3 Dec 2015
It’s been a stormy decade for Air France, the French subsidiary of Air France-KLM Group. Once one of the strongest air travel brands in the world, the company has been rocked by a series of unfortunate events – including employee strikes, additional competition in the long-haul flight market and increasing numbers of low-cost airlines in Europe.
Six years ago, it also had its deadliest incident to date when one of its airplanes, Air France flight 447, crashed into the Atlantic Ocean. The plane, which was travelling from Rio de Janeiro, Brazil to Paris, France had 216 passengers, as well as 12 crew members, aboard. All were all killed in the accident. The tragedy put enormous pressure on the brand to innovate and re-establish itself as a credible and safe airline.
Leading the company along this path of change is Frédéric Gagey, CEO of Air France since 2013. Born in 1956, Gagey grew up in the idyllic town of Vesoul, in France’s Haute-Saône region. A hardworking and intelligent young man, he gained a place at Ecole Polytechnique, where he studied between the years of 1977 and 1980, before going on to the prestigious National School of Statistics and Economic Administration. Here, he flourished and learnt some of the skills that would see him succeed in later stages of his career, before finishing his education with a masters in economics from the Panthéon-Sorbonne University.
Frédéric Gagey CV
Economics, Panthéon-Sorbonne University
1994: After working as a senior officer at the National Institute of Statistics, Gagey was appointed to the French Ministry of Economy
1999: He then became vice-president of finances at Air France, where he impressed his colleagues with his ability to manage a budget
2012: After rising through the Air France ranks, Gagey became CFO at KLM, after the Dutch flag carrier merged with Air France
2013: Having excelled as CFO, Gagey was chosen as Air France CEO when Alexandre de Juniac stepped up to lead the parent company
After university, Gagey began his career as senior officer at the National Institute of Statistics, where he could apply his strong knowledge of statistics, before becoming finance inspector and head of industrial affairs at the Ministry of Economy from 1990 to 1994. An astute and determined businessman, he quickly earned the respect of his colleagues.
His most important career move was arguably in 1999, when he was recruited for the role of vice-president of finances at Air France. One of the biggest changes Air France experienced during Gagey’s first years with the company was its merger in 2003 with Netherlands-based KLM Royal Dutch Airlines, becoming – together – Air France-KLM, although the brands operate under their separate names. Gagey played a critical role in the evolution of the airlines during this development, and was made a member of KLM’s executive board, overseeing vital decisions for the company.
Here he worked hard to marry the brands together and ensure that, collectively and individually, they performed to the best of their abilities. The partnership proved to be strong and, in 2008, Air France-KLM became the largest airline in the world in terms of operating revenues and also in regard to international passenger kilometres. Gagey’s pragmatic, dynamic approach impressed Air France’s board and it did not take long before he climbed the ranks to become managing director and CFO of KLM.
Despite this success, the next few years would prove difficult for the airline, as it struggled to keep pace with a rapidly changing industry. Since 2011 Air France-KLM has lost money every year, with its global market share slipping from 7.8 percent in 2010 to 6.8 percent last year. To try and bolster the company’s fortunes, Air France has made a number of changes to its executive board. From 2012 to 2013, Gagey was made CFO of Air France. He excelled in this role and, when Alexandre de Juniac, CEO of the company, was asked to fill the same position for Air France-KLM, Gagey was the most obvious choice to succeed him. His appointment at this time not only shows the levels of confidence his company has in him, but his loyalty to Air France and his optimistic nature, given the challenge he has on his hands to get the organisation back on track.
There are two major problems that Air France has faced over the course of Gagey’s leadership, that have impacted on the company’s financial success. The first is the rise of Europe’s low-cost airlines, such as Ryanair and EasyJet – brands that have dramatically altered the European flight landscape and eaten into the profits of more expensive competitors. The second big obstacle is increasing numbers of long-haul flight providers. Airlines such as Emirates, Etihad and Qatar have been able to provide more routes to Asia, with each organisation increasing the total distance their passengers travelled by 46 percent between 2010 and 2013. At the same time, Air France has made very few changes to its long-haul flight capacity, which has negatively affected its performance.
In trying to tackle these issues, Gagey has tried to create a number of structural reforms, which have been met by immense adversity from Air France’s workforce and the French government. The first was in 2014, when Air France planned to expand its low-cost carrier Transavia throughout Europe, in order to compete with the continent’s low-cost airlines. Through doing this, management planned to transfer staff onto more flexible contracts, but this plan completely backfired when Air France’s employees caught wind of it. Many were concerned that the initiative would affect the stability of their jobs.
