Remember when Air France-KLM Chief Financial Officer Steven Zaat said the carrier was “never going back” to pre-pandemic levels within France? It was two years ago and little did the industry know just how truthful — prescient perhaps? — he was being.
Earlier in October, Air France unveiled plans to exit the Paris Orly airport by 2026. Only one route will remain — Orly to Corsica — with subsidies from the French government. The rest of Air France’s slots at Orly will transition to the group’s budget arm, Transavia. The discounter will control 51% of the slots at Orly.
“Those slots will then be used for new European services out of Orly, and we intend to make Orly … a true asset for the Air France-KLM Group,” CEO Ben Smith said during the group’s third-quarter earnings call on October 27.
“Asset” is the key word there. Smith and other Air France-KLM executives have said repeatedly over the past few years how Orly was a loss-maker for Air France. The group estimates an €80 million ($85 million) operating loss this year from Orly on “Navette” routes — those to the key French cities of Nice, Marseille, and Toulouse. In addition to the domestic routes, Air France serves France’s overseas departments in the Caribbean and Indian Ocean from Orly.
Air France was already drawing down its Orly operation and shifting flights to Transavia. This year, it will operate 60% fewer flights and offer just under half the seats at the airport than it did in 2019, according to Cirium Diio schedules. Transavia, for comparison, has more than doubled in size.
“Air France is facing a significant decline in demand for its domestic point-to-point network, primarily due to the rise of video conferencing, a drop in business travel, and a growing shift toward rail travel,” Smith said of the decision to pull Air France from Orly. He echoed comments made by Air France CEO Anne Rigail in May.
Demand for Air France’s flights from Orly is down 40% compared to 2019, Smith added.
Lufthansa has reported a similar decline in domestic air travel in Germany. In addition to the pandemic shift to virtual meetings, both France and Germany boast robust high-speed rail networks that compete with airlines on shorter flights. And both the French and German governments have enacted policies to promote rail over air travel.
Air France-KLM’s new strategy at Orly comes after an impressive third quarter for the group. It reported a €1.3 billion operating profit and a 15% operating margin — the latter being 3 points better than in 2019.
Where to for Transavia from Orly?
Transavia, already the largest airline at Orly, currently focuses on flights to southern Europe and Northern Africa from Orly, Cirium Diio schedules show. That leaves a significant number of opportunities for “new European services” from Orly, as Smith put it. For example, Budapest, Manchester, Warsaw, and Zürich are all unserved destinations from Orly for Transavia.
Vueling’s route offerings from Orly may suggest where Transavia could fly. The International Airlines Group-owned discounter, the second largest airline by departures at the airport, serves cities including Birmingham, Florence, Hamburg, and Milan Malpensa from the airport in October, according to Cirium Diio. None of these destinations are currently served by Transavia from the airport.
Vueling achieved its position at Orly after acquiring 18 slots divested by Air France in 2021 as a condition to its pandemic state aid. The budget carrier operated just over 12% of departures from the airport compared to Transavia’s 34% share and Air France’s 12% share, Cirium Diio data show. EasyJet was fourth with a 10% share of departures.
Smith said Transavia’s costs, which he said are 15-40% lower than at Air France, are comparable to those at EasyJet.
Air France-KLM is prepared for some added costs as it transitions to an all-Transavia operation at Orly. The group has give three-years notice to Air France staff at the airport that, Smith said, should give them time to decide whether they wish to transfer to Charles de Gaulle or leave the airline. He added that the group hopes this will minimize any union objections to the plan.
And Transavia itself will incur some costs as it grows at Orly and transitions to an all-Airbus A320neo family aircraft fleet, Smith noted in response to equity analyst questions. These additional costs will be spread out over multiple years.
Transavia’s operating margin was 19% in the third quarter. That was a good result but down 6 points from four years earlier.
Air France to Strengthen Charles de Gaulle Hub
“We are going to streamline and centralize all Air France activity to [Charles de Gaulle] airport,” Smith said. Consolidating Air France flying at the hub would “enhance our product and utilize and leverage our hub to attract further longhaul connections via more competitive offering versus our main European competitors.”
That’s an added benefit of pulling Air France out of Orly — fortifying its Charles de Gaulle hub. And that’s of utmost importance for Air France, which depends on connecting traffic for a not insignificant amount of its business.
Flights to overseas French departments, for example Reunion in the Indian Ocean and Guadalupe and Martinique in the Caribbean, are already moving to Charles de Gaulle. And service to domestic points like Marseille and Toulouse will be retained, and maybe expanded, primarily for connections.
Smith did not comment on the future of Air France’s partnership with French rail operator SNCF. The pact, known as Train + Air, allows passengers to book joint air-rail itineraries on a single ticket. The partnership includes connections to many destinations in France, as well as Brussels, on a train from Charles de Gaulle airport, and it was expanded during the pandemic to cover more destinations.
What is clear is Air France-KLM will have three distinct hub operations from 2026: Amsterdam Schiphol and Charles de Gaulle as key connecting hubs, and Orly a key local traffic hub for Transavia. And that’s without the potential addition of SAS’s three hubs: Copenhagen, Oslo, and Stockholm. The group is in the process of taking a nearly 20% stake in the Scandinavian airline now, and plans to take control of SAS in around three years — or two years after the deal closes next year.
