The blue appeal

Executive talks to Air France about shifts in the regional aviation market

Patrick Alexandre, executive vice president commercial, sales and alliances | Greg DeMarque

For many Lebanese travelers, Air France is not just any airline but an institution of memories. When times were tough, flying from Beirut to Paris represented a lifeline connection to personal safety, not to mention savoir vivre and commerce. Today, the links between Lebanon and Europe are numerous and airlines have to win over travelers with more than just their name. But the journey to Paris still has many meanings and commercial values, and Executive sat down to discuss these facets with Patrick Alexandre, Air France’s executive vice president commercial, sales and alliances. 

E   Beirut and Paris were joined last November in shared tragedies and there were news reports of flight cancellations and flight diversions because of bomb threats. Given that Beirut and Paris were both victimized by bomb attacks, did the Air France route to Beirut suffer too?

First of all, we never canceled any flights after the events of Paris. We maintained the full network and the full flight schedule everywhere. Secondly, the safety rules changed a bit, of course, in Charles De Gaulle [Airport] but traffic remained fluid and on track at all times. We kept the operations going with the safety measures that we have [always had in place] and with extra measures for airports like Charles De Gaulle and also for Rafic Hariri Airport in Beirut. For the second part of your question, the answer is that, yes indeed, Paris as a destination was hit during the last 15 days of November, but what I can tell you is that as far as we can see for January we have now a positive sense of booking. Is there a special impact on [the route to] Beirut? The answer is no. Beirut traffic to Paris has been affected more or less the same way as others. But to be frank with you, markets are not reacting the same way to those events. The more affected markets were Japan for individuals, groups and business; North America, the USA in particular, and a little bit the Gulf region. We have seen less effects on Africa and South America, and in Europe it depended on the situation.

E   Lebanon has been requested to comply with Annex 17 of the Chicago Convention that relates to the security of airports. And while Lebanon has been trying hard to comply with these requirements, we know for a fact that there have been shortcomings in compliance. Given the heightened need for security in the current environment, to what extent does an airline like Air France see it as part of its duty to also put pressure on a government like the Lebanese government to comply with these globally recognized security regulations?

The application of international safety rules is an approach that we and the other airlines have everywhere, and that has a political expression through IATA (International Air Transport Association) and ICAO (International Civil Aviation Organization). Secondly, [adherence to] the rules and regulations for safety is a must for us. So you can imagine that we ask [in every country] for compliance with our safety rules mainly via those organizations and sometimes directly. The minimum that we request is more or less international. On top of those local measures, Air France itself applies some [safety] measures for its aircraft. But as long as we fly [to a destination] it means that we consider we can make [this destination safe]. And we fly [to] Beirut.

E   What do you rate as the top challenges for the airline industry today?

I think it’s a mix of at least two things, maybe more. Of course there are challenges related to operations, such as what are the aircraft and the most problematic issues, such as safety etc. But then the story is about the combination of product and price. This is why we actually do invest in the best approach with the long-range product presented today, which we have been flying to Beirut for a few [months] now, since the 14th of September. So first of all [the challenge] was investing, and investing a lot. Talking for Air France, we have made an investment of more than 500 million euros only for the long-range as the first part of the investment [into our fleet of Boeing] 777 for all the cabins including La Premiere, Business, Economy Premiere and Economy.

The second important thing is the price. We are addressing [this issue] with this kind of product. It’s a mix of two, which makes the customer happy. On the other hand we are also working a lot on our [cost] savings and this is why the famous plans have been launched since a few years. The first plan [for improved efficiency] has been implemented and the second plan is for transforming all the categories of staff. I was making some efforts to be and remain competitive. Being competitive is a mix of cost, which drives the price, [and using] tools we have in review management. [Because of] this we now have a lot of facilities to offer interesting prices, with fares that are so low. Low fare is something we can do and [combine with] the quality of the product we can give to our passengers. [This product quality is present] not only in the cabins, and in the service given by cabin attendants but also [in our] stations. [There is] also the investment we are making in technology, mobile applications etc, and that mix is how we compete.

[Value for money] is a very interesting point, because Lebanon as a market covers all the segments of our business, which is not the case in all the stations and destinations. But in Lebanon we have the ‘La Premiere’ (first class) segment and the business segment. [People here] travel for business reasons and personal reasons. This makes it very interesting to manage [this market] and it allows us to deploy the whole range of products, at least in-flight products including La Premiere, in Beirut just as we do for instance in New York.

