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Airline interview

Battle for Transavia


Martin Rivers takes a closer look at the pan-European growth strategy Transavia
France has undertaken, while also navigating through a number of challenging
labour issues
The French unit has 26
aircraft at three bases
(all photos: Transavia France)

ven by the standards of France's pugnacious


trade unions, the mobbing of senior Air France
executives near Paris Charles de Gaulle Airport in
October 2015 was an appalling incident.
News channels around the globe broadcast images
of two senior managers scrambling over fences their
shirts literally torn off their backs by enraged workers
who had come to protest against plans for 2,900
redundancies at the flag-carrier. Five Air France
employees and two police officers were wounded in
the clashes.
Though unprecedented for their violence, the ugly
scenes were just the latest in a string of tense face-offs
at the French airline.
One year previously, pilots staged industrial action
for a fortnight over Air France-KLM's plans to scale
up Transavia France the Paris-based subsidiary of

46 / Low Cost & Regional Airline Business

Transavia, its strategically important low-cost division.


Union leaders argued that Transavia's lean cost-base
undermined the labour contracts at full-service
Air France.
Despite causing huge financial and reputational
damage, union unrest has been deemed a price worth
paying by management in Paris and Amsterdam.
Alexandre de Juniac, the group's outgoing Chief
Executive, sees cost-compression as the only way of
fighting back against Ryanair, easyJet and the other
LCCs that now dominate shorthaul flying on the
continent. "To remain in the race in Europe we have no
alternative than to rapidly expand Transavia," he said
after reaching a tenuous compromise with the unions
in September 2014.
De Juniac's strike-busting deal coincided with the
appointment of Nathalie Stubler as his new Chief of

www.lowcostandregional.com / July 2016

Airline interview

Staff. It was a title that would last less than two years,
giving way to her role as the new Chief Executive of
Transavia's controversial French unit.
Stubler now has the unenviable task of making
Transavia a household name across Europe and
doing so without igniting another wave of industrial
action at home.
"In 2014, Mr de Juniac said: 'We need to improve
the profitability of the group mainly the two legacy
carriers but at the same time we need to grow'," she
recalls in an interview with Low Cost & Regional Airline
Business. "There were three pillars for the growth: first
was longhaul growth; the second was MRO; and the
third pillar was Transavia.
"I think we are on a good track now, because we
have an agreement that allows Transavia France to
grow again. The proof is the growth we have put on the
market in 2014 and 2015," Stubler insists.

Stubler has the task of making the airline a household name

Transavia France had already been in expansion


mode for some time prior to the 2014 deal with the
pilot unions. Its traffic jumped 29% during 2013 as Air
France toyed with shifting shorthaul capacity from
the mainline unit to its new subsidiary, which was
established in 2006 after the FrancoDutch merger.
But it was 2014 that proved to be a watershed year for
the group's burgeoning low-cost ambitions.
Having previously been limited to a maximum fleet
size of 14 aircraft, Transavia France won the blessing of
unions to expand its Boeing 737-800 fleet to 40 units
by the end of the decade. "14 was quite a limitation,"
Stubler says, noting that Transavia Netherlands, which
has a more complex history stretching back to 1965, was
already operating a 40-strong fleet. "That limitation is
now behind us, so we can grow out of France," she says.

July 2016 / www.lowcostandregional.com

At the time of writing, the French unit deploys 26


aircraft from three bases in the country: Paris Orly
Airport, the capital's secondary gateway; Nantes; and
Lyon. Its southward-facing network focuses primarily on
Portugal and the Mediterranean countries of Spain, Italy,
Greece, Morocco and Tunisia.
However, in the short-term at least, success on the
domestic front comes at the expense of Air FranceKLM's broader vision for Transavia.

