By akademiotoelektronik, 30/01/2023

Air France: When Hop caressed the hope of recreating Air Inter

Read also: Air France: HOP's incredible descent into hell (2017-2021)

In 2012, as it struggled to survive by launching the "Transform 2015" restructuring plan, the Air France group was looking for a solution to stem the operating losses of the short and medium-haul network. These are pharaonic: -500 million euros. But are not attributable to regional companies alone. Quite the contrary. The bulk is generated by Air France on this part of the network, penalized in particular by the cost of its ground handling (passenger check-in and boarding, baggage management, aircraft catering, etc.). Carried out in-house, this has a much higher cost than that of foreign low-cost companies (but also Transavia) which subcontract this activity to more competitive specialized companies. "There were 15 points of difference in profitability," recalls a former senior Air France executive who traces the origin of these high costs to the merger between Air France and Air Inter in 1997. "We combined the salaries high rates of Air Inter with the low productivity of Air France. This worsened with the hirings which followed the transition to 35 hours", he analyzes.

2012: the "unified regional hub"

To raise the bar, Air France is counting on a new service launched at the end of 2011 on departure from a few regional airports (the famous "province bases"), and decides to bring together under a common brand the French regional companies Brit Air, Regional and Airlinair, but without merging them. The idea is to create a "unified French regional hub", more independent of Air France than the three companies that make it up. Especially in terms of sales and marketing.

Gone is the end of the franchise system on which Air France's regional transport strategy was based. Although it will retain chartering for Air France (aircraft and flight crew leasing) and supplying the Roissy hub (with lowered charter rates), this new entity will now have its own activity, with its brand, on domestic and European "point-to-point" lines, essentially in a logic of regional development. In fact, this regional hub will have its own commercial and marketing functions, which have hitherto been placed within the parent company, and will use a flight code other than Air France's famous “AF”. However, he will continue to benefit from certain advantages such as the Flying Blue loyalty program, "firm contracts" and "code sharing" on certain lines. With around a hundred aircraft and a turnover of one billion euros, this regional center of more than 3,000 staff will be led by its architect, Lionel Guérin (56 years old at the time), CEO of Transavia since its creation in 2007, of Airlinair and president of the National Federation of Merchant Aviation (Fnam).

Lionel Guérin, the founder

When the project began to take shape in the spring of 2012, Lionel Guérin, as CEO of a subsidiary, was not in the parent company. But it is nonetheless very influential. Certainly rejected in the fall of 2011 for the presidency of Air France in incredible conditions for the benefit of the director of cabinet of Christine Lagarde in Bercy, Alexandre de Juniac, Lionel Guérin is nevertheless reinforced by the return to the head of Air France- KLM of Jean-Cyril Spinetta who had supported him in his candidacy and to whom he is very close. Since January 1, 2009, Jean-Cyril Spinetta has only exercised the functions of non-executive chairman of Air France-KLM and Air France. He had left the operational functions of the group to his number 2, Pierre-Henri Gourgeon. In October 2011, following a ruthless war between the bosses over the choice of the future CEO of Air France, Pierre-Henri Gourgeon, who had supported the candidacy of Alexandre de Juniac at the head of Air France to keep the management of Air France-KLM, was suddenly disembarked. Jean-Cyril Spinetta took over the executive controls of Air France-KLM. But could not change the opinion of the nominating committee of the board of directors in favor of Alexandre de Juniac for the position of CEO of Air France. With his entrepreneurial side, Lionel Guérin had seduced the nomination committee which saw him at the head of Air France but not subsequently taking the reins of Air France-KLM, unlike Alexandre de Juniac. In the minds of the directors, the presidency of Air France-KLM was to be the next blow for any new CEO of Air France.

Lionel Guérin (photo) is the central character of this regional project. Hated by some, adored by others, he leaves no one indifferent. Opinions on the character often go hand in hand with comments on the regional project: for opponents of Lionel Guérin, this project had no chance against low-cost. "It's a masquerade, a corporate policy decision. Lionel Guérin wanted to show that he was doing a lot of things," argues a former member of the Air France executive committee today. For its supporters, on the contrary, the project made a lot of sense, and could have succeeded if it had been able to be carried out as its founder wished, and if the latter had remained in control when the storm began.

