Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Wealthy American tourists who spend on fashion brands and hotels in Paris can boost Air France-KLM’s recovery from a “challenging” year, the airline group’s chief executive has said.
Ben Smith said Air France has seen “amazing” demand from leisure travellers in its business and first-class seats, and the French airline has responded by shifting its business model to focus on the premium end of the market.
“It’s unbelievable what Americans are paying to come over here, if you look at what it costs to stay down the street at the [five-star] Bristol Hotel,” Smith told the Financial Times in an interview at the airline group’s Paris offices. The biggest suite at the Bristol Hotel can cost as much as $50,000 a night, with more economic options starting at $2,000 a night. Smith cited “crazy” activity during Paris Fashion Week, which opened on Monday.
Air France is charging about $24,000 for a return first-class ticket between New York and Paris in April, and is launching an updated first-class cabin this month.
The pivot to the higher end of the market came as the airline group, which owns Air France, Dutch carrier KLM and a minority stake in Scandinavian airline SAS, reported a sharp fall in full-year profits on Thursday.
Net profit halved year-on-year to €489mn, which Smith put down to factors including the Olympics putting off some travellers from visiting the French capital, as well as higher costs caused by operational problems at KLM. Revenue rose 5 per cent to €31.5bn.
Still, shares rose more than 15 per cent in morning trading on Thursday after the results comfortably beat analysts’ expectations.
Smith said 2024 was “a year shaped by both operational and external challenges”.
US and European airlines have reported that high-spending holidaymakers are replacing corporate travellers in their most expensive seats. But Smith said Air France’s links with Paris, a city synonymous with luxury brands, means it is in a strong position to capture this demand for premium leisure.
The airline said average yields, a proxy for air fares, on tickets sold to US customers increased 25 per cent between 2018 and 2024.
Smith added that Air France is also looking to replace some economy passengers with “higher value” business class travellers on its short-haul flights, which feed longer routes via airport hubs.
“We think [premium leisure] is going to drive higher yields. And with the cost structure we have, we need every little cent,” he said.
He also warned that European airlines could not compete directly with Turkish Airlines or Middle Eastern carriers, which feed passengers to destinations across Asia with a single stop at their hub airports.
These carriers, including Emirates, Etihad and Qatar Airways, are not subject to the EU’s environmental taxes, including a requirement to phase in expensive biofuels to cut emissions.
“We are not on a level playing field . . . it is very frustrating,” Smith said. “For us to imagine opening new routes in areas where the Gulf carriers are dominant, it’s not realistic, unless there are enough people who want to fly nonstop.”
Smith, who was part of a French government delegation to Portugal last week, said Air France-KLM would only be interested in acquiring a majority stake in national carrier TAP. Lisbon is expected to privatise the airline later this year.
“We would need a path or a guarantee to control a majority stake,” he said.
British Airways owner IAG and German airline group Lufthansa have also said they want to buy TAP, which has a strong network of flights to South America.
Additional reporting by Ian Johnston in Paris
Read the full article here