PAN-EUROPEAN STRATEGY
Immediately prior to the 2014 walkouts, de Juniac had
unveiled plans to launch Transavia Europe a third
subsidiary with bases spread across the continent. His
idea was for Transavia to ditch its dual nationality in
favour of a pan-European structure capable of rivalling
even Ryanair's economies of scale. French unions were
incensed by the proposal, fearing that their members
would gradually be replaced by cheaper crews
stationed overseas.
In exchange for being allowed to grow Transavia
France beyond 14 aircraft and for preserving the
brand's separate labour contracts within the group
management rowed back on their contentious
pan-European strategy.
"Of course there was this side-discussion about
[establishing bases in] Europe," Stubler says of the talks
in 2014. "But half of the discussions were about the
growth out of France. It was [the aim of management]
to find an agreement to grow Transavia France out
of the country. And this has been done." Things only
became more complex in the aftermath of the deal.
While Transavia France has pledged to limit its growth
within its own borders abandoning any plans for
overseas bases and crews Transavia Netherlands is not
following suit.
The Dutch Transavia began operating flights
from Munich, Germany in March its fifth base after
Amsterdam, Eindhoven, Rotterdam and Groningen.
Transavia's German sub-unit, which deploys four aircraft
with locally-hired crew, serves 18 mostly Mediterranean
routes and plans to launch domestic flights to Berlin in
May. "We discussed many options," Stubler says, when
asked why the group selected Munich for its first foreign
base. "The penetration rate of low-cost carriers was
relatively low. Munich is also a rich area with consumers
that can travel a lot."

I think we are on a good track now, because


we have an agreement that allows Transavia
France to grow again. The proof is the growth
we have put on the market in 2014 and 2015

Nathalie Stubler - Transavia

Low Cost & Regional Airline Business / 47

Featureinterview
Airline
title here

If Transavia France wants to grow with bases


outside France, we will have to re-discuss and
renegotiate this with the unions

Nathalie Stuble - Transavia

The plan is to have 40 737-800s


by the end of the decade

Unsurprisingly, the German operation has not


announced any French route launches. Transavia
France already flies to Munich from Paris 11 times a
week. Any move to replace its flights with a foreign
service even one falling under the Air Operator's
Certificate of its Dutch sister carrier would be seized
on by the French unions.
Stubler is ever-mindful of such concerns, promising
that the French subsidiary will not resurrect its
pan-European strategy without first engaging the
unions. "If Transavia France wants to grow with
bases outside France, we will have to re-discuss and
renegotiate this with the unions," she says unequivocally.
"We will be inspired by the same kind of agreements
which we signed with the unions in 2014, in order to
find the right conditions to open a base out of France."
Yet the prospect of further pan-European growth by
the Dutch unit looms large. "We have not yet announced
our intentions, but of course we have targets," Stubler
affirms, declining to provide further details.
Closer to home, the nature of the relationship
between Transavia France and Air France is also
raising eyebrows.
A key feature of the union agreement in 2014 was
management's pledge not to transfer shorthaul routes

48 / Low Cost & Regional Airline Business

from the mainline unit to Transavia France. That contrasted


with their earlier realignment experiment in 2013, as well as
with the more ambitious dual-brand strategy adopted by
Lufthansa for its low-cost Eurowings project.
Aviation consultancy CAPA is among the groups
voicing concerns about the new French structure,
warning of cannibalisation due to the wing-to-wing
operations from Paris Orly and Paris Charles de Gaulle.
There is, undeniably, overlap between Air France and
Transavia France when it comes to destinations. The
partners serve 16 of the same cities from their respective
bases in the capital: Lisbon, Madrid, Barcelona, Tunis,
Naples, Athens, Tel Aviv, Venice, Budapest, Vienna,
Prague, Munich, Amsterdam, London, Edinburgh and
Dublin. Transavia France's broadening gaze beyond the
Mediterranean has only compounded the situation, with
three Western cities (London, Edinburgh and Vienna)
joining its network this year alone.
Asked about the wisdom of Transavia France injecting
new capacity while Air France fully preserves its
shorthaul network, Stubler insists that the two Parisian
gateways cater for entirely different customer bases.
"The networks are complementary because we are
flying to Europe out of Orly, while Air France is flying to
Europe out of Charles de Gaulle," she says, emphasising
the difference between low-cost point-to-point traffic
and full-service network operations. With Air France's
presence at Orly limited to domestic flights barring
a handful of intercontinental routes Stubler
believes that Transavia France is introducing a "new
proposition" for customers.

www.lowcostandregional.com / July 2016

Airline interview

"I don't think it's cannibalisation because we are


competing with other low-cost carriers [at Orly]."
Air France-KLM's focus on capturing more pricesensitive traffic is, by itself, a sensible one. Outside of
Charles de Gaulle, LCCs have grown their France-Europe
market share from 18% to 43% over the decade to 2014.
That compares with a 15 percentage point reduction for
the Franco-Dutch group, down to 34%.
But while Transavia France is better placed than its
parent to compete with no-frills rivals its unit cost of 5
cents significantly undercuts the flag-carrier's 6.81 cents
the benefits risk being muted at a group level.
By keeping mainline European capacity static for the
past two years, Air France-KLM is effectively hedging its
bets against the success of the low-cost strategy. Even
if Transavia fulfils its target of break-even in 2017, the
subsidiary's profits will likely be wiped out by shorthaul
losses at the full-service divisions losses that could
have been avoided if management stayed the course
with their realignment programme.