March 2013, launch of HOP

In January 2013, this new regional hub took shape. It is baptized "HOP for Air France", in other words HOP in use, because it is indeed this mark which will be registered wholesale on the fuselage of the planes. Recalling "KLM Cityhopper" the brand of the regional subsidiary of KLM, it reflects the desire for ease, agility and innovation in which this new entity wants to fit. "Great" for some, "ridiculous" for others, the brand is debated. In any case, it makes people talk and quickly acquires notoriety. At the end of March, activity begins, with nearly 500 flights a day to more than 130 destinations. All with a price range similar to those of low-cost, simplified, cheaper with call rates at 55 euros, and paid options to generate additional revenue. Objective: to retain customers who paid high prices (and accounted for the bulk of turnover) and attract new customers with low prices to stem the offensive of low-cost airlines on French cross-border lines. Competing from Easyjet and Ryanair was added that of the Spanish company Volotea, which will continue to gain momentum in France. With such a price list and a brand with a low-cost connotation, HOP has often been considered, wrongly, as a low-cost company. Which she was not. The cost difference was at least 50% in favor of low-cost.

In any case, for Alexandre de Juniac, HOP "is a bit like Air France's researcher for experimenting with the solutions that we will then try to deploy throughout our short and medium-haul network", the most in trouble. This approach is new for the Air France group, branded by a long-haul culture.

However, the new unit is financially fragile. Only 25 to 30% of the lines are profitable. HOP's three companies collectively lost €72 million in 2012; losses attributable to Brit Air and Regional, since Airlinair was slightly profitable. HOP clearly wants to reverse the trend and break even in 2014, then generate profits in 2015. To lower costs, the new entity is counting on pooling resources, optimizing resources, signing new agreements with staff , and the removal of some duplicates inherent in the grouping. Furthermore, the consolidation of the three companies is accompanied by an immediate reduction in activity of 15%. The most loss-making lines are stopped.

Air France: when HOP caressed the hope to recreate Air Inter

In terms of capital, this regional center is a 100% subsidiary of Air France, but Alexandre de Juniac does not rule out an opening up of capital to support its development. Discussions with the Caisse des Dépôts and the Public Investment Bank (BPI) took place but were unsuccessful. "

The launch of HOP calls out. Air France is indeed doing the opposite of the big companies which tend to withdraw from regional transport.

The impossible dream of having Airbuses at HOP

The issue of aircraft size is indeed central. For many today at HOP, the use of aircraft over 110 seats was key to the company's success. It would have allowed him to better fight against low-cost. Called "scope clause", this limit of 110 seats not to be exceeded is set by Air France in order to prevent regional subsidiaries from cannibalizing the bottom of the activity of the parent company. Air France operates 18 A318s with 131 seats. The system is the same in all airlines with regional subsidiaries.

As the intrinsic costs of an aircraft are linked to its seat capacity, this "scope clause" automatically leads to high costs per available seat kilometer and puts their operators at a disadvantage when they have to fight against companies with larger aircraft. ability. A use by HOP of Airbus of the A320 family, as Air France did, or the elongated versions of the latest Embraer or Bombardier, would have enabled it to have more effective means to compete with low-cost companies. But, modifying the "scope clause" of HOP has always been a red line for Air France pilots, thus causing strong resentment among the pilots of the regional subsidiary. For the latter, there was no risk of cannibalization insofar as there was a space to be filled between the largest HOP plane and the smallest of Air France.

The National Union of Airline Pilots (SNPL) of Air France had already accepted in 2007 an extension of the "scope clause" from 100 to 110 seats. For him, out of the question to go further.

A report that puts Florence Parly under pressure

In any case, the beginnings of HOP are encouraging. With the autonomy at its disposal, HOP demonstrates a dynamism and originality in marketing that improves sales.

Also, barely a few months after the launch of HOP, Frédéric Gagey - who had succeeded Alexandre de Juniac as President of Air France when the latter replaced Jean-Cyril Spinetta at the head of Air France-KLM in July 2013- asks Lionel Guérin to think about an organization between Air France, HOP and Transavia to straighten out not only the regional division, but all of the group's short and medium-haul activity. A request which joins that of the powerful national union of airline pilots (SNPL) which had made a proposal in this direction some time earlier.

