Strategic about-face for Air France Cargo

Five years ago, faced with falling cargo traffic and an operating loss in its cargo division, Air France-KLM made the decision to give up the pursuit of market share, reduce main-deck capacity, and concentrate on yield. Retain the good customers, let the unprofitable business go, and – so said the carrier – profitability would return.

And now? Well, Air France-KLM has certainly reduced main-deck capacity. The carrier’s freighter fleet, once one of the largest in the world, is down to just nine units, and will soon shrink to five. So that part of the plan has succeeded. And, as expected, traffic has fallen. Unfortunately, however, it is not just the unprofitable traffic that has disappeared. Almost the opposite, in fact, as yields have plunged even faster than traffic, and the cargo division is hemorrhaging money just as badly as ever.

What to do? According to Air France Cargo Executive Vice President Alain Malka, the “new” strategy, at least at the Air France half of the operation, will be to go back to the strategy that the carrier said led to the problems in the first place. In an extensive interview in WK-Transport-Logistique.fr, Mr. Malka said that with unit revenues down 10% in the first five months of 2015, Air France Cargo’s sales force had been instructed to “raise the load factor and volumes, through extremely aggressive pricing policies.” (Les forces commerciales ont pour consigne de remonter le coefficient de remplissage et les volumes, avec du coup des politiques tarifaires extrêmement agressives de notre part.)

In other words, pursue market share at any price. Whatever dangers this strategy holds, Mr. Malka’s view is that while it is fine to talk about optimizing revenue, “when you have no traffic, you have no revenue to optimize.”

Regarding the freighter fleet, he said the retirement of Air France’s last 747-400F would help. He said operating these freighters was equivalent to cutting rates, that they “dug a dizzying hole in our accounts.”

He also pointed out that the carrier would have to improve the quality of its customer service if it hoped to succeed. “According to surveys we conducted with our customers, we are in the middle of the pack compared to our competitors. But it is imperative that we climb into the top three.” Expanding further on this, he said top-quality service “is essential for a European company, that can never compete on costs like an Asian company or a Gulf company, regardless of effort.”

How will Air France go about this improvement? Mr. Malka pointed to three initiatives

• Simplify all processes, and harmonize them with KLM

• Adjust the workforce, by outsourcing some jobs at the carrier’s main cargo terminal (the G1XL terminal at Paris CDG).

• Offer better real-time shipment information to customers

We shall see.

To learn more about freighter fleet dynamics, click here.