Sept 11, A Year On: Air France

The terrorist attacks of September 11, 2001 caused a major upheaval in international air transport. Like its competitors, Air France reeled under the full force of the shock. Nonetheless, under the leadership of Chairman Spinetta, the Air France Executive Committee did its best to be proactive and quick to react, insofar as was possible, and yet to remain cautious, precipitating no decision which could be put off. These basic principles of crisis management enabled Air France to elude the eye of the storm. One year after 9/11, where does the Company stand? This document reviews the measures adopted in 4 key fields: security, labour relations, finance and scheduling, and assesses the present situation of the Company.

SECURITY: In the aftermath of the September 11 attacks, Air France immediately took steps to reinforce security on its flights. The measures adopted satisfy and even exceed the new standards called for by domestic and international aviation authorities.

—A passenger headcount on every flight—Cross-checking of documents at check-in and boarding—Non-stop motorized security patrols on the runways of Orly West and Roissy-CDG as well as the six other largest airports in France, for aircraft surveillance; random personnel checks—The Air France decision to extend to almost all French airports to which it flies the extremely efficient automated baggage reconciliation system (known as “SRB”), already in effect at Roissy-CDG for the last 2 years for cross-checks between hold baggage and boarded passengers—Verification of the identity of crew members; access to restricted areas through the passenger screening checkpoint or, at Roissy-CDG and Orly, by means of a dedicated entrance—Verification and sealing of the containers for all inflight supplies and provisions before they are loaded—The presence on board certain flights of security agents trained in the martial arts, responsible above all for surveillance of the cockpit door and neutralizing any aggressors. Air France was the first airline in the world, after September 11, to provide an immediate and well-adapted response to the new threat: the first flight that took off on Friday, September 14 for Atlanta had a security agent on board. Since that time, the authorities in many countries (including the United States) have decided to put “Sky Marshals” on certain of their flights—Reinforcement of cockpit doors.

Finally, as from April 2, 2002, and at the request of the French authorities:
Passengers flying to the United States and Tel Aviv are subjected to in-depth questioning prior to check-in. The questions were established by the authorities and the screening procedure is carried out by a specialized firm.

ADAPTATION OF THE FLEET AND THE FLIGHT SCHEDULE: As concerns management of scheduling and the fleet, the use of leading-edge systems has made it possible to adapt capacity in almost-real time. Passenger traffic and load factors are known every morning for the preceding day, and Company revenues only three days later, network by network and route by route. The data is generated in the form of graphs which give a day-by-day picture of capacity, traffic and revenue curves. Thanks to this procedure, management of our operations was optimized during the crisis period.

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The fleet: On September 18, 2001, Air France cut back on capacity and decided to speed up its retirement of a certain number of aircraft, enabling it to accelerate its policy of fleet rationalization and streamlining:—Early withdrawal of 5 Airbus A310-200s and retirement of one Boeing B747 freighter in October 2001—Early withdrawal of 4 Airbus A310-300s between October 2001 and mid-January 2002—Retirement of 4 Boeing B747-200s (2 in an all-passenger configuration and 2 Combis) at the beginning of summer 2002 - Retirement of 3 Airbus A321s on termination of their leasing contract at the end of winter 2001-2002—A cutback of between 300 and 400 million euros in “fleet” investments, replacing acquisitions with operating leases. Moreover, Air France decided at the same time to suspend all one-off leasing operations. Globally speaking, the schedule for aircraft acquisitions has not changed.

