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Wednesday, 7 October 2015

Is Ryanair that smart?! Or is Air France-KLM just that stupid?!

“Am I that smart?! Or are you just that stupid”

Louis van Gaal, the current head coach of Manchester United is a legendary trainer. Where already his achievements as a coach on the football field should have made him a legend, his long and troubled history with sports journalists is what really gave him fame/ notoriety.

And definetely the most famous quote in the eyes of the Dutch is the aforementioned outcry from 1996. It was uttered against two journalists, who did not want to understand his views and asked him impertinent questions – to the eyes of “beholder” Louis van Gaal, that is.

I had to think about this particular quote, when I learned today that two executive managers of Air France had to litterally run for their lives, after they announced involuntary mass lay-offs among the Air France personnel:

A scuffle broke out after demonstrators stormed a room at the group’s headquarters at Charles de Gaulle airport where Air France management was outlining 2,900 job cuts, or 5 per cent of total staff.

Xavier Broseta, head of human resources, had the shirt ripped from his back by an angry crowd as he made his way out. He was forced to climb a fence to escape, wearing only a pair of trousers and a tie.

“I could not believe it, they just started attacking,” said one person close to the unions, who was at the scene. “He looked really shocked as he was rushed out by security over a fence,” he said.

According to the same Financial Times article, the job cuts would apply to:
  • 300 pilots
  • 900 flight attendants
  • 1700 ground staff 

This is definitely terrible news for the employees of Air France to whom this news is applying, but one could hardly call it surprising news, after the events in recent years.

The mass lay-offs at Air France followed one month after the news that KLM – the Dutch subsidiary of Air France-KLM – could possibly be forced to lay off as much as 5000 people through involuntary lay-offs, after voluntary dismissals proved not to be sufficient anymore to make the Dutch AF-K subsidiary ‘lean and mean’ again. In other words: the message that Air France-KLM seems heading for some real bad weather in the near future could not be uttered more clear than with the current unrest in France and The Netherlands.

This very bad news about Air France-KLM is a blatant contradistinction with the soaring annual profits and the accompanying boasting of Ryanair. The following snippets came from Reuters:

Ryanair hiked its annual profit forecast by 25 percent on Wednesday after its summer performance was boosted by bad weather in northern Europe and the strength of the British pound.

The Irish airline, Europe's largest by international passenger numbers, said it now expects net profit for the 12 months through March 2016 to be between 1.175 billion euros ($1.3 billion) and 1.225 billion, up from an earlier forecast of 940 million to 970 million

And talking about ‘boasting’. In an interview with the German newspaper Welt am Sontag, Ryanairs chairman Michael O’Leary boasted that Ryanair is ‘planning to cut the prices in half’.

The following (translated) snippets were printed in Het Financieele Dagblad:

Chairman Michael O'Leary wants the consumer to profit from the lower oil prices. Earlier, the chairman promised the consumer already a “mother of all price wars”. In the German newspaper he gave a small peek at his hand of cards.

 O’Leary wants to increase Ryanair’s market share to 25% from the current 15%. This has to be achieved in 2025. [...] Ryanair’s attack plan accomodates a spectacular drop in ticket prices. ‘In the long run, we are aiming at a price of €0”, according to O’Leary in the interview. ‘We cannot put a term on that yet. Of course, there will be all kinds of additional expenses and surcharges for the consumer, outside the ticket price”.

And that’s that: Ryanair aims to make huge future profits by giving aways its tickets for free... but not really!

Enter the great Louis van Gaal;  in this case he could be personified by Michael O’Leary of Ryanair: “Are we that smart?! Or is the rest of the aviation industry and in particular Air France-KLM just that stupid?!” One can almost hear O’Leary think that.

Still, for me there is something extremely fishy about this blatant contrast between the slow demise of Air France-KLM at one hand and the unprecedented success stories of “class room bully” Ryanair and also long distance carriers like Turkish Airlines, Etihad and Emirates on the other hand.

Air France and KLM are decent airliners with a long, long history of safe flights, very good maintenance, good service on the ground and in the air and prices that are not particularly high anymore, even though they have never been among the cheapest airliners in the past.

Both airliners were traditionally among ‘the best of the breed’ and operated their core business in a quite decent and honest way. It could very well be that Air France and KLM are simply too decent and honest; they are perhaps outsmarted by their more seasoned competitors at both the low end and high end side of the aviation spectrum. 

As the Dutch say in one of their famous expressions, they could be “just too big for the napkin and too small for the table cloth”

Perhaps the main problem of Air France-KLM is that the other ‘teams’ in their line of business skim the edges of what is still decent behaviour among airliners and probably cut a few corners along the way.

Middle-Eastern airliners like Turkish Airlines, Etihad and Emirates have a reputation of (illegally) receiving billions in dollars in subsidies from their respective home countries. These are very rich and/or powerful countries, which see the aviation industry as a very good means to attract loads of tourists to the ‘pomp and circumstance’ in their ‘tinseltown’ cities, malls and hotels. Consequently they are willing to spend billions and billions in subsidies on behalf of their airliners and the airports which act as hubs for these airliners.

At the other end of the spectrum, there is obviously Ryanair; a company which has a reputation for flying with very low levels of fuel on international flights and which is also mentioned for hiring inexperienced or unemployed aviators, in order to fly for them at a bargain price, or perhaps even for free.

The company is also infamous among passengers for offering its customers an extremely low basic ticket price, but afterwards charging the customer with all kinds of peculiar surcharges and extra expenses for even the most basic services. This makes an initially very cheap ticket in the end not so cheap anymore, but then the customer has already booked and paid the ticket. 

And perhaps Ryanair’s biggest profit maker is the bedazzling number of seats that fits in a Ryanair 737-800; ideal for people who only look for the lowest ticket prices and don’t mind having virtually no space for their legs at all. And indeed: for short flights at a bargain price many people  including yours truly are willing to abolish their need for some comfort and service on flights. Just like they don't mind standing on short trips by bus or train.

On top of that, there is one risk that every passenger should keep in mind, while flying: especially with the cheap airliners, which always try to save a few bucks on anything that they do. That is the substantial risk for excessive (and perhaps even dangerous) cost cuts on maintenance activities. Read here for instance the integral interview that I held with the distinguished aircraft engineer Fred Bruggeman in March of 2015.

This all leads to one simple conclusion: neither Air France-KLM nor its low-cost subsidiary Transavia can beat Ryanair on price with their current modus operandi. That is just impossible! They are simply not lean and mean enough!

All in all it seems that Air France-KLM is fighting a losing battle, when something does not change very quickly and dramatically in its way of doing business. And – except for the seemingly non-level playing field in the aviation industry – perhaps that something has also to do with the personnel numbers working at this company in distress and the salaries and remunerations that its personnel receives for doing their jobs. 

So, it can very well be that the aggressive outburst of especially the Air France personnel yesterday is yet another example of 'striking and protesting as French weapon of mass self-destruction', as I wrote in 2014.

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