Air France-KLM’s New CEO To Face Headwinds

Can new leadership overcome persistent labor strife?

Air France-KLM has a new CEO. The fourth-largest European airline by number of passengers picked Benjamin Smith, formerly Air Canada’s president and COO, to replace Jean-Marc Janaillac, who had stepped down in May after workers rejected a pay deal.

Smith, who started earlier this fall as the conglomerate’s first foreign chief, can expect plenty of turbulence. As the board of directors announced his appointment, unions in both France and the Netherlands complained that an outsider would not defend national interests or preserve wage levels and work conditions.

The backdrop to Smith’s appointment was a wave of walkouts at the French unit in the second quarter that cost Air France-KLM about €260 million ($304 million). Revenues were flat for the period at €6.6 billion. With crews and ground staff seeking a 6% pay rise and international low-cost carriers offering stiff competition, Smith has his work cut out for him.

“I am absolutely sure that he has accepted the role with his eyes wide open to the enormity of the task ahead of him,” says Chris Tarry, analyst at British aviation consulting firm CTAIRA. “The need is not only for a coherent strategy but for one that is capable of implementation. For too long there has been a detachment from reality regarding the position of Air France.”

While KLM has tended to underpin the group in most years since the 2004 merger, Air France’s performance has been disappointing despite its strong and recognizable brand. “Its cost of labor and poor revenue productivity continue to be a real problem,” Tarry says, “notwithstanding the numerous cost-reduction and performance-improvement programs over the years.”

In order to improve, he argues, Air France must clearly take responsibility for its own shortcomings. “Whether this can be done without the adoption of what I call ‘precipice management,’ looking over the edge and realizing that change is necessary, remains to be seen.”

In the near term, Smith will face the threat of more employees’ strikes, passengers “booking away” and opting for other carriers, and the impact of materially higher fuel prices. “It could be a hard fight, but management needs to be able to make the necessary changes, some of which would appear to be long overdue,” says Tarry.