While labour issues are never far away from legacy carriers, the sight of Air France executives being manhandled and having the shirts ripped from their backs shows the intensity around the subject at European airlines right now.
The continent's carriers are tackling costs across a range of different fronts as they continue to be squeezed by ambitious carriers to the east on long-haul and low-cost rivals on short-haul. This is typified by Lufthansa's move, for example, to reduce its distribution costs through its controversial introduction of a surcharge on bookings made through the GDSs.
But resetting their cost base through lower labour costs and increased productivity remains the biggest battle facing Europe's network carriers.
While many are facing issues, the headlines are dominated by Lufthansa – back facing strike action from pilots – and Air France, which has just detailed major cuts after failing to secure a productivity deal. The disputes at both stretch back more than a year.
"I can't promise any short-term solution," Lufthansa chief executive Carsten Spohr told Flightglobal a year ago today. "What we have to do is balance short-term problems for our customer, for our operations, for our image, versus long-term sustainability of our structure. It is necessary to make these restructurings. There is no room for wrong compromises."
The German carrier has not taken the short way out. A strike by pilots was put on hold earlier this year. But arbitration efforts failed to broker a peace and a fresh round of industrial action, until it secured a court order to end threatened rolling stoppages.
Its Franco-Dutch counterpart, which did seal an immediately implemented productivity deal with staff at KLM in September, has been forced to implement an alternative restructuring plan at Air France.
Air France-KLM says its executive board "considers it essential to introduce an alternative plan" and has "unanimously agreed" to carry out measures that will result in "a reduction of Air France's activity in 2016 and 2017".
This, the SkyTeam carrier argues, is necessary "to guarantee the company's future and its economic objectives". Management had targeted reaching an accord with pilot unions by the end of September, but failed to secure a productivity deal with unions.
The carrier presented plans, including the loss of 2,900 jobs, to unions on 5 October. This it did, but to angry protests and scenes, culminating in two executives making their escape with angry workers ripping the shirts from their backs.
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Air France subsequently drafted in the French prime minister's deputy chief of staff, Gilles Gateau, to take control of its human resources and labour relations department amid ongoing tensions with employee groups.
Fresh talks may yet limit the number of jobs to be cut – group chief Alexandre de Juniac indicating that around 1,000 cuts in 2016 would go ahead but that the cuts for 2017 were dependent on negotiations.
If enforced, the plans would involved Air France cutting its its long-haul capacity by 10% over the next two years and contributing to an overall 2% cut in Air France-KLM passenger capacity by 2017 – as opposed to the originally planned growth of 3%.
GROWTH ON HOLD
Many European network carriers have put growth on hold until restructuring is achieved. Iberia for example has now returned to growth, only after the airline secured significant labour savings 18 months ago – amid high unemployment in the Spanish job market.
More recently, new pilot agreements have given Scandinavia's SAS Group a foundation on which to expand its long-haul fleet. The group says it "intends" to increase the long-haul fleet by three aircraft following the conclusion of simplified collective agreements across its pilot corps.
SAS says the agreements "reduce complexity" and provide a "higher degree of scope to adapt operations to customer demand".
They will enable the company to generate annual savings of SKr100 million ($12 million), it says, and create the "prerequisites" to proceed with long-haul expansion.
In August, SAS disclosed plans to add new long-haul routes to Los Angeles and Miami.
Another carrier, Lufthansa unit Austrian Airlines, is also returning to growth after an extended bout of restructuring
The carrier aims to boost sales 10% over the next two years as it launches new products, extends its network and completes the absorption of regional carrier Tyrolean Airways into its operations.
"The restructuring carried out over the past years has made us fit again for the rough aviation market," said Austrian's then-chief executive Jaan Albrecht.
Unions have signed off a wage deal for the cockpit and cabin crew of Tyrolean, all of whom were transferred to Austrian on 1 April. The airline subsequently approved a fleet renewal under which it is to buy 17 used Embraer 195s to replace a fleet of Fokker 70 and 100 jets.
LONG ROAD TO SHORT CUTS
Much of the attention on restructuring covers short-haul, where evolving low-cost carriers have moved increasingly into network-carrier territory – both geographically and through increased service levels – particularly those forced to retrench.
Several European network carriers have had to adapt in the face the arrival of low-cost carriers into their home bases; Vueling and Ryanair both launched operations at the Brussels and Rome Fiumicino bases of Brussels Airlines and Alitalia, while the Irish carrier has also piled pressure on Aegean Airlines and TAP Portugal with its Athens and Lisbon services.
Brussels Airlines is "more than surviving" the low-cost threat at its home base, argues chief executive Bernard Gustin, noting that the carrier is "growing profitably" after adopting a "hybrid” business model.
Gustin says that despite "heavy competition" from low-cost rivals Ryanair and Vueling, the Belgian carrier has lifted capacity 15% and reduced costs by a similar margin.
The carrier has achieved this by adopting a model intended to "reconcile attractive fares with a low-cost approach but with a notion of service", in a bid for differentiation from competitors.
Unable to compete with the low-cost carriers on price, Brussels Airlines has "really been able to segment the market" by offering four products on European routes, Gustin contends. These have "clearly positioned" the carrier in the market, he says.
Europe's big-three network carrier groups have, meanwhile, all turned again to lower-cost short-haul operations and show intent to expand out of their home markets. IAG established Madrid-based Iberia Express, while Vueling gives it a strong presence not only in Barcelona but also in Brussels and Rome. Lufthansa is further developing Germanwings, under the rebranded Eurowings operations, which includes setting up its first base outside of Germany, in Vienna.
Air France also planned to expand its Transavia leisure operations beyond the French and Dutch markets. It pulled the plug on these plans as part of last year's deal to end a damaging pilot strike, but the topic resurfaced over the summer with group chief de Juniac saying discussions were "urgently" required to "boost" the establishment of Transavia as a European low-cost carrier outside its home market.
Source: Cirium Dashboard