The initiative will cause a stir within the management. Appointed a year earlier at the head of Air France's "Passage Orly and Stopovers France" activity with the mission of straightening the company's domestic flights, Florence Parly is not put in the loop. The current Minister of the Armed Forces learned of the decision during an executive committee.

Lionel Guérin surrounds himself with outside experts and personalities from Air France, but neither he nor anyone from his team is associated with the project. A report on the recommendations to be put in place was submitted at the end of June 2014 to Frédéric Gagey. In the process, a joint press conference between Lionel Guérin and Frédéric Gagey shows that the project is behind the scenes already validated. On paper, the principle is common sense: put "the right plane, the right brand, the right product in the right place" (later, some will be more critical by explaining that maintenance could not follow). To achieve this, the report proposes a new distribution of roles between Air France, HOP and Transavia, with an approach by brand and by activity. The Air France brand must be confined to feeder flights from the Roissy-Charles de Gaulle hub, with not only Airbus A320 family aircraft that it owns, but also with regional HOP aircraft (painted in the colors of Air France), necessary to ensure the small lines. Such an entity would have 110 aircraft.

Elsewhere, on the so-called "point-to-point" lines, i.e. those which mainly transport passengers going from one city to another without a connection, the Air France brand must disappear benefit of the HOP brand, which would therefore combine the "point-to-point" activities of Air France and HOP. The flight schedule, revenue management, marketing, commercial functions... everything must be common in this entity which would have around 120 aircraft. According to this report, these lines are mainly made up of professional travelers and people visiting family members, friends or their second home.

Finally, while a perimeter agreement between the management of Air France and the SNPL limits the Transavia France fleet to 14 aircraft, the report recommends the continued development of the group's low-cost subsidiary on the routes for tourism, excluding domestic flights also prohibited by the pilot agreements (they will remain so until summer 2020). This redistribution is accompanied by recommendations for cost reductions and productivity improvements for all categories of personnel.

Air France "buys" the project

Two months later, on August 28, 2014, while the SNPL asked a few days earlier for "a short and medium-haul recovery strategy for "offering the right brand at the right time for each customer profile", Air France validates the main lines of the project by announcing its intention to reorganize its point-to-point activity provided by Air France and HOP. Appointed head of this project, Lionel Guérin, CEO of HOP, is in charge of "setting up this new unit bringing together all of the point-to-point activity of the Air France group", is it written in a press release. He will also have to define a brand to this new group, which will have around 120 aircraft, bearing in mind that the report recommended the extension of the "HOP" brand.The food flights from the Roissy hub will remain under the Air France brand.

Some do not hesitate to see a return of Air Inter, the French company which revolutionized domestic air transport before being bought by Air France in the early 1990s, then absorbed in 1997.

Once again, opinions differ. Some applaud. Having control over the three levers of revenue, programs and costs enables reactive management of the company. Others are more skeptical. "It didn't make sense. It took us back 20 years with no improvement in the concept." In any case, as close as it was to Air Inter, the HOP model had no chance of operating Air France's A320s. The Air France pilot unions would never have accepted.

Excluded from the start of the project, Florence Parly slams the door and later joins the SNCF.

Tensions at Air France

The announcement of this major change to the domestic network went completely unnoticed. Indeed, on the same day, August 28, 2014, the SNPL, which had been at odds with management for months, filed a strike notice from September 15 to 22, to "make its voice heard" in the upcoming reorganization of the short and the group's medium-haul. This notice highlights the difference of point of view between the pilots' union and management on how to develop Transavia. The SNPL rejects the idea of transferring Air France pilots to the low-cost subsidiary under its conditions. On the contrary, he recommends "a single group of pilots for aircraft with more than 100 seats capable of flying all brands" of the group.

HOP does not fall into this category, the SNPL actually talks about Air France and Transavia. According to the syndicate, this proposal brings great operating agility to the group. While some doubt the timing of this notice and its mobilizing effect on pilots, the revelation a few days later of Air France-KLM's plan to create a low-cost subsidiary based, not in the Netherlands or in France as this was the case with Transavia, but apart from its two natural markets, sets fire to the powder. Planning to hire staff in the European countries where it would be based, this new company called Transavia Europe, crystallizes the mobilization of pilots who denounce "relocation".

