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Saturday April 27, 2013

Business opportunity dictates

The unique thing about Air France’s offering on the KL-Paris route is that it has four classes of seating – First, Business, Economy and premium economy. The latter is a class not many airlines offer. It is a bit more expensive than economy but cheaper than business, and a lot roomier than economy.

But still Alexandre de Juniac (pic), the face behind Air France, wants to check out what competition offers on the route. The only direct competitor is Malaysia Airlines (MAS) which uses an A380 for its KL-Paris route.

De Juniac touched down on Tuesday on the first Air France flight into KLIA, and on Wednesday night flew out on a MAS A380. The head honco of Air France also met up with StarBizWeek deputy news editor B.K. Sidhu for an interview. Below are the excepts.

Are you flying MAS on your way back?

Yes, I want to test out MAS. Don’t forget I am also the (de facto) chief marketing officer of Air France and I want to try to take lessons from what I see.

They are using the A380 and I want to see how they arrange the cabin, the product and the service. They began using the A380 not long after we announced the KL-Paris route.

Two carriers on the same route. Is there really enough traffic for two?

That means there is a lot of traffic. Last year, over 100,000 French tourists came to Malaysia and thousands more from Amsterdam. With the Paris and Amsterdam link, people can now connect to any city in Europe.

The network is very dense. It is connecting to two hubs and we have a connection to every city in Europe. (Air France and KLM are part of the Air France-KLM airline group).

Malaysia is fast growing. Its industries are developing very fast from agriculture to pharmaceuticals and so many more. The country is growing and it is an interesting place for French businessmen, and the relationship between both countries is good. It is a trusting environment for business and tourism.

The return is after 20 years. Why?

It was UTA that flew to KL years ago, and then it stopped because it was a loss-making airline. Air France bought it in 1993 and it has moved forward again. We have opened many destinations in Asia. For instance, we decided last year to include KL among the destinations for our network, knowing that we already land in Singapore and Bangkok, which are not far away.

In fact, we were convinced we had missed something by not having the KL route on our network. It is now appropriate.

The second trigger for us to return is KLM. They have been flying here for many years. It (KLM) should be one of the oldest airlines flying here and we have bought them about 10 years ago.

So it was a double-reason. There is place for two of us and we decided to open the route in addition to KLM.

What loads are you expecting on the KL-Paris route?

KLM is almost 80%. It is a high load factor. It also serves Indonesia. Historically, Indonesia and the Netherlands have strong links. We aim to have loads of about 80%. Air France is starting with three weekly flights. When will you increase frequency?

When we see demand. According to our forecast, we could increase and it is much better to operate daily instead of three-times-a-week flights as operationally speaking, the latter is not the most convenient from the economic standpoint for the aircraft to wait on the tarmac but this is a start. It is good rhythm from thrice weekly to daily and many airlines do that.

Air France also flies to Bangkok and Singapore. How is it possible to have loads of above 80%?

The customer segmentation is different. For Bangkok, it is mostly tourist traffic and the aircraft that we operate has a larger economy class cabin. For Singapore, it is two types of traffic – connecting and transit traffic to Australia, Jakarta and also business traffic.

For KL, it is totally mixed traffic – leisure and business traffic. There is also a very active French community in Malaysia of over 3,000 people and many European companies are investing here. So, there is high potential for us here. We hope Malaysian tourists and businessmen will use our aircraft and we are pretty optimistic about that otherwise we would not have opened the route considering that we also have flights to Bangkok and Singapore.

We have been opening new routes in China, such as Yuhan, and in other places and now KL. We will open additional Asian destinations and obviously the reason we are targeting this part of the world is because the growth is here compared with the eurozone which is slow and lagging. It could recover but for the long haul, we have to target the fast-growing areas.

On North America, we have established our network together with KLM and Delta for the transatlantic routes and seats. Strong growth in capacity is here.

Nowadays the Asean area – Malaysia, Indonesia, Thailand and Singapore – represents a major opportunity for businesses, so we need to cover more.

Why a B777 and not an A380 for the KL-Paris route like MAS?

Our total fleet size is 103 aircraft of which eight are A380 and 62 are B777.

We are very agile in moving planes from one place to another. We were using the A380 for Narita but with the earthquake/tsunami in Japan, we had to change the aircraft.

We use the A380 for the Singapore route, and since we no longer have a partnership with Qantas because it now has a partnership with Emirates, we may have to move the A380 (from the Paris-Singapore route) to another location.

As a carrier that has an enormous number of aircraft, we have to be flexible in the use of our fleet and we have to adopt the size of the aircraft and configuration to demand and this change happens every day.

Every three months, we move planes and also for technical reasons. That is the advantage of operating a big fleet.

Margins are thinning in Europe, hence many more carriers are moving to Asia?

We are here in the hope of margins and traffic. We can capture a large part of the traffic in Asia in cooperation with Asian (airlines) including MAS and Chinese (carriers). We have to cooperate with them and will explore the areas in which we can cooperate and I am meeting the chairman of MAS to explore some form of cooperation.

Of course, the difficulty at this stage is that it (MAS) belongs to oneworld and we belong to Skyteam, which are competing alliances. But it is not impossible that we could envisage something. It could be possible if MAS asks its other oneworld members and any arrangement could be limited to a particular route, destination or traffic.

I give you an example. We have strong cooperation with Japan Airlines and it is a member of oneworld... so it is a case by case approach and we have to explore all of that.

How is the restructuring going on at Air France?

We are on track and on schedule according to the plan we put in place in 2012. We built it on three pillars – industrial, commercial and social.

As a result of the plan and by 2014, we would have restored profitability, competitiveness and decreased our debt. We are reasonably optimistic we are on track and have not lost a day in our plan.

By July 1 you will be the new chairman and CEO of the Franco-Dutch airline Air France-KLM. What happens to the restructuring at Air France?

It will be followed through and it is my first responsibility at Air France-KLM to ensure the plan is implemented at all levels.

What is your view on budget carriers?

They are developing everywhere, though the trend started off in North America. They meet a demand for the short- to mid-haul market that is cost conscious, and pushed by the economic crisis where everyone looks for a cheaper price.

Companies during an economic crisis push employees to fly behind and not at the front end of the aircraft. The development of low cost will remain an important trend in our industry. But what is interesting is that, in the US, the penetration of low cost is about to plateau.

Customers still want good services and the market share for airlines like Air France and other legacy carriers has improved and they have come back after difficult periods. In Europe, the LCC market dominates with a 40% market share and the situation should change because established legacy carriers such as Lufthansa have reacted strongly by creating their own LCC and they transfer traffic point to point.

We have decided to create our own LCC and we think passengers looking for low price should come to us instead of going to our competitors.

Is there a future for long haul LCCs?

Nobody has demonstrated that it can work. It is completely difficult. Long haul is different from short haul and it is more costly and it is very different to operate. We have not found a LCC operating long haul successfully and there is no reason to believe otherwise.

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