Air France's transatlantic alliances have become the latest to come under scrutiny by the European Commission (EC), although the French flag carrier is pressing ahead with its expansion, buoyed by its recent financial turnaround and the prospect of a private cash injection.

Regardless of the EC inquiry, Air France will not be able to realise the full benefits of its alliances with Continental and Delta Air Lines until a Franco-US bilateral agreement, leading to a full open-skies accord, is reached. A new round of talks is tentatively set for February, following the breakdown of negotiations in December, mainly on the timetable for the introduction of full liberalisation.

The French carrier has told the EC that initial harmonisation will be limited to joint operations at Paris Charles de Gaulle, the sharing of frequent-flier programmes and passenger perks. Key elements such as codesharing, joint scheduling and marketing will also come under EC scrutiny, although their introduction remains uncertain.

Air France is pushing to speed the bilateral negotiation process and president Jean-Cyril Spinetta has outlined aggressive plans to help the airline catch its major competitors. His efforts received a boost at the end of 1997 with the unveiling of a near-threefold increase in net profits for the first half of the Air France group's current financial year.

The group results, which are the first since the airline re-emerged from its three-year restructuring in April 1997, showed a net profit of Fr1.76 billion ($296 million) over the six months to the end of September. Also for the first time, the group figure includes the struggling regional arm, Air France Europe (formerly Air Inter), which was officially merged into the main airline group in September 1997.

A year ago, the group had managed a half-year profit of only Fr597 million and then sank to an overall loss of Fr268 million for the full 1996/7 year after heavy losses from Air France Europe in the weaker second half.

This time around, the group hopes to break even over the rest of the year, which would still leave it well ahead of earlier promises of a 1997/8 net profit of Fr1 billion.

Airline financial analysts were impressed at the apparent extent of the turnaround. "There seem to be some genuine operational improvements," says Chris Avery, at Banque Paribas, pointing to underlying improvements in yields and relatively restrained cost growth.

Although traffic was up only marginally, growing by some 1.6%for passenger services and 6.4%for cargo, the rise in fares helped to keep revenues growing by more than 8%,to Fr31 billion. The yield increase was in part caused by the strength of the US dollar, although Avery points out that this still leaves perhaps half of the increase accounted for by an underlying improvement.

Air France says that the sales rise "-primarily stems from a more selective approach to traffic". Seat capacity fell marginally over the six months, helping passenger load factors to rise above 76%.

Source: Flight International