If they obtain the abandonment of the Transavia Europe project, the pilots will not tear off their "single contract". This strike, described as "useless" by many, including many pilots, lasted 14 days. Its consequences will be serious. Beyond the extent of the financial damage it caused (half a billion euros), it was the starting point of a long period of social tension which paralyzed the French company, but also the tipping point of the relationship between Air France and KLM. Stunned by the situation at Air France, the Dutch feared being carried away by the bottom by the difficulties of the French company. If the cohabitation was difficult until then, this strike caused a break between the two carriers, which we still do not know today how it could be repaired.

2015, launch of HOP Air France

During the following weeks, while the management of Air France and the SNPL (national union of airline pilots) were busy finding a compromise on Transavia, the project to bring the activity of HOP and Air France closer together on the domestic "point-to-point" network is presented to elected staff. Taking the report's recommendations almost to the letter, this new entity, which will not be merged, will begin in the spring of 2015. It will be called "HOP Air France", with HOP supposed to be "roughly" on the fuselage, followed, in a smaller version of Air France, as a "guarantee brand". If he was in favor of the creation of this "business unit", Frédéric Gagey was opposed to having this entity pass under the HOP brand without mentioning Air France.

Appointed Deputy Chief Executive Officer of Air France in charge of HOP Air France while retaining the non-executive chairmanship of HOP, Lionel Guérin leads the new entity. This is enormous: 800 daily flights, 15 million passengers per year, and a turnover of 1.7 billion euros. The financial figures are on the other hand less brilliant: even if it has been reduced by half compared to 2013, the operating loss of this complex amounted to 140 million euros in 2014 (excluding the impact of the pilots' strike) , including 120 million euros for Air France and 20 million for HOP.

Confusion around the brand

In theory, the Air France Airbuses belonging to this entity should have been repainted in the colors of HOP. They never will. The management had other fish to fry and the reluctance of some at Air France was strong. What reinforces the confusion of the passengers around this new unit thus bringing together under the same brand HOP Air France four operational companies: Air France, Regional, Brit Air, Airlinair (renamed internally HOP Regional, HOP Brit Air and HOP Airlinair). Therefore, between trademarks and company names; between Air France, HOP Air France, just HOP, but also the names of the companies making up the latter still very present in the minds of customers and staff, there was enough to lose your Latin. Especially when, in airports like Marseille or Nice, where Air France A320s provided flights to both Orly and Roissy, HOP signage (for flights to Orly) coexisted with Air France signage (for flights to Roissy).

As expected, the predominantly leisure lines are devolved to Transavia while the Air France brand is retained for supplying the Roissy Charles-de-Gaulle hub, whether with its Airbus A320 family aircraft. France, but also those with less than 110 HOP places.

Commercial dynamism

As HOP did when it was launched, HOP Air France is launching with extremely attractive prices, with call prices of 49 euros one way. Promotions at 39 euros are even planned. Objective: to regain market share on other modes of transport, and in particular the train. Not on the routes guaranteed in 2 hours by TGV, where the plane has already lost the game, but on all the others, in particular the intercity lines, almost all in the red. HOP intends to take advantage of the worsening of the Intercités accounts with the liberalization of the coach market scheduled for the coming weeks.

For Alexandre de Juniac (photo below), the HOP Air France offer must be "the weapon for the "reconquest" of the domestic market. Combined with the cost reductions resulting from a voluntary departure plan launched within Air France stations but also at HOP, the increase in load factors expected, the optimization of the network between the companies and better use of the fleets should allow a return to balance in the short and medium-haul sector point-to-point in 2017.

However, to achieve such a goal, revenue gains will be insufficient without significant cost reductions. For HOP, if the first two years had made it possible to consolidate the commercial model, it is now necessary to optimize the production processes. The time for fusion has come. It was in the minds of the founders from the start.

