Looks Like a Lion, Smells Like a Skunk: Air France/KLM remains powerful in many ways. So why is it losing so much money?

Looks Like a Lion, Smells Like a Skunk: Air France/KLM remains powerful in many ways. So why is it losing so much money?Think Air France/KLM, and what comes to mind? An airline that prospered during the tumultuous first decade of the 2000s? A globally diversified network second to none? An iconic brand, well regarded services, two powerful hubs, a lucrative maintenance business, a cutting-edge partnership with Delta, a privileged position in Africa, excellent coverage of China, 22m loyalty plan members and workers who—you never would have imagined this a generation ago—strike less these days than their counterparts at Lufthansa or BA/Iberia?

All of these things are true. But none of them tell the real story of Air France/KLM during the past five years, five years in which no other publicly traded airline in the world lost as much money. From 2009 through 2013, this airline, which indeed looks so muscular on the surface, hemorrhaged $4.4b in net losses excluding special items. In 2013 alone, it lost $533m, and that marked a big improvement from the $900m-plus it spilled in 2011 and again in 2012. Even in the industry golden year 2010, when most global airlines flourished, Air France/KLM’s net loss ex items was $472m.

The company still looks and roars like a lion. So why, when you get a bit closer, does it smell like a skunk? The reasons are not hard to identify.

For starters, it’s hard to overestimate the financial toxicity of Air France/KLM’s shorthaul routes, from France in particular. In 2012, shorthaul losses amounted to more than $1b, more than wiping out longhaul profits. Last year, shorthaul losses were only slightly better, still exceeding $800m. Among these routes are many Paris Charles de Gaulle and Amsterdam Schiphol flights that feed traffic to the longhaul network but also many that don’t, including point-to-point services from secondary French cities and others operating from Paris Orly. In 2011, Air France launched an ill-fated plan to establish provincial bases in Toulouse, Marseilles and Nice. All the while, flights within Europe were mercilessly attacked by LCCs, led by easyJet with its five French bases and Vueling, with bases at both Paris Orly and Amsterdam. Both carriers seemed to have a target on Air France/KLM’s chest. Based on figures provided for 2011, by the way, Air France accounts for about 70% of shorthaul losses and KLM the other 30%.

If stemming shorthaul bleeding is job one, then…

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