Restructuring Air France-KLM

The first de Juniac was wounded 14 times during Napoleon’s Italy campaign, left for dead after a bloody battle, revived by enemy generals impressed by his bravery, and then continued a career in the French cavalry with a bullet still lodged in his chest.

It was for his ancestor’s services – more than an angry letter written personally to Napoleon – that the de Juniacs were awarded the “de” prefix which confers land and nobility. A string of army officers and diplomats followed over two centuries.

“They were superhuman back then, another species,” says the latest de Juniac, a chief executive with a mission to restructure  Air France-KLM, the struggling Franco-Dutch flag carrier. The job may not be as dramatic as those of his ancestors but is tough in a different way, requiring him to navigate a  “FT – Turbulent market forces Air France to cut 2,600 more jobs” business and political minefield.

The group, which employs about 100,000 people, has suffered six consecutive years of losses. Stuck with its high cost base, it has had to contend with big fuel bills and fierce competition from low-cost carriers.

The French state owns 16 per cent of the company and Alexandre de Juniac, just nine months into the top position, is attempting to get rid of thousands of jobs in France at a time when an unpopular socialist government is touchy about groups saving money at the expense of workers.

Pressed into a seat in a rapidly accelerating private jet on the way back from a supplier in central France, his signet ring clinking against a glass of champagne in hand, Mr de Juniac looks every bit the elite French businessman making light work of navigating this complex business-cum-political world.

He has so far won plaudits from analysts and investors – the shares are up by about a half since he took over – for accelerating an already painful three-year restructuring plan. Last year he announced 2,800 French job cuts at Air France on top of 5,100 in 2012, all without incurring the wrath of the government or unions.

“Knowing how things work is of course helpful, but it is always helpful to know how things work,” he says after a day at the Zodiac factory where the group launched its new business class seat. Being a newcomer to the group has its advantages: “You can say things without any bias. You have no skeletons in your closet.”

Mr de Juniac has had the quintessential high-flying career of the French chief executive, studying at the elite Ecole Polytechnique engineering school and then at the even more elite Ecole Nationale d’Administration, founded by Charles de Gaulle in 1945 to train the country’s next generation of leaders.

He subsequently advised Nicolas Sarkozy when the latter was a minister and – after a spell at  Thales, the defence group – Christine Lagarde, who went on to head the IMF. He became chief executive of the Air France unit in 2011 and then last July took over as boss of the whole group.

“Finally we just presented our [restructuring to the stakeholders]. Frankly the company was on the brink, it was in a crisis, so it was easier for everyone to accept the reality in those circumstances. So we moved fast,” he says.

There are signs that the restructuring is bearing fruit. The group this year reported an annual operating profit of €130m – the first in three years – compared with a €336m loss the previous year. Economies of about 4 per cent a seat have been achieved through reduced fuel bills and staffing costs.

“This year we think we are in the beginning of a significant recovery, financially speaking,” he says.

But unlike the gallant Napoleonic antics of his ancestors, success – should it come – is unlikely to be swift. Mr de Juniac becomes almost wistful as he talks of the rapid turnround at US alliance partner Delta, which left Chapter 11 bankruptcy protection in 2007 and is going from  FT – Delta results underscore lift for sector” strength to strength.

“They are doing brilliantly. . . It takes more time [in Europe], but we are doing the job,” he says.

One of the problems for Air France-KLM is aggressive competition from low-cost carriers such as   Ryanair and  easyJet , which are not burdened with high labour costs.

Mr de Juniac says the group has to operate more like a budget airline, just as the commander of a conventional force adapts to the tactics of a guerrilla adversary.

“What we have to do now is to compete directly against them with the same weapons, with the same cost base,” he says.

The group has set up a French arm of the low cost service Transavia, in which flight and cabin crew are on different contracts to their conventional counterparts and work longer hours, for example. This service is intended to be expanded, probably at the expense of the existing short-haul operation.

“In the past we had obviously – that is all the legacy carriers – underestimated the competition coming from low-cost carriers,” he says.

It is not all cost-cutting, he says. The group is also investing in the conventional service, trying to improve the quality of the food, seats and long-haul operation.

Air France-KLM has also begun to seek out new commercial partnerships to strengthen its position outside Europe. The group announced a $100m strategic partnership this year with  FT – Air France-KLM to buy stake in Brazil’s Gol” a Brazilian low-cost operator, and a closer commercial partnership deal with Etihad, the Abu Dhabi carrier, to gain better access to Asia.

Mr de Juniac is flying in a Wijet private jet for the Financial Times interview. Wijet is a partner used by Air France to bring first-class passengers from airports near their homes to main hubs. The service costs a little more than €2,000 an hour.

Proffering a little packet of chocolate-covered nuts to the three other passengers, Mr de Juniac says this is not his normal means of transport; indeed, it is his first time on a private jet as chief executive.

He flies economy on short-haul, and business class on long-haul, usually one leg on Air France or KLM and another on a rival airline to scope out the competition. “I just talk to their staff and after a few minutes they tell me everything,” he says with a smile. “I also get a chance to try the food, which is not always brilliant.”

The chief executive says that at one point he tried to become a pilot himself, but it did not work out. “I would like to be a pilot but I get sick in small planes. I really tried, but I just get too sick.”

Mr de Juniac also admits that while he has had a classic career in French business, served well by going to the “right” schools, he would not encourage his children to take the same path today.

“The prestige of ENA and the civil service has declined as the power of the state has been reduced . . . I would encourage my kids to go abroad somewhere – to the UK, US, China or South America.”

He adds: “But I do not have to because that is already what they want to do anyway.”

Culled from FT