Under pressure Air France hires McKinsey for SWOT analysis

03 July 2019 Consultancy.eu

Air France, France’s national carrier, is under pressure. The French airline is struggling with its profitability, on the back of strong competition from international airlines and low-cost carriers, and an internal operation marred by high costs, disgruntled unions in France and striking staff. In a bid to gain insights on how to return to profitability, Group CEO Ben Smith has hired global consulting firm McKinsey & Company.

The US strategy consulting giant has been brought on board to assess the “strengths and weaknesses” of the company, said Anne Rigail, CEO of Air France, in an email sent to employees earlier this month. McKinsey & Company has been given the mandate to assess the economic performance of all divisions and ranks of the French flag carrier, which has a fleet size of over 200 aircraft flying to 200+ destinations. 

McKinsey’s project team is led by its French office, based in Paris, with several key staff of its global aviation business unit involved as thought leaders and advisors. The consulting firm will share its final results in September, after which the main findings will be shared with senior management, HR organs and worker unions. 

The strategic engagement comes at a time when Air France-KLM Group CEO Ben Smith – Air France is the parent of the smaller but better performing KLM, the Netherland’s flag carrier – and Air France CEO Anne Rigail are facing mounting pressure. After Smith took charge in the summer of 2018, he struck a number of deals with unions on wages and worker conditions, a move which gave him plaudits at the time. However, the climbing wage bill has now added to the firm’s financial burden.

Under pressure Air France hires McKinsey for strategic assessment

Alongside higher salaries, increased fuel costs and currency fluctuations are taking their toll – in the first quarter of this year Air France-KLM booked an operating loss of €303 million, up from €185 million in the same period last year.

The hiring of McKinsey has in French media sparked debate about jobs at the carrier. After revealing the financial results in May, Smith announced several measures to counter the company’s deficit. One of the most notable ones was the axing of 465 jobs in Air France’s domestic network, which employs around 3,200 people. The short-haul business division of Air France reportedly booked a loss of €170 million last year, amid fierce competition from EasyJet, but also by the SNCF TGV, France’s high-speed rail company. The first layoff plan under Smith’s reign – which focuses on voluntary headcount reductions –will mainly impact Air France staff at the company’s main base in Paris, and in the south and east of France.

The unions, not surprisingly, oppose the decision. “We want an offensive policy on the short-haul routes”, said Gael Amaury, a HR leader at Air France to French newspaper Le Monde, with “a plan of departures” not deemed a sustainable solution to the business’ challenges. 

With McKinsey now taking the entire organisation under scrutiny, unions fears that more job cutting plans could unfold after the report is delivered. Rumours surfacing in the media predict that up to 1,000 jobs could be on the line, in particular in the “overstaffed headquarters” of the group in Roissy. There, Air France is said to have too many people working in management and support/back-office functions.

Last year, Air France subsidiary KLM announced a strategic partnership with one of McKinsey’s biggest rivals, Boston Consulting Group, seeing the two companies setup a joint venture business providing other airlines with Industry 4.0 consultancy and solutions.