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Air France unveils Perform 2020 strategy

ATW Daily News by Victoria Moores 11 Sep.14

Air France has detailed its new Perform 2020 strategy, the successor to its Transform 2015 program, targeting a 10% EBITDAR margin by 2017.

Transform 2015, which aimed to slash €1 billion ($1.3 billion) from Air France’s costs, will come to a close at the end of the year, paving the way for Perform 2020. The new program’s targets are for a return on capital employed (ROCE) to 9-11% and hit a net debt/EBITDAR ratio of below 2.5 by 2017, through expansion into growth markets and the restructuring of loss-making divisions.

This will be achieved by expanding its passenger hub, centralizing point-to-point operations under a single business unit, substantially growing its Transavia leisure unit, trimming down its dedicated freighter operations and expanding its maintenance business. These initiatives will be coupled with more productivity and cost control efforts.

“By 2020, we will have built an air transport group focused on a leading long-haul network at the heart of global alliances, with a portfolio of unique brands, restructured short- and medium-haul operations with a reinforced presence in the low cost segment in Europe, leadership positions in cargo, maintenance and catering, and a significantly improved risk profile both operationally and financially,” Air France-KLM’s chairman and CEO Alexandre de Juniac said.

This will be supported by the reinforcement of strategic partnerships and strict capacity discipline, with just 1%-1.5% ASK growth planned for 2015-2017. Air France also plans to revamp its products and services, with an announcement expected on Sept. 23.

As expected, its point-to-point network and cost base will be restructured into a single business unit, combining HOP! and Air France point-to-point operations, to hit operating breakeven by 2017. The dedicated cargo fleet will also be slimmed from 14 to just five aircraft by the end of 2016 for a return to breakeven by 2017, versus a €110 million ($142 million) loss in 2013, or a €200 million loss including belly capacity.

Meanwhile, Transavia will open new bases outside France and the Netherlands. “By 2017, Transavia will rank among the leading low-cost carriers in Europe, operating a fleet of 100 aircraft and carrying more than 20 million passengers. This business should contribute an additional €100 million of EBITDAR in 2017. With profitability being impacted by ongoing ramp-up costs, the group is targeting operating profits by 2018,” said the company in a statement. Transavia’s growth will be financed by the €339 million raised from the partial sale of Air France’s Amadeus shares on Sept. 9.

Air France’s maintenance arm is also slated for growth, particularly its engines and components work, with potential acquisitions on the cards. “This business should generate an additional €50 million to €80 million of EBITDAR in 2017, depending on acquisitions,” the Group said.

There will also be a continued push to shave 1%-1.5% from its unit costs each year. Air France said this will go “beyond traditional efforts” and will include the ongoing restructuring of uncompetitive activities and further staff productivity negotiations.