Mid-July 2015, barely more than three months after the launch of HOP Air France, Air France announced its intention to merge Airlinair, Brit Air and Regional within the HOP subsidiary by the end of 2017. The operation that no one thought possible, on the grounds that it had taken too long, is therefore underway. It will result in a reduction in the workforce "of the order of 245 positions" out of 3,000 employees. Objective: "simplify organizations" and "finalize synergies", argues the Air France parent company, recalling that "work has already begun on commercial functions". These job cuts will be added to the voluntary departure plan (PDV) opened in January in the Air France group, which targets 800 departures. In Morlaix, the headquarters of Brit Air, the concern is great. The activity of the Breton company is the one that has decreased the most in recent years. However, Air France wants to be reassuring. This merger will not lead to the closure of sites, however numerous between those of Rungis (Val-de-Marne), Morlaix (Finistère), Nantes, Clermont-Ferrand, Lyon and Lille.

October 2015, the shirt ripped off at Air France

Announced in the middle of summer, this merger is once again under the radar. At that time, in fact, the social climate was still just as tense at Air France. Since the end of 2014, an even tougher branch than the one that launched the September strike has taken power in the SNPL, and refuses to make all the efforts to which it had committed in the Transform plan, completed at the end of 2014 Added to this showdown are the tensions around management's desire to follow up with a new plan to improve competitiveness. For management, Transform has saved Air France but the structural lack of competitiveness with its competitors remains. It needs to be filled. The unions are fighting. On October 4, the presentation of a plan "B" of capacity reduction and that of the elimination of 2,900 positions set fire to the powder. Members of the management are abused. The shock is immense. Images of the HRD's shirt being ripped off go around the world, and a year after the pilots' strike, Air France once again finds itself in crisis.

April 2016, a “hussard-like” merger

However, at HOP, the merger of the three carriers is proceeding at full speed. “A la hussarde”, deplore today some former members of the company. On April 2, 2016, as the campaign raged to succeed Alexandre de Juniac, who had resigned (Lionel Guérin was a candidate, but Transdev CEO Jean-Marc Janaillac was chosen), and that social tensions are still as strong between the management and the pilots of Air France, the merger of the three regional companies is carried out.

The three airlines now operate with an Air Transport Certificate (AOC) and a unique airline code (A5). No more three head offices, there is only one left. At Rungis, Airlinair's head office. Ditto for the operational centers which go from three to one, in Nantes, while maintenance and IT are divided between Clermont-Ferrand and Morlaix. Supposed to generate savings of 25 million euros over a full year, this operational optimization is reinforced by the professional or geographic mobility of a certain number of staff and a voluntary departure plan involving nearly 160 people.

However, with the renegotiation of company agreements to be carried out, the hardest part remains to be done. The merger effectively rendered the various company agreements obsolete. Management and unions have 15 months to negotiate new agreements. The management wishes to harmonize salary scales and working conditions at constant costs for the company. On the contrary, the flight crew want an alignment with the convention in force at Britair, the best-priced. The cost difference was around 15% between Regional and Brit Air pilots.

In financial terms, the results are recovering strongly. With the unexpected drop in the price of oil, HOP is aiming for a positive operating result in 2016 and a positive net result in 2017. For its part, the "point-to-point" activity of Air France, which lost 280 million euros in 2013, reduced its loss to 70 million in 2015 and should break even in 2017. This recovery is the result of recognized commercial dynamism and the reduction in costs carried out over the past three years. Since its creation in April 2013, HOP has seen its fleet shrink by 23.5%. The company now has only 76 planes (82 taking into account the planes in reserve).

Lionel Guérin's departure

For Lionel Guérin, the adventure came to an abrupt end. In December 2016, a month after once again being on the verge of being appointed CEO of Air France (Jean-Marc Janaillac had initially chosen him to replace Frédéric Gagey, before changing his mind at the last moment and appointing Franck Terner), Lionel Guérin leaves the company. In a letter addressed to the staff of the regional company and HOP Air France, he announced that HOP is profitable a year ahead of forecasts. HOP loses its founder. Today, his supporters believe the outcome would have been different had he stayed. "HOP failed because Lionel Guérin left", assures one of them. His detractors doubt it.

The departure of Lionel Guérin coincides with the beginning of HOP's long descent into hell. The winds from the storm weren't blowing yet but had begun to build.

Read also: HOP, a saga at the heart of Air France: a tormented genesis (1/3)