GROUP CONFLICT
The apparent conflict will only be deepened by
Transavia's self-professed strategy of attracting more
business passengers.
Stubler says that about 10% of the 3.9 million
passengers who flew with Transavia France last year did
so "for business purposes". The company aims to grow
that figure to 15% in 2016, leveraging its presence on
Global Distribution System (GDS) channels, as well as its
three-tier fare structure.
While diversifying with business traffic matches
the strategy of most other European LCCs, the
target market will inevitably be drawn from existing
customers of Air France raising the spectre, once
again, of cannibalisation.
Some analysts have suggested that group
management may be buying time for Transavia,
gradually building up its presence with a view to scaling
back mainline shorthaul capacity at a later date. Neither
Stubler nor Mattijs ten Brink, Chief Executive of Transavia
Netherlands, has confirmed this.
But, even if true, it is not clear how stalling the next
inevitable union showdown will benefit Air France-KLM.
As recently as February, pilot union SNPL reiterated
that any growth by Transavia with or without mainline
reductions will be considered objectionable by its
members. "The future is not, and never will be, the
supposedly 'ambitious growth plan' presented a few
weeks ago," the union said, describing even the Munich
base as de facto offshoring. "The excellent results of
2015 [in which Air France-KLM posted an 816 million
operating profit] and their overall upward trend should
enable the group and its employees to face the future
more serenely."

July 2016 / www.lowcostandregional.com

Transavia's double management structure is


also a potential cause for concern. In Paris, the
company operates a solely point-to-point network.
In Amsterdam, it complements this with a semi-hub
network that includes codeshare agreements with KLM
and, soon, Delta Air Lines.
Despite the challenges and uncertainty ahead,
Stubler says that Transavia France is distinguishing itself
from low-cost competitors with a superior product.
"It's not only about fare positioning and the network.
We also have the ability to differentiate ourselves
through friendliness," she says, noting that the airline
has been crowned Europe's best low-cost operator
by The Flight Report, an online community of travel
reviewers. "Something I found really noticeable is we
are very well appreciated by our customers.
"The customer satisfaction is really key, and the
cabin crew's way of acting is really great, and really
recognised," she beams.
Stubler also emphasises the deep cooperation
between the two Transavia units something that
she says unifies their strategy and mitigates possible
complexities at the group level. "The commercial team
is very well coordinated," she insists. "We have only one
website, one brand positioning, one fare structure
and we are also, in some countries, working on behalf
of both companies."
As Transavia France moves closer to its 40-strong
fleet, Stubler plans to mix its "strengths" core leisure
routes like Portugal with more non-traditional
markets outside of the Mediterranean. Despite formerly
operating flights from Lille and Strasbourg, the French
subsidiary is now restricting its footprint to Paris,
Nantes and Lyon. "We cannot disperse everywhere,"
she says. "We have to focus on these three bases."
Yet while Transavia's fortunes as a standalone entity
look favourable, its strategic placement within Air
France-KLM remains a concern.
There is a sense that success for Transavia will,
almost by definition, precipitate another round of
conflict at group level. The situation is not a unique
one British Airways faced up to its unions in the
previous decade; Lufthansa continues to do so in the
current one but the conviction with which France's
flag-carrier has pushed through structural reforms
is questionable.
"We must go on and proceed to the second phase
of transformation," de Juniac told L'Express in May,
shortly after announcing his departure to head up
IATA. "Socially, we have not managed to convince
the representatives of the pilots of Air France. The
measures are not pleasant, but they are effective."
Until workers sign up to the strategic vision he
leaves behind, Transavia's long-term prospects cannot
be assured.

Low Cost & Regional Airline Business / 49