Air France-KLM Feels the Heat in Paris

(Bloomberg) -- Competition just got even tougher for Air France-KLM as yet another low-cost operator offers cheap transatlantic flights from Paris, while the Franco-Dutch carrier struggles with a top management void and labor strife.

British Airways parent IAG SA started discount links between the French capital and Montreal on Monday through its low-cost arm Level, taking direct aim at Air France-KLM on the busy route.

With additional flights planned from September to New-York for as low as 129 euros ($150) one way, Level is competing with Norwegian Air Shuttle ASA, XL Airways, WOW Air and Primera Air Scandinavia A/S in offering budget fares out of Paris. Discount airlines made up a third of French traffic last year, a trend that's set to continue at a time when Air France-KLM is in disarray.

The Paris-based carrier is operating without a permanent chief executive officer following the resignation in May of Jean-Marc Janaillac after his bid to end a series of crippling strikes was rejected by a majority of French employees. A long-anticipated update of the company's mid-term strategic plan is also on hold, leaving question marks about further development of low-cost offerings. The board last week was forced to drop a leading CEO candidate due to his lack of experience in transport.

As the busiest travel season gets underway, the battle between discount airlines is heating up over the Atlantic:

• Norwegian has 46 routes between the U.S. and Europe and plans to start a dozen more.
• Primera Air started flying between Paris and New York in May, and has since added Boston and Toronto.
• Air France-KLM offers "light economy" fare that allows passengers to book non-modifiable tickets that do not include checked luggage.

“Long-haul, low-cost service is mostly done by young airlines, with lower operation costs than so-called legacy companies,” Air France Chief Executive Officer Franck Terner said at an event in Paris last month.

Air France started a lower-cost service last year called Joon, which employs cabin crew on different work contracts. The company also operates medium-haul discount flights through its Transavia brand. Growth of this unit is already curtailed by pilot unions and any effort to expand could exacerbate tension within the workforce.

“Air France has a fantastic brand and a great network, but everybody has to change,” IAG Chief Executive Officer Willie Walsh said at an event at Orly airport to launch the Level flight. “There was some restructuring at Air France, but not enough.”

Level will be “growing the fleet next year,” along with new destinations from Paris and Barcelona in 2019, he said.

To contact the reporter on this story: Ania Nussbaum in Paris at anussbaum5@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel, John Bowker

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