Redeployment in the Air France network:
Similarly, responsiveness and flexibility were the watchwords in drawing up the flight schedules for winter 2001/2002 and summer 2002—Even before the events of September 11, Air France had tailored its services to a changed economic environment, trimming capacity where demand was flagging in order to bolster it in buoyant zones—In the wake of September 11, the schedule was significantly modified to adapt to the crisis into which the entire sector had been plunged. Total Air France capacity for the winter 2001-2002 season following September 11 remained stable in relation to the previous year, whereas growth had been forecast at 7%—In the Middle East and North America markets, those hardest hit by the crisis, Air France cut back capacity drastically by 27% and 25% respectively from the pre-9/11 schedule. Despite the considerable drop in capacity, however, no stations were closed (with the exception of Abu Dhabi, replaced by increased services to Dubai). All North American destinations were maintained except for Dallas, which continued to be served via Atlanta with connections on Delta, in the framework of the SkyTeam alliance—By winter, the reduced capacity had resulted in a decrease in the number of flights (where Air France had offered two daily flights, it eliminated one, as in the case of Boston, Miami and Washington) or the use of smaller aircraft (to Houston and New York, for example). This choice reflected a desire to make the most of the highly efficient Roissy-CDG hub, while preserving a presence in all markets including those from which competitors had withdrawn—The balanced structure of the Air France network made it possible to redeploy aircraft taken from these two sectors to other parts of the world which were less exposed to the crisis, essentially Africa, the Caribbean and the Indian Ocean—In terms of revenues, the objective was to do everything possible to avoid a fare war and a major slump in fares, similar to what had happened in earlier air transport crises. Booking curves were monitored on a daily basis. The summer season, which began on March 31, 2002, maintained the main innovations of the winter schedule, with capacity remaining stable in relation to summer 2001 (a 0.3 % decrease in available seat kilometres) though shifted in response to demand: a cutback in America and the Near East to the benefit of Africa, the Caribbean and the Indian Ocean. The Air France winter schedule for 2002-2003 projects a pick-up in growth on North America routes (resumption of the twice-daily flights suspended last winter). Furthermore, capacity will be adjusted on Africa routes to allow for return of competitor airlines which had disappeared in the wake of September 11 (Sabena, Swissair, difficulties for Air Afrique), though most direct flights introduced will be maintained.

LABOUR RELATIONS: Contradicting both the key players and the analysts in the sector, Air France quickly announced that it would not lay off any staff (as a reminder, 200,000 jobs have been lost worldwide in the air transport and ancillary industries). Air France chose not to resort to short-time working but did take the precautionary step, on September 18, 2001, of freezing all projected hiring, not renewing fixed contracts, and allocating manpower to the key Company priorities. In view of the improved situation in March 2002, Air France will gradually resume hiring.

FINANCE: Rethinking investments -
Among the measures announced on September 18, 2001, Air France decided to: - carry out a broad but detailed review of all corporate investments—trim all expenditure not related to security, operations and service quality.
220 measures were put in place with the objective of saving 122 million euros in current expenditure. Furthermore, 170 million euros were expected to be saved in non-fleet-related investments. In all (including savings related to financing of the fleet - see Fleet), Group investments were reduced from 1.9 million to 1.4 million euros, a gain of more than 500 million euros in relation to the budget.


Costs related to security and insurance: Additional expenditure for security purposes represents some 50 to 60 million euros per year. The line item for insurance rose in the 2001-2002 financial year from 40 to 85 million euros.
It should be remembered that insurers decided to instate an additional premium of 1.25 USD per passenger carried, for a maximum cover of 50 million dollars. Above that, the risk is covered by the State, to whom Air France pays 0.75 USD per passenger carried.

State compensation:
The additional security measures adopted after the September 11 attacks were subsidized by the State up to 24 million euros.
In addition, 28.6 million euros were paid to the Company as compensation for the closing of the U.S. airspace between September 11 and 14, 2001.
In all, State indemnities amounted to 52.6 million euros for the 2001-2002 financial year.


Air France results:
Air France was able to post positive results for the 2001-2002 financial year (published at the end of May).
- An operating profit of 235 million euros
- A Group net profit of 153 million euros
- A net dividend of 10 euro cents (15 cents allowing for the tax credit)
The profit recorded by Air France, at a time when most airline majors were announcing heavy losses, proved beyond a doubt that the strategies described above were, indeed, the judicious choice.
AIR FRANCE ASSETS IN THE FACE OF THE CRISIS:

á A strong, efficient hub
The strengths of the Air France Roissy-CDG connecting hub have been a decisive factor. While point-to-point traffic was deeply affected by the September 11 crisis (-3,5% for 2001-2002), growth in the number of connecting passengers has offset the drop (+ 5,4% for 2001-2002). These figures clearly reflect the buffer effect of the hub, a great asset in periods of restructuring in which, with many direct routes being closed by Air France`s competitors, connecting passengers have been attracted to Roissy-CDG.
á A balanced network
The geographical distribution of the Air France network played a major role in helping it to withstand the crisis. Its balanced structure, compounded by the flexible fleet, made it possible to redeploy capacity to routes less hard hit by the September 11 events.

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