French government urges Air France to pursue reforms as strikes bite

PARIS — Air France must become more competitive or it risks being further outpaced by rivals, French Finance Minister Bruno Le Maire said on Sunday, piling pressure on unions and the carrier's management to resolve a stand-off over pay.

The dispute at Air France-KLM's French brand deepened on Friday when staff rejected a pay deal, prompting the group's CEO to resign and raising questions over the airline's capacity to cut costs and reform.

"If Air France does not make efforts to become more competitive, allowing this flagship to be at the same level at Lufthansa and other airline companies, Air France will disappear," Le Maire told BFM television. He added that the government would not come to the carrier's rescue. 

The turmoil has coincided with other strike action as rail workers press on with rolling stoppages to protest President Emmanuel Macron's planned overhaul of the state-run train operator SNCF.

French travellers have faced transport misery since early April, and Le Maire said the drag on economic growth from the strikes stood at around 0.1 percentage points of output as tourism and the transport of raw materials took a hit. 

Air France-KLM's board is due to decide on May 15 on its plan to fill the management vacuum. Until then, Air France executives do not have a mandate to continue negotiations with unions, meaning the dispute is likely to drag on. 

Strikes have already cost the company 300 million euros ($359 million) and stoppages by pilots, ground staff and other workers are due to resume on May 7 and May 8. Close to 85 per cent of flights are likely to run on Monday, the carrier said. 

"Air France deplores the decision to go ahead with the strikes as we enter a period that will not enable negotiations to continue in order to put an end to it," the airline said in a statement. 

Air France-KLM CEO Jean-Marc Janaillac, who will stay on until May 15, had been battling to cut costs at the French firm to keep up with competition from Gulf carriers and low-cost airlines.

Unions had been demanding a salary hike of 5 per cent in 2018 alone, and staff rejected a management pay deal offering 7 per cent wage increase over four years. 

Le Maire called the union demands unjustified, and urged both sides to resume talks.