Friday, May 4, 2018, was supposed to be an important day for Air France management: it was supposed to knock the wind out of the sails of the Air France inter-union, with a clear and massive “yes” vote to the salary proposals of Jean-Marc Janaillac, the CEO of the Air France-KLM group.

But at 6pm, it’s the cold shower: with a laconic Twitter message, Air France announces a clear vote for the “no” to the reform pushed by the group’s management… A slap in the face that will destabilize the entire airline, as theThe CEO has put his resignation on the table.

Can Air France get out of this crisis? Nothing is less certain

A business riddled with corporatism

Air France is not a business, buta multitude of corporationsthat are supposed to work for the same goal, that of transporting passengers from point A to point B. Beyond this common goal, there are not many common points between the different professions of the airline.

And above all, the feeling for some that they are stronger than the others, and for others that they have made a lot of effort for not much.

And all these trades at Air France are represented by different, fairly powerful unions.

As in all airlines, there is a gap between ground and headquarters personnel on the one hand, and flight personnel on the other. But this difference has been exacerbated in recent years by the fact that successive voluntary departure plans have mainly affected headquarters staff and operational ground staff, who feel they have made the necessary efforts on the other side… And this is true. The results of the Transform 2015 plan are clear: the share of the productivity effort made by ground staff is higher than the target set at the start of the plan. And not that of the flight crew.

A customer culture that is struggling to take hold

Head office has taken numerous initiatives to impose a “customer-oriented” culture on Air France’s operational, ground and flight staff. We are thinking in particular within theAir France Referrer Customers Club created at the instigation of the Medium-haul Division and then extended to all operational divisions, which has enabled direct contact between customers, head office staff, ground staff, cabin crew and flight crews to discuss customer expectations and to work together to find operational solutions to meet the constraints of the field.

We also think about Service Signatures (Dare, Value, Pay attention, Pay attention to detail, Personalize), a concept to which all operational staff have been trained and which combines service excellence, empowerment and initiative… Signatures that have been forgotten for some time, with service so heterogeneous from flight to flight that customers are wondering about the heterogeneity of protocols, especially in Business class.

Above all,the cultural problem is deeper. In parallel to these commendable initiatives, the trade unions continue to drag the airline down, complaining of more difficult working conditions due to longer and therefore more tiring services because they are more personalized…

Not only is this totally contrary to the spirit that should govern any service profession, but tofind these leaflets public(and therefore accessible to customers) is quite simply scandalous… The cultural transformation effort is therefore immense within the airline.

A merger with KLM that never really ended

The merger between Air France and KLM is a never-ending story. But first, let’s call a spade a spade: this is not a merger, but a takeover of KLM by Air France, let’s be clear!

But what has happened since? Not much. They try. They have been trying for 15 years to harmonize practices. A little bit everywhere. With no real purpose. Rationalize? Not at all…

The result: duplication of support functions everywhere, a sales force that is not really merged (oh yes, great, Air France sells KLM in France and vice versa in the Netherlands).

Only the Engineering & Maintenance subsidiary seems to be merged… When seen from the outside.

By way of comparison, in three times less time, Lufthansa Group and IAG have succeeded in rationalizing almost all the functionalities of the support functions of the airlines that are part of them.

And in the end, the Air France-KLM group did not find any room for maneuver!

Successive reforms that did not address the real transformation

Every CAC40 business must have a 5-year strategic plan, with an associated operational transformation plan. Air France was no exception to the rule with Transform 2015,Perform 2020 under the Juniac era and Trust Together under the Janaillac era.

And if the initial ambition was to bring Air France ” to the highest level in the world“, citing Singapore Airlines as a reference, the projects that make up these transformation plans did not go far enough, whether they concerned increasing the top end of the balance sheet (fleet modernization too heterogeneous, cabins renovated to the best world standard already outdated and too slow, insufficient network improvement), or on the reduction of the bottom line (focus on ancillary costs and not on operational salary costs, which are nevertheless the ones that weigh in the long term).

On the question of costs more specifically, and in particular on the question of salaries, the work carried out focused on ground staff and headquarters staff. But, on the one hand, this is not the problem in the long term, but rather the cost of flight personnel, especially in view of the fact that Air France is one of the most expensive airlines in the world.

And above all, on the other hand, the cost-cutting at headquarters means that Air France has not only lost its top talent, but is no longer able to recruit in view of the salaries offered, which are between 30 and 40% below the market price. It is difficult for the airline to recruit the best digital talents in this context…

What to do? There are no fifty solutions: redo a “zero-based” budget, i.e. establish Air France’s costs on a clean basis, as if one were creating the airline today, and do everything possible to stick as closely as possible to it.

Even the former management proposal is no longer realistic

To put an end to the labor dispute that imposed 13 days of strikes on the airline’s passengers in 2018, Air France management and Jean-Marc Janaillac himself proposed to staff representatives a wage agreement limiting salary increases to preserve margins allowing the airline to continue investing in the product. Of the 12% increase in 2018 requested by the pilot unions, Air France initially proposed a 7% increase over 4 years, conditional on the airline’s results.

But today, this proposal is not even realistic. The Air France-KLM group has announced catastrophic results for the first quarter, with a net loss of 126 million euros, mainly caused by the social movements… But not only.

The worst part of these results is this announcement combined with the fact that traffic and unit revenue are up. And so costs continue to rise despite the 3 successive transformation plans…

It therefore seems untenable today to maintain the 7% increase proposed by the management, at the risk of continuing to see the accounts falling into deficit, along with the investment capacity of the airline…

Who to take over a sinking ship?

Following the negative vote by Air France employees, Jean-Marc Janaillac therefore announced his resignation on the spot, and then agreed to wait for the group’s next board meeting scheduled for May 15, 2018.

To take his place, no one is rushing to the door… The name of Anne-Marie Idrac, former president of the RATP, is being mentioned. A good idea? This remains to be proven:Air France needs a great boss, a captain of industry… Not really a former president of a flourishing public business. Air France-KLM needs a Vincent Bolloré or a Carlos Ghosn.

And why not a Dutchman? This would make sense and shift the center of gravity where profits are made within the group

A dark, very dark future

What does the future hold for the Franco-Batavian group? Things are rather vague, but we can fear the worst. Besides the frustrated employees, whether on strike or not, the management crisis will not leave the airline unscathed. Would the group that was supposed to rescue Alitalia, which was already in peril ten years ago, find itself in a similar situation? This is not impossible, as the State has already indicated through the voice of Bruno Le Maire that it would not put a single penny into the machine.

At TravelGuys, we are convinced that the salvation of our national airline could come from across the Atlantic.

Delta Airlines is the group’s historical partner, and has a lot in common with the two airlines Air France and KLM: in addition to the transatlantic joint venture, the group has many cross-shareholdings with Delta, notably in Virgin Atlantic and the Chinese airlines of SkyTeam… What if the shrimp and the crown were to become a triangle?