European airlines forced to take longer routes to Asia to avoid Russia will struggle to compete with Chinese rivals as travel rebounds after Covid-19 lockdowns, the chief executive of Air France-KLM has warned.
Ben Smith said Chinese airlines had an “unfair advantage” over European carriers that have been banned from Russian airspace since the full-scale invasion of Ukraine almost a year ago, with both the EU and Moscow imposing restrictions. Chinese carriers are still allowed to fly over Russia and can take shorter routes to Europe.
“Between Paris and Seoul, it can add up to three hours in flight time,” Smith told the Financial Times. “If you’ve got a Chinese carrier that is flying over Russia, they’ve got an unfair advantage over us.”
Airlines want to capitalise on an expected return of Chinese tourists in the months ahead, including to popular shopping destinations such as Paris. Smith said the Franco-Dutch group was gradually increasing its flights to Shanghai and Beijing and planned to return to at least 50 per cent of its 2019 flight capacity in China.
That comes after a rebound in air travel that is already bringing traffic close to pre-pandemic levels in regions such as Europe, fuelling a recovery for the industry. Air France-KLM returned to profit for the first time since 2019 last year with revenues rising sharply, it said on Friday. The group expects its global capacity to increase further in 2023.
Air France-KLM has been one of the big beneficiaries of renewed appetite for air travel within Europe and to the US since last year. It is trying to move past the last of its pandemic woes by whittling down the €10bn in state bailouts it received to cope with grounded flights.
That will allow the group to move freely to make acquisitions again, as some of the aid came with EU restrictions on making purchases and paying dividends. By the end of April, it will have repaid its €2.5bn in remaining French state-guaranteed loans, Air France-KLM said, and refinanced some state-linked hybrid bonds, ridding itself of the strings attached to parts of the aid package.
“There is consolidation going on in Europe. We don’t want to be marginalised,” Smith said. “The smaller independent carriers, from my perspective, don’t have a sustainable model for the future. They are going to have to team up in a stronger way with an existing larger group, or they could be takeover targets.”
The executive reiterated Air France-KLM’s interest in Portugal’s TAP, which the Lisbon government is looking to privatise. The Franco-Dutch carrier had “no serious interest” in Flybe, the British regional airline that collapsed and will be wound down after failing to find a rescuer, Smith said.
Air France-KLM’s revenues were up 84 per cent to €26.3bn, slightly exceeding analyst expectations in a Refinitiv poll, and matching 2019 levels. The group posted a €728mn net profit, after last year’s €3.3bn net loss.
Smith also hit out at a Dutch government plan to cut the maximum number of flights permitted at Amsterdam’s Schiphol airport from the end of this year, in a bid to reduce excess noise for local residents. Air France-KLM was “fighting it very hard”, he said, adding that the group aimed to roll out newer aircraft that would help reduce noise pollution.
“We’re extremely concerned and upset. It sends a horrible message, the Netherlands has been built off of trade . . . the impact on the economy is being underestimated by this decision,” Smith said.