European carriers required to detour around Russian airspace will struggle to compete with Chinese players that can still take shorter routes to Asia, the chief executive of Air France-KLM has warned.
With China’s pandemic restrictions finally eased, airlines hope to capitalize on the anticipated return of Chinese tourists to Europe. Over the next few months, Air France-KLM will increase the frequency of flights to Beijing (PEK) and Shanghai (PVG) and hopes to return to at least 50% of its 2019 flight capacity in China this year.
However, Smith believes that Chinese airlines have an “unfair advantage” in this market as they can take direct routes over Russia, slashing hours from flight times.
“Between Paris and Seoul, [avoiding Russian airspace] can add up to three hours in flight time,” Smith said.
European carriers have been barred from flying over Russia since Putin launched a full-scale invasion of Ukraine nearly a year ago. Western countries responded with a wave of sanctions. Nevertheless, many Asian and Middle Eastern airlines have continued access to the skies over Russia.
Other European carriers echoed Smith’s warning about the impact of extended flight times to Asia. Finnair chief executive Topi Manner said, “We think that what this will mean is that it will be very hard to make secondary cities of China profitable in terms of flying.”
The carriers’ concerns show the importance of the growing Chinese market for European airlines’ recovery. While before the pandemic, Chinese airlines carried the lion’s share of Chinese travelers to Europe. European carriers clawing back to profitability want at least to restore their passenger numbers to 2019 levels.
Air France-KLM has been one of the primary beneficiaries of the resurgence of air travel in Europe and the U.S. over the last year. The airline group bounded to profitability last year, clearing a net €728 ($777) million after losing €3.3 ($3.5) billion in 2021.
However, the Franco-Dutch group is still trying to pay back the €10 billion in government bailouts it received when the pandemic froze air travel. The company is eager to be free of the conditions that came with the rescue package and has prohibited it from paying dividends and acquiring rivals. Air France-KLM is known to have its eye on Portugal’s TAP, the state-owned flag carrier Lisbon wants to privatize.
“There is consolidation going on in Europe. We don’t want to be marginalized,” Smith said. “The smaller independent carriers, from my perspective, don’t have a sustainable model for the future. They are going to have to team up in a stronger way with an existing larger group, or they could be takeover targets.”
In addition to Air France-KLM’s interest in TAP Air Portugal, the Lufthansa Group has set its eyes on ITA Airways. The German airline has officially expressed to the Italian Ministry of the Economy its interest in acquiring the new Italian carrier that replaced the ill-fated Alitalia in October 2021, further cementing Smith’s comments on Europe’s strong airline consolidation momentum.
However, Smith denied that the group had any interest in Flybe, the British regional carrier that recently folded for the second time since 2020.
Smith also criticized Dutch authorities’ plans to curb the number of flights taking off and landing at Amsterdam’s Schipol Airport (AMS) from the end of 2023 to reduce noise pollution.
“We’re extremely concerned and upset,” he said. “It sends a horrible message, the Netherlands has been built off of trade . . . the impact on the economy is being underestimated by this decision.”
He said Air France-KLM is “fighting very hard” against the proposed cap on flights and will roll out new quieter aircraft to reduce the noise impact on the local area.