In response, large numbers of pilots went on strike and this resulted in half of the company’s flights being cancelled. The French government, which owns a 16-percent stake in Air France, also pressured the organisation to withdraw its plans for Transavia. During this tumultuous period, Air France lost €500m and the strike became the longest in the company’s history. Eventually, Gagey felt he had no option but to withdraw the airline’s plans. Unfortunately, the period of inertia had done Air France little good at all.
Then, in 2015, Gagey set about implementing even more radical measures to bolster Air France’s fortunes. One of his moves was to sell the company’s three-percent stake in travel technology firm Amadeus IT Group in 2014, for a fee of $438m. Company management created a drastic three-year restructuring plan, entitled Transform 2015, which is focused around substantial cost cutting, restructuring short and medium-haul operations, and rapidly reducing debt. One of the most controversial ways in which Air France has tried to free up money is by axing jobs. As part of Transform 2015, the company announced that between 2016 and 2017 it will cut 2,900 jobs, putting 300 pilots, 900 cabin crew and 1,700 ground staff out of work.
Yet again, employees were outraged by Air France’s plans, with new strikes taking place. On October 5, 100 demonstrators broke into the company’s headquarters at Charles de Gaulle airport, where the management team was meeting to discuss upcoming job cuts. Many of the protestors demanded the sacking of the CEO, who was not present at the time, and brought placards that read ‘Fire Gagey’. The protests escalated and violent demonstrators ripped the shirt off Xavier Broseta, the head of human resources, as well as knocking one security guard unconscious. As a result, six workers were arrested and President Francois Hollande condemned the demonstrators, saying that their actions could harm France’s image. The country’s Economy Minister, Emmanuel Macon, tweeted: “Those who have perpetrated this violence are irresponsible, nothing can replace social dialogue.” Manuel Valls, the French Prime Minister, said he was “outraged by the unacceptable violence by demonstrators at the fringes of Air France.”
Air France in numbers:
In response, Air France has dramatically revised Transform 2015 – partly out of fear of further strikes, as the previous round was incredibly costly. Gagey announced to the public that the company would now limit job cuts to 1,000 in 2016, through attrition and early retirement. He has also said that further job losses in 2017 could be avoided if the airline and the SNPL pilots union could collaborate to make alternative savings measures next year. Gagey’s willingness to negotiate comes as no surprise to those who know him. He has been described as “open to dialogue” by his colleague Alain Malka, deputy-manager of Air France.
Still, Gagey will need to toughen up in the coming years. In order to bolster Air France’s growth, restructuring seems the most sensible move. But this will take courage, as the company’s workforce has become increasingly violent in reaction to reforms. There’s also the issue of the interfering French government, which has been less than supportive as Air France tries to make tough decisions. Writing for Bloomberg View, Leonid Bershidsky suggested that: “If the French government wants an efficient national flag carrier, it might want to sell off its stake or at least stop interfering with the management’s plans, which make operational sense”, pointing out that “in the French private sector, strike activity has been going down.”
This might mean Gagey needs to think about fully privatising Air France, or exploring more innovative ways to make people travel with the airline. Competition from low-cost airlines and long-haul providers looks to intensify over the next few years, and Air France’s profits will be further eaten into unless management can find new ways to increase capacity.
By all indications, Gagey has the drive to make the difference. Not only has he been praised for his strong abilities in finance and budget handling, but he has also been recognised for his professional achievements. In March 2013, he was named to the Legion of Honour and in 2014 he was awarded the highest distinction by the Federation of European Partnership and Franchise, which celebrates and honours the greatest personalities working in the biggest brands in France.
Based on its strong performance in the past, Air France seems to have every chance of being revitalised. However, Gagey and the company’s board will have to make tough decisions – whether to keep pandering to angry employees and the government, or to be bold and continue with restructuring plans that mean the loss of jobs. As Michel Sapin, French Minister of Finance, said: “I hope everyone is well aware, including everyone in the Air France staff, that if nothing is done, Air France is in very big trouble.”
The time ahead will be enormously challenging for the leader, and how he navigates the talks will have a significant impact on the short and long-term future of the airline, and its reputation.