What's going on?
Mayday! Shares in Air France plummeted over 10% on Monday as the company’s attempts to resolve disputes with its workforce reached another impasse and its CEO announced his resignation.
What does this mean?
France’s largest carrier’s efforts at turning around its business hit headwinds as the struggling company has worked to hold down costs. Air France’s pilots, cabin crew and ground staff have been intermittently striking for a 5% wage bump since February and have caused scores of flights to be cancelled, costing Air France some hundreds of millions of euros.
Negotiations hit yet another snag recently, as workers and management still couldn’t agree on pay increases, leading Air France’s CEO to disembark from his role on Friday. The French government (which owns a 14% stake in the business) has warned the future of the airline is hanging by a thread.
Why should I care?
For markets: Air France’s stock has lost some altitude.
Shares in Air France fell to their lowest price in a year on Monday. It brings it in sharp contrast to its performance in 2016, when shares skyrocketed upon the arrival of the now-resigned CEO. A major concern that investors seem to have with Air France is its consistently low profitability compared to competing airlines – a problem that the CEO vowed to resolve when he took over.
The bigger picture: Air France should beware the forces of “creative destruction” engulfing European aviation.
Alitalia, Italy’s former flagship airline, filed for bankruptcy last year, while a number of other airlines like Monarch and Air Berlin also collapsed in 2017. While Lufthansa, on the other hand, has managed to improve its relations with its workforce on wage increases, it’s still an uphill battle for legacy carriers who can’t afford to raise ticket prices as they lose market share to low-cost, budget alternatives like Ryanair and Easyjet.