Air France-KLM is on the cusp of strengthening its foothold in Europe’s low-fare market by expanding the capacity of its existing French and Dutch budget carriers, after a costly pilot strike last year prevented the launch of a European budget carrier of its own, reports The Wall Street Journal.
The Franco-Dutch airline operator plans to expand its low-fare business by adding up to 20 aircraft in the coming years, with a decision on the growth strategy for next year expected in the coming weeks, said Mattijs ten Brink, the chief executive of Air France-KLM’s low-cost airline Transavia. Mr. Ten Brink was speaking in an interview on Thursday with The Wall Street Journal.
The European expansion plan comes on top of a 1 billion-euro ($1.11 billion) investment announced last year that has largely been reserved for 17 aircraft.
The company, one of Europe’s largest airlines by passenger traffic, said it wants to move quickly with expansion in the low-cost segment by opening operational bases outside France and the Netherlands, as stronger European competitors, such as Ryanair Holdings and easyJet, continue to expand.
Air France-KLM, which reported a first-half loss, is struggling in the face of fierce competition from the budget airlines as well as from emerging-market carriers, notably those based in the Persian Gulf, which are growing fast in the lucrative long-haul segment.
The Franco-Dutch airline group currently has two separate budget carriers, Transavia France and Transavia Netherlands, and initially had plans to launch a Transavia Europe brand. Last year, those plans were abandoned after a pilots’ strike that cost the company 425 million euros.
A year later, the need for the creation of a new airline, which should have enabled a simplified structure and lower cost base, has evaporated.
“Now we have been given an additional year to fix things internally, there is no need to create a new airline,” Mr. Ten Brink said.
“Basically, the argument to launch a new airline was to not suffer from the legacy we carried in the Netherlands and partly in France. We weren’t ready to take on the competition battle in Europe,” he added.
Meanwhile, Transavia Netherlands in July reached a deal on new labor agreements with its pilots, meant to push down costs. The unit has made progress in streamlining and simplifying the overall Transavia brand, as well as enhancing the IT infrastructure, investing “tens of millions,” Mr. Ten Brink said.
Air France-KLM Chief Executive Alexandre de Juniac said in mid-July the airline aims to open its first operational base outside its home markets in the first half of 2016. Without providing further details while he emphasized that the pilots’ unions in France had expressed willingness to reopen discussions.
A deal is likely to be signed in the coming weeks by Transavia executives, the chief executive of Transavia Netherlands said, adding that deals with French trade unions still need to be reached first.
The expansion doesn’t come without risk for the Transavia airlines, as both are loss making and are expected to return to profitability by 2017. Ryanair and easyjet, Europe’s largest budget carriers, are profitable.
“The growth we add must contribute to our profitability target,” Mr. Ten Brink said. The operational base expansion requires a fleet expansion. Earlier this year the company announced the purchase of 17 Boeing 737-800 airplanes meant for growth within its home markets. New aircraft for bases in Europe could be bought from Boeing Co., but could also come from “befriended airlines” and leasing companies, Mr. Ten Brink said.