Cablegate: Air France Traffic Sags, Shift in Business Plan

VZCZCXRO4206
RR RUEHIK
DE RUEHFR #0063 0211538
ZNR UUUUU ZZH
R 211538Z JAN 10
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 8084
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS PARIS 000063

SIPDIS

E.O. 19528: N/A
TAGS: EAIR ECON EIND ETRD FR
SUBJECT: AIR FRANCE TRAFFIC SAGS, SHIFT IN BUSINESS PLAN

1. (U) Summary. Air France-KLM is feeling the economic downturn:
lower capacity utilization, steadily declining passenger traffic, and
cargo business stabilized at a reduced level. An audit showed 20
million euros (USD 29 million) missing from a fund managed by AF
employee organizations; the GOF has asked for clarifications. Due to
a 40 percent drop in market capitalization in 2009, AF-KLM is no
longer included in the CAC40, the index of the Paris Bourse. End
summary.

Traffic and Capacity Figures Released
-------------------------------------

2.(U) Air France-KLM' released December statistics January 11
confirming a decrease in passenger traffic for the twelfth
consecutive month. Traffic dropped by 5.1 percent in December
compared with a year earlier. The biggest downturn was for European
traffic (6.4 percent) where capacity utilization averaged 67 percent.
For North America, traffic fell by 5.2 percent and capacity
utilization rose 2.5 points to 86 percent, following a measure to
consolidate flights. AF-KLM's traffic fell by 2.3 percent in
Africa/Middle East and by 4 percent in Asia.

3. (U) On the cargo side, AF-KLM announced an 8.5 percent decline
after the airline took steps to reduce capacity by 19 percent. This
was achieved essentially by consolidating loads to and from Asia.

Update on AF's Business Strategy
--------------------------------

4. (U) Air France announced two new business strategies. In light of
increased competition by low-cost competitors Ryanair and EasyJet, AF
will reduce its medium-haul flights as of April 1 and eliminate some
on-board services. In business and first-class, increased
competition from European and Asian companies motivated AF to add
features: new and bigger seats, better in-flight menus, improved
reservation procedures, after-flight customer care, and the
introduction of a class between first and business class - Premium
Class. In a January 11 press report, Air France confirmed its goal
to be "the European leader" in business class services by 2013-2014.

Audit Questions AF Employee Managed Fund
----------------------------------------

5. (U) A January 2010 audit of AF revealed that more than 20 million
euros (USD 29 million) was missing from a fund managed by AF employee
organizations. French Transport Minister Dominique Bussereau
stressed in a January 11 interview that AF was not state-owned but a
private company. However, the GOF is a shareholder (15 percent
interest) and would like explanations at the earliest opportunity.

6.(U) Air France-KLM is feeling the economic downturn: lower capacity
utilization, steadily declining passenger traffic, and cargo business
stabilized at a reduced level. AF-KLM lost its place on the CAC40 -
the top40 firms by market capitalization listed on the Paris Bourse;
AF's market capitalization dropped by 40 percent in 2009. AF-KLM's
share price has declined from from 38 euros in 2007 (when it made
the CAC40), to 11 euros in December 2009.

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