Air France-KLM to set up new unit to better compete on long-haul

PARIS - Franco-Dutch carrier Air France-KLM outlined plans for a new long-haul unit with lower costs to try to regain market share lost to Gulf rivals as it seeks to improve profits and restore frayed relations with staff.

The new company, set to have a fleet of 10 long-haul planes by 2020, will be staffed by pilots from Air France who would be willing to move on a voluntary basis and will aim to operate on a cost basis closer to rivals.

It will make up only a small part of the group, which is aiming for a fleet of 435 planes, not including regional jets, by 2020. "It will not be positioned as a low-cost carrier. It will have standards similar to Air France," the group said in a statement on Thursday, shortly after publishing third quarter financial results.

The project, dubbed Boost, is similar to a Lufthansa initiative called Jump, set up in 2014 to enable it to reduce costs on loss-making routes to tourist destinations such as in south-east Asia, yet still use its mainline Lufthansa brand.

Air France-KLM, which has been hit by strikes as it battles to reduce costs, hopes the new company will allow it to return to profit on loss-making routes or to reopen routes that it had to close due to stiff competition from the likes of Emirates, Qatar and Turkish Airlines.

Air France-KLM shares opened down 4 percent on Thursday. "The project is a bit disappointing. Boost is a bit of a surprise but it's hard to see how it will really position itself and be profitable," said Oddo Securities analyst Yan Derocles, adding third-quarter results were in line.

The announcement formed part of a strategy, named TrustTogether, unveiled by new CEO Jean-Marc Janaillac.

The group also named Franck Terner, currently head of its maintenance unit, as new CEO of Air France, replacing Fredric Gagey, who moves to the role of group chief financial officer.

Air France-KLM will also study a spin-off of its maintenance arm, although intends to retain control of the unit, it added.

Group-wide, it said it was aiming for sales of 28 billion euros (S$43 billion) by 2020, with 100 million passengers, compared with 90 million in 2015, and a fleet of 435 planes, not including regional planes.

It also slightly increased a target for cost cuts, saying it wanted to reduce unit costs by over 1.5 percent a year between 2017 and 2020.