The Strategist

Strikes are knocking Air France down

05/14/2018 - 14:54

Strike of Air France staff, held from February 22 to May 8, cost the company € 400 million. Number of the company’s passengers decreased by 8.7%. Having failed to find a common language with the working unions, General Director of the group Air France-KLM Jean-Marc Janaillac left his post. The Minister of Economy of France Bruno Le Maire warns that the company can lose to competitors.

Philippe Noret
Philippe Noret
15 days of strike in Air France fell on national holidays, and on school holidays, and on days when railroad workers did not go to work. The strike was not complete as, according to the law, the airline had to maintain a certain minimum of flights. However, many flights were cancelled, there were queues and overbooking in those planes that still performed flights.

The total damage that Air France has incurred to date is estimated at € 400 million.

The strike organized by the working unions was aimed to increase wages. It would cost the directorate less than the loss from idle time.

At the same time, flight personnel of Air France are not in the worst situation in comparison with their European counterparts. They fly less (700 hours per year) than in Lufthansa (780) or Easyjet (800) and receive one of the highest salaries in the industry - an average of € 19,800 per month. Ground personnel receives less - € 2 thousand to 7,5 thousand per month, but the amounts are also within European rates.

The unions demanded an immediate increase in wages by 5.1%. The management agreed to an immediate salary increase of 2% and 5% from 2019 to 2021. However, the unions started a strike and in an internal referendum voted against the agreement. As a result, the company’s General Director stepped off. When the negotiations reached an impasse and 54.4% of the workers voted for continuation of the strike, he resigned.

Jean-Marc Janaillac was persuaded to remain in office until May 15, the day on which an extraordinary shareholders meeting was scheduled. So far, the company has been trying to find a replacement for him. Several candidates are being called, but it's unclear who will take over leadership of Air France in such a critical situation. 

The airline’s employees created a conciliation commission, which should reconcile the management and working unions. The commission is called "All Air France" (Tous Air France in French).

The commission has begun negotiations with the parties, but there is no guarantee that the unions would end the strike. If it continues, the airline will incur new losses.

At the same time, none of the strikers’ goals has been achieved so far. Even departure of Jean-Marc Janaillac was perceived as a blow to their positions. Not only Air France, but also its personnel are bearing losses.

During the strike, many private and almost all business trips were transferred to partners and competitors. The strike affected agencies, hotels, the entire industry of French tourism, which began to regain momentum after the crisis. In April, the number of Air France passengers decreased by 8.7%. This way, the airline's customers reacted to the strike, and they chose other carriers that did not jeopardize their plans. Social networks are now criticizing the "pilots in the clouds" and propose to start raising wages by selling aircraft until they run out. Incidentally, the strikers themselves agree with this proposal.

The market reacted to the situation in the airline negatively. The morning after the General Director declared his leave, shares of Air France fell on the Paris Stock Exchange by 10-13%. Analysts remind that Air France is in a competitive situation and that joint mistakes of workers and management have already "cost the lives" of such national aviation companies as PanAm or Swissair, and are a source of permanent problems for Alitalia. "People did not fly less, it's just that the passenger flows are not being distributed to the benefit of Air France," they point out. 

Strikers are requiring state intervention, but France owns only 14% of the Air France-KLM group. Minister of Economy of France Bruno Le Maire has already stated that "we should not expect that the state will cover losses of the group, which does not make efforts to match the level of European and world airlines. If Air France stays idle, it will disappear," he added.