Designing a New Airline for Hipsters (And Air France Investors)

(Bloomberg) -- What corporate France lacks in cost-cutting potential, it makes up for in style. That at least appears to be the recipe at Joon, the latest aviation brainchild of Air France-KLM Group, which starts operating this week.

The pitch goes like this: tech-savvy and fashion-conscious flight attendants serve de rigueur staples from baobab juice to organic quinoa salad as millennials jet from Paris to Barcelona and Brazil at discount rates, streaming videos above the clouds.

The reality, of course, is slightly less glamorous: the hipster pitch simply sugars the pill. Scratch beneath the surface and Joon, a riff on “jeune,” French for young, is the result of some hard-headed thinking at Europe's biggest airline, designed to boost earnings by cutting costs more steeply than fares.

At stake is Air France's ability to defend European routes against further incursions from no-frills specialists led by Ryanair Holdings Plc, while combating an emerging discount challenge in lucrative long-haul markets. Joon represents the group's second recent bid to slash costs after the first was dropped amid protests that saw managers attacked by staff.

Analysts say the company must get the new attempt right before oil prices rebound -- or put at risk a resurgence in its business that led operating profit to jump 44 percent in the first nine months and the share price to double as French visitor numbers recover from a spate of terrorist attacks.

Less Benign

“Air France needs to improve its cost performance relative to competitors in order to thrive in an environment that may not be as benign as the one we have today,” said Andrew Lobbenberg, an aviation analyst at HSBC Holdings Plc in London. “That's what Joon is about.”

The new unit, Air France's fourth brand alongside the mainline carrier, short-haul unit Transavia and regional arm Hop!, will be based at Paris Charles de Gaulle airport and is set to commence flights on Friday.

It will initially serve Barcelona, Berlin, Lisbon and Porto before next year adding more far-flung destinations including the Seychelles and Fortaleza in Brazil, and has applied for U.S. flights. Further routes will include Rome, Naples and Oslo, plus Istanbul, Cairo and Tehran in the Middle East, and Cape Town in South Africa, Joon chief Jean Michel Mathieu said at a press briefing Thursday.

The operation will start with Airbus SE A320 narrow-body jets sourced from Air France. The first inter-continental services will be introduced with A340 wide-body models, with more-advanced A350 planes to be deployed from 2019. Current union agreements would limit the fleet to 28 aircraft.

Joon was borne out of a compromise by Air France-KLM Chief Executive Officer Jean-Marc Janaillac, who chose to develop it while backing away from the more overtly cut-price Transavia, which became the focus of clashes that made global headlines and forced out predecessor Alexandre de Juniac.

Where the Transavia plan sought significant concessions from pilots, Joon will pay them as much as Air France does -- instead securing savings of 40 percent on cabin crew costs versus the mainline brand. That will reduce expenses by up to 18 percent overall.

Ticket prices won't be in the bargain-basement range, with a one-way trip to Lisbon on Jan. 8 priced from 50 euros ($59), according to Joon's website.

That's cheaper than previously charged by Air France, which will vacate routes that Joon takes up, but still 8.74 euros more than the same journey with EasyJet Plc, Europe's second-biggest discount carrier and a major force in the French market, and 11 euros higher than charged by Transavia, which will duplicate some of the new carrier's services.

Hence the focus on cool (cabin crew will wear electric-blue polo shirts and white sneakers that resemble Adidas AG's popular Stan Smiths) as Joon seeks to woo a clientele that's price sensitive but which also, it hopes, puts a high value on technology and lifestyle requirements.

Viceland

Passengers will be able to stream movies and shows on their own devices, playing to the always-connected crowd while saving on the cost of screens. All seats will feature USB ports for charging and, from next year, free Wi-Fi.

Other perks will come at a price, among them checked luggage, programs from the Viceland and RedBullTV channels viewed via virtual-reality headsets, and the baobab juice. Joon will also offer a business-class service featuring extra space, as well as a premium-economy class on long-haul routes.

Franck Terner, who heads Air France, describes the new carrier as a laboratory for experiments in marketing and pricing, comparing its launch to that of Richard Branson's mold-breaking Virgin Atlantic Airways Ltd. in the 1980s. Yet the response to an ad campaign that likens Joon to a trendy rooftop bar and fashion designer -- before adding that it's “also an airline” -- has been less than positive. Critics on social media and elsewhere have accused it of patronizing younger travelers and misinterpreting their basic needs.

“What we care about are the same things that old people care about: cheap, reliable flights that have got no hidden costs,” humorist Paul Taylor said on “What's Up France,” his Canal Plus TV show. “Maybe instead of trying to create a new condescending airline, try to fix the ones you already got.”

The challenge facing Joon took on a new dimension on Tuesday, when British Airways owner IAG SA revealed that it had chosen Paris as the second base for its Level discount arm. The carrier, which focuses on long-haul routes, will offer flights between the French capital and New York for 129 euros each way, and to Montreal, Guadeloupe and Martinique for 99 euros.

IAG CEO Willie Walsh said Joon was a “hybrid” rather than “a very low-cost operation,” adding: “I'm not sure what Air France is doing there.”

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, Christopher Jasper, Frank Connelly

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