Air France-KLM to recapture market share from low-cost rivals

PARIS, France – Air France-KLM posted a sharp increase in core profit for the second quarter and announced a 2015-2020 plan yesterday to recapture market share from low-cost rivals in Europe.

Europe’s second-largest traditional carrier by revenue joined rivals Lufthansa and IAG in trying to win business from low-cost champions such as easyJet. It said it was prepared to use acquisitions to achieve its aim. Air France-KLM has been cutting costs and debt as part of its three-year “Transform 2015” plan, which is due to end in a few months.

Its new plan, “Perform 2020”, will focus on maintaining the groupÕs position in long-haul markets in the face of competition from Gulf carriers while looking to capture growth and cut costs in short-haul markets.

“The consolidation of the low-cost sector is underway and we want to take part,” chief executive Alexandre de Juniac said.

“The idea is to be in the leading group of European low-cost carriers, given that aviation is a business where size is important,” he said.

The company also plans acquisitions in maintenance and overhaul where it wants to offer services to external clients.

Details of the plan, which follows a review by the head of the airlineÕs French unit, will be announced in September.

The plan to counter the low-cost boom in Europe comes weeks after Lufthansa’s new chief executive announced plans to expand its low-cost services under new brands, though some analysts have questioned the move.

Several network carriers have already set up or acquired their own low-cost units to mimic the success of Britain’s easyJet and Europe’s largest budget carrier, Ryanair. They include Lufthansa’s Germanwings and Vueling, which is owned by British Airways/Iberia parent IAG.

But running low-cost operations, based on point-to-point travel, alongside the hubs and frequent-travel schemes of large union-based carriers is rarely simple, analysts say.

“Very few airlines have managed low-cost operations that are really low cost. The only one really doing so is IAG,” said aviation consultant James Halstead of UK-based Aviation Strategy.