-cost arm Transavia into the European market, improved long-haul products, and growth of maintenance and catering operations.

“It [Pertform 2020] is a plan that is not exclusively focused on restructuring and cost reduction, but brings together two elements which are very closely linked a bit like creating a metallic alloy between growth and competition,” he said.

“In order to stay in the global race and become one of the global giants, we have to grow at the right level and at the right pace... Even if we have significantly improved thanks to Transform, we will not be able to do that if we do not have additional competitive gains,” adds de Juniac.

Developing the twin hubs of Paris and Amsterdam are “fundamental” to Transform 2020, he says, and this will involve the improvement of their “hub facilities”.

Both the French and Dutch divisions of Transavia will be expanded on a European basis to become one of the main players in the continent’s low-cost market, says de Juniac. With this in mind, the Transavia fleet will be expanded from 16 in 2014 to 26 by 2016.

There will be a €700 million ($940 million) investment in long-haul products in order to compete with the Gulf and Asian competitors. This will include new cabins in 44 of Air France’s Boeing 777s and the roll-out of the World Business Classproduct on the KLM’s 747-400 fleet.

De Juniac says it is important to improve the long-haul offering “because we don’t think we can take up the challenge from the major Asian and Gulf if we do not improve the quality”.

The airline’s catering arm Servair is meanwhile set to expand into emerging markets such as Africa and Asia, while the maintenance part of the business will also be developed. Cargo capacity is being cut as Air France-KLM seeks to react to lower demand by reducing “exposure” to the full-freighter business.

The airline chief says the new plan will be put to the airline’s 200,000 employees and unions in the coming weeks. He foresees “wage improvements and promotions, so it’s a brighter future from what we have at the present time” after a period of wage freezes and job cuts across the group.

No details have been forthcoming on what the financial targets of Perform 2020 will be, but de Juniac says objectives with figures will be released in September.

The airline group boosted operating profit to €238 million in the second quarter, from €84 million a year ago, despite revenue declining 1.2% to €6.45 billion. De Juniac says that despite tough operating conditions, delivery on the Transform 2015 plan is fully on track.

"I think we can say that Transform fulfilled its objectives in terms of reducing our costs, I think this was the key feature that put the group back in line with its competitors and proper financial balance," he says.

Transform 2015 has delivered €700 million in cost reductions over the last two years, says Air France-KLM. The group is working towards reducing its net debt to €4.5 billion by 2015.