Air France may restructure its medium-haul network to up profitability

PARIS – Air France-KLM said Tuesday it could make the passenger cabins on some of its routes single-class only and it could eliminate some destinations as part of a broad restructuring of its medium-haul network and operations to improve profitability.

Like other European airlines, Air France has been hit by a slump in demand for premium-class travel as companies and institutions pare back operating expenses in the tough economic environment.

A spokesman for the airline confirmed media reports that eliminating business-class seating areas was one of the options to improve yields on routes to Europe and North Africa.

In recent years, Air France has eliminated premium-class cabins on its short-haul operations inside France, he said.

Presenting the airline’s first-quarter results at the end of July, Air France Chief Executive Pierre-Henri Gourgeon told analysts the airline would revamp its medium-haul operations both in terms of the network and product.

The spokesman said strategic decisions would be taken before the end of 2009 for implementation early next year.

Apart from the decline in premium-class travel, from which airlines derive a large chunk of their profits, Air France has been suffering from competition from low-cost airlines, notably easyJet PLC, and from high labor costs relative to its peers.

EasyJet has been making inroads at Air France’s hub at Roissy-Charles de Gaulle airport in recent years, taking customers away from the Franco-Dutch airline and forcing it to trim its margins to remain competitive. “Air France-KLM is at greater risk from low-cost competition than either Deutsche Lufthansa AG or British Airways PLC,” Deutsche Bank said in a report on Tuesday, noting that the easyJet was targeting Air France’s high-yield business routes such as Paris-Milan.