E   Air France–KLM has seen a weakening of market shares and has been plagued by labor actions, whose only positive element might be that you are not the only big European airline to suffer in this regard. How, for you, do European carrier labor challenges, regulatory burdens and competitive pressures in Europe, rate when compared to changes in global traffic patterns, and rising competition from carriers in the Far East and Middle East?

It is true that not only Air France, but all the biggest European carriers are fighting to be competitive. So we have somewhere to benchmark ourselves, in order to have the right cost [of operations]. And what is the right cost to operate? [In other words] what depends on our efforts and what depends also [on the environment], which is labor, taxes and such. We have to address the labor cost through better productivity. It doesn’t mean we want to pay less.

Regarding fair competition [with other regions], some friends not far from here in the Gulf are playing games in which all the conditions for competition are [not] the same. So if for instance, a Gulf company is asking for open skies, the condition for it is transparency, reciprocity. I fully recognize that [the aviation industry] has been a tool used by those countries for their economic development, but do you really think that for instance there is traffic between Dubai and Orlando? Do you really think you can make it profitable? Do you really think you can open a daily Dubai–Panama City flight of 17 hours?

I recognize the fact that we have to make some efforts, as Lufthansa is doing. For me the reference is to be as competitive as Lufthansa and British Airways can be. Then there is a question of competition linked to European regulations and [with regard to] Europe and the Gulf carriers. Do we have the same rules? Can they go and take the market in Europe? And if yes, with what conditions? By the way the same [goes] for American companies. For me, it is a question of [how we compete], the rules of competition. That’s the main problem. But we will do our job. I really think today airline transport in Europe is bringing and creating value — not only by creating jobs. If one day European airlines are replaced by some Gulf line, there will be a lot of job losses — thousands. So the European airline business is creating value directly and indirectly.

E   The Air France–KLM collaboration is now more than 10 years old. In the meantime we are seeing a growing variety of consolidation and collaboration models, from alliances and mergers to equity partnerships such as practiced by Etihad Airways and strategic partnerships such as Emirates–Qantas. From your perspective, what collaboration models make the most sense today for air travelers and for operators?

When we discuss consolidation, our future will first of all see more alliances. You have different steps for alliances and as you know Air France has taken part in collaborations first in Europe. Some [alliances] are big but the value of an airline is not only its number of aircraft. The value of an airline is the market share they have, [and] the grip they have on the market. Knowing this leads [airlines to enter into] joint ventures. We as Air France–KLM have a big joint venture for instance with Delta Airlines. This JV is a virtual company which is larger than British Airways; I’m talking about a $16 billion joint venture on a yearly basis. So this kind of thing will continue to develop and one example for that is that we as Air France–KLM already have a younger JV than the one with Delta, with China. This goes back to my remarks saying that when two airlines discuss [a partnership] they need to have market positions to exchange. If you don’t have two market positions to exchange, [the deal] remains a deal with money against market. When you do that I don’t think you have improved your industrial positions; [this is] part of my answer in response to the comment you yourself made concerning the Gulf companies. The next steps to this [process of forming alliances] is in reinforcing a JV. You are right to say that this will most likely involve equity moves, as Delta is making today with China [Eastern Airlines] or as Air France has done by investing into [owning] a few percent in Gol in Brazil. So [there is] no future without alliances. Those alliances range from complicated joint ventures to simple ones, where the alliance we have with Middle East [Airlines] is interesting.

E   When you are looking at the Middle East and Africa, do you see any role for Beirut that could be larger than the role it’s playing now?

Beirut is a market for us because of Lebanese people and because a lot is happening with the diaspora all over the world. It is, as you say, a larger market than Beirut itself.

E   How are your efforts progressing in Abidjan as far as making it a hub for Air France in Western Africa?

I was in Abidjan last Monday, just to give you an example [for how important it is for us]. As you know, we are developing [this hub] with a strong investment.

E   Could you envision to have similar plans for Beirut as Air France has for Abidjan, for developing a hub for the Middle East or creating links between the Middle East and hubs in Africa?

That’s a good idea, linking Beirut to Abidjan. As Air France is currently investing in Ivory Coast into making the Abidjan hub, I think there is something to be done. Maybe I will take care of this tomorrow with [MEA Chairman] Mr. El Hout.

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