Air France Alliances And Client Relations Are Paying Off

By no means immune to the economic downturn and resulting business travel drop-off, Air France nonetheless is a much improved carrier well armed to withstand the turbulence. A growing alliance co-founded with Delta Air Lines, comparatively healthy financial figures and praise from corporate clients bode well for its future in the U.S. corporate market. On its home turf, the carrier continues to expand its already efficient Charles de Gaulle hub and steadily grow systemwide traffic, while its main competitors—British Airways, KLM, Lufthansa and Swissair—pare down flight schedules and watch profits fall.

Air France's sales and operations are "miles ahead of where they were just two or three years ago," according to Tom Stone, director of global travel management for Vivendi Universal in London. "It is a leaner, more modern, more approachable airline with a can-do mentality closer to what you would expect from U.S. carriers," he said.

Though experiencing a slight rebound after a sluggish first half-year, the corporate sales approach on this side of the pond remains "selectively aggressive," according to Dave Brucia, vice president of passenger sales in the United States. "We are trying to be a little more specific about where we believe true incremental revenue opportunities exist," he said. "The top accounts to pursue are those that have demonstrated an ability to control travelers."

U.S. corporate contracts generally revolve around traditional share-for-discount programs, though fixed fares and other models are possible. "We also understand that times are tough," Brucia added. "We know they won't have everyone up front anymore." The drop is most apparent in business class, as companies that normally book their travelers in that cabin either are pushing them back to coach or simply cutting out some trips. However, 50 percent of all first class passengers across the Atlantic are corporate customers, and load factors are holding steady.

"We certainly are seeing the decline in business traffic and are talking with our accounts pragmatically, on a case-by-case basis," said Christopher Korenke, Air France vice president and general manager in the United States, adding that certain accounts have been seeing adjusted thresholds and increased compensation, both hard and soft dollar. "What people want to see in a downturn is hard dollars, but we are discussing all sorts of things. Certainly, we do not want to dilute our revenue."

Similarly, the carrier will not be as aggressive in courting corporations in markets in which it already has a larger presence, such as New York JFK. "In terms of dilution, there is too much to lose there," Korenke said, adding that he'd like to protect the carrier's current position between JFK and Paris. But other markets where Air France is seeking to build share—including Chicago and Los Angeles—will see more aggressive contracting.

Air France has a mix of onsite and offsite sales managers covering 11 sales districts throughout the United States. "The concept and primary focus is on high yield sales, which means corporations are a definite number-one focus, and then high-yield travel agencies, which generally are corporate agencies," Brucia said.

Meanwhile, Air France and Delta, founding members of the SkyTeam alliance, this summer signed bilateral agreements with Italian flag carrier Alitalia. Those agreements are a precursor to full Alitalia participation in SkyTeam expected this fall, possibly preceded by initial Alitalia-Air France codesharing.

Wasting no time, the three carriers, along with fellow Sky teammate CSA Czech, last month submitted to the U.S. Department of Transportation a proposal for multilateral, transatlantic antitrust immunity. If approved by DOT and European regulators, immunity would allow the carriers to coordinate sales and marketing activities—including joint corporate contracting—increase codeshare flights, develop service standards and share profits on certain routes. It also would improve SkyTeam's position against partially immunized Star Alliance and potentially immunized American Airlines/British Airways. Moreover, the necessary Open Skies liberalization between the United States and France appears easier to obtain than a U.S.-U.K. agreement.

Even without immunity, the larger network and the Delta partnership specifically, extends Air France's network to many more U.S. cities. "If you look at the market from a feeder perspective, we have a greater product array for the corporate world," Brucia said. Korenke, meanwhile, noted the potential for corporate bridge agreements for mutual Air France/Alitalia clients similar to those in place for mutual Air France/Delta clients (BTN, July 16).

The anchor partnership between Delta and Air France already is paying off. According to a research report issued by Chris Tarry, analyst at Commerzbank in London, Air France's premium transfer traffic between Atlanta and Paris last year increased 27 percent and overall passenger numbers increased by 12,700 per month. "Here is real evidence of linking hubs from a standing start and the realization of some of the so-called behind and beyond traffic," he said. "What is also clear is that Delta has been reducing the importance of Frankfurt, with the traffic being steered via Paris." Frankfurt, of course, is Star Alliance territory. Dallas/Ft. Worth, meanwhile, is American Airlines territory and Air France just this spring started service there to feed Delta.

Furthermore, Tarry said Air France's new Alitalia link potentially will hurt Lufthansa and KLM. Before taking into account the potential benefits of coordination, he said, "Each 100,000 passengers who are pulled back by Air France/Alitalia and fed through to the United States on an average fare of $457 will produce $45.72 of incremental revenue and $36.58 of profit."

For Alitalia specifically, SkyTeam inclusion means access to a wider network of flights and as much as $100 million in annual incremental revenue.

Separately, Air France will maintain its codeshare relationship with Continental Airlines on transatlantic routes, but domestic codeshare flights, notably from Dallas/Ft. Worth, are being replaced with Delta. Alitalia in October, however, will end its relationship with Northwest Airlines.

Back stateside, Air France expects positive numbers on its Los Angeles to Paris flights, now that both American Airlines and United Airlines have pulled out. "It is great news that we will be alone on the route, but it also is scary to see both major players close it," Korenke acknowledged. The pilots strike at Delta subsidiary Comair prompted Air France to suspend flights between Comair's Cincinnati hub and Paris, as load factors fell dramatically. Though the strike has been settled and its feed partially restored, Air France likely will not restart the route until next year.

Overall, the carrier continues to add capacity, targeting a systemwide increase of 9.5 percent in the current fiscal year. North Atlantic capacity specifically is slated to jump 16 percent.

Air France's strong financial performance, in part, justifies such growth. For its fiscal year ended March 31, 2001, net income rose 19 percent, to $370 million; systemwide revenues also rose 19 percent. North Atlantic routes were among the healthiest, increasing revenues 24 percent. The carrier expects FY01-02 profitability close to FY00-01 figures.

Meanwhile, the carrier plans to rebuild completely the inflight experience by 2003. The new product would touch all three classes of service, possibly even adding a fourth, but details were not yet available.

Air France also signed a contract with Airbus for 10 firm orders and four options for the superjumbo A380s. The carrier said the new planes, first arriving in the fleet in 2006, will be deployed on routes between Paris and North America and Asia.