With the government refusing to intervene, share prices falling, losses mounting, and a strike persisting…is Air France fighting for survival?
Bruno Le Maire, the French Finance Minster, told reporters that the ongoing labor dispute “threatens the survival of Air France.”
Air France has cancelled 15% of its flights today, but 13 days of strikes over the last few months have already cost the airline $358MN. Air France reported a first quarter loss of $141MN and blames the majority of that loss on labor disputes.
But Air France is not anywhere close to fighting for survival, as far as I am concerned.
Air France is still expected to post a profit for 2018. Its cash position is stable.
But this profit has emboldened labor unions to seek higher pay wages. Last week, unions rejected a 7% pay raise over four years, prompting CEO Jean-Marc Janaillac to resign.
The French government owns 14.3% of Air France-KLM, but thus far is not stepping in to try to break up the strike or even offer mediation. Delta and China Eastern, who each own an 8.8% stake in the company, have also not addressed the labor unrest.
Air France will eventually fight for survival…like Alitalia is doing now…if it is forced to continue to raise wages in a hyper-competitive environment. While it is still profitable now, oil prices are rising and Air France’s bloated labor contracts are also out of sync with much of its European competition. This is not a recipe for long-term success. But for now, Air France is just fine.
image: Air France