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Air France reabsorbs subsidiary Joon: an also-ran, failed experiment

From the start, Air France's subsidiary airline Joon was ill-conceived and half-hearted. The concept was originally intended as a long haul response to competition from Gulf airlines and announced by Air France-KLM's previous CEO in 2016 as part of his 'Trust Together' strategic project. Joon launched in Dec-2017, aimed at millennials and with the strapline 'also an airline'.

It always had compromise written right through it, particularly in its cost base, network focus, size and branding. From the outset, Air France did not attempt to make Joon a low cost airline, merely lower cost. Using the term (and concept of) low cost was offensive to Air France's unions, so much time and money that could have been used fighting external competition was wasted pandering to internal idiosyncrasies.

The long haul focus was diluted early on, so that Joon launched initially only on short/medium haul and that remains the majority of its network. It has only 16 aircraft (12 narrowbodies, four widebodies) and although its name, crew and onboard environment are new, its pilots, marketing and support functions are all provided by Air France.

The Jan-2019 announcement that Air France has "decided to launch a project studying the future of the Joon brand and the integration of Joon employees and aircraft into Air France" was tacked onto the end of a press release about a cabin crew pay agreement. Even Joon's demise seems half-hearted.

Summary

  • Joon is small compared with Air France. Its network and fleet have a short/medium haul focus.
  • Joon is not low cost, but lower cost than Air France and at a similar unit cost to KLM's.
  • The Joon brand falls between two stools – aimed at millennials, but retaining strong links to Air France.

Joon is small compared with Air France

Under the fleet plan presented at the Air France-KLM investor day in May-2017, Joon was expected to have 21 aircraft in winter 2018/2019, rising to 28 by summer 2020 (10 widebodies and 18 narrowbodies). This projected total was an upper limit agreed with Air France pilot unions.

Even this modest fleet plan is not being fulfilled. Joon's current fleet of 16 aircraft at 15-Jan-2019 (source: CAPA Fleet Database) is smaller than originally envisaged at this stage of its development.

The 16 aircraft are just 7% of the combined Joon/Air France fleet of 223.

Joon offers 23 routes, all to/from Paris CDG, including six due to be added to its network in summer 2019. This represents 11% of the 206 routes for Air France in summer 2019 (based on OAG data for the week of 6-May-2019).

The majority of Joon's routes have been taken over from Air France, while some have been newly launched by Joon. Until the integration of Joon back into Air France is complete, these routes continue to be operated and sold under the Joon concept.

Joon destinations from Paris CDG

Taken over from Air France (14 routes)

Launched by Joon in May-2018 (3 routes)

To be taken over from Air France on 31-Mar-2019 (5 routes)

To be launched by Joon on 4-May-2019 (1 route)

Ataturk
Oslo
Barcelona*
Berlin Tegel
Budapest*
Cairo
Cape Town
Lisbon*
Mumbai
Naples*
Porto*
Rome FCO
Sint Maarten
Tehran (withdrawn Sep-2018)

Bergen Friesland
Fortaleza
Seychelles

Madrid*
Manchester
Prague*
Stockholm Arlanda
Sint Maarten

Quito

Joon's network and fleet have a short/medium haul focus

Contrary to the original concept for Joon, its route network and fleet is dominated by short/medium haul routes and narrowbody aircraft.

On intercontinental routes Joon has nine routes, or 9% of the Joon/Air France total of 102. Joon's widebody fleet of 4 aircraft is 4% of the combined Joon/Air France total of 104.

Moreover, only two of Joon's intercontinental routes (Mumbai and Seychelles) could be considered as competing with the Gulf airlines.

Within Europe Joon has 14 routes, which is 13% of Joon/Air France's 104 routes. Joon's narrowbody fleet of 12 aircraft is 10% of the combined narrowbody fleet of 119.

Joon's 12 A320-family aircraft compares with Transavia France's fleet of 29 Boeing 737-800s and a total Transavia fleet of 69 Boeing 737s (i.e. including the Dutch arm of the LCC brand).

On seven Joon routes from Paris CDG to European destinations Transavia France also operates from Paris Orly (including two routes due to be taken over by Joon from Air France this summer). This indirect competition has added to the brand confusion.

Joon is not low cost, but lower cost than Air France

The positioning of Joon was always planned to be a lower cost airline with fresh branding, rather than an out-and-out low cost airline.

Air France-KLM does not report separate financial or traffic results for Joon, but at the outset it said that Joon would aim for ex fuel unit cost 15% lower on medium haul and 18% lower on long haul versus Air France's existing operations.

Cost savings came from a new labour agreement for cabin crew, hired on terms more in line with market conditions, from lower catering and outstation costs and limited support costs, and more use of paid onboard product options. Joon pilots are on Air France contracts – a key obstacle to designating the airline as low cost.

The planned introduction of ordered Airbus A350 equipment into the Joon network from winter 2019 was also to be a source of unit cost reduction, from lower fuel burn and a denser configuration.

In creating Joon Air France-KLM was recognising that it would not be possible to make sufficient unit cost reductions within the core Air France operation.

By not attempting an out-and-out low cost airline Air France-KLM also recognised that even the new airline was too constrained by agreements with its pilots to create a sufficiently low cost base.

See related report: Joon: Europe's (compromise) newest airline manages to break all the LCC subsidiary start-up rules

The Joon brand falls between two stools

Air France's decision to use a new brand name reflected its desire to capture new customer segments. It aimed the Joon brand towards the so-called 'millennials' and attempted to make it global.

The word 'Joon' has no specific meaning in any major language, although its similarity to the French word 'jeune', meaning 'young' is not a coincidence. As part of Joon's fresh approach, the cabin crew uniform consists of casual clothing and sneakers.

However, as with much of the Joon project, the brand concept was not sufficiently wholehearted. It ended up falling between two stools.

Joon is marketed by Air France, with its website part of the Air France website and clearly labelled 'Air France' above the Joon branding. In addition, Joon operates with the AF code, offers business class and premium economy, participates in the Flying Blue loyalty scheme and is supported by Air France's back office and ground operations.

In spite of this timid approach to breaking the mould, Joon's branding attracted criticism from traditionalists, particularly from some unions, who did not like the discarding of the core Air France brand in the name.

In its 10-Jan-2019 press release signalling Joon's demise Air France said that the brand was difficult to understand from the outset for customers, for employees, for markets and for investors.

It added: "The plurality of brands in the marketplace has created much complexity and unfortunately weakened the power of the Air France brand".

It seems that Air France-KLM's new CEO Benjamin Smith and Air France's new CEO Anne Rigail have sided with the traditionalists on this point.

Joon may have had some positive impact on Air France's cost base

The agreement with Air France pilots that paved the way for the creation of Joon included productivity improvements embracing both Joon and legacy Air France operations.

In addition, Joon paved the way for lower cost cabin crew into the Air France organisation and this may have helped the parent to reach the agreement with its mainline cabin crew signed in Oct-2018 and concluded in Jan-2019.

It seems no coincidence that the announcement that Joon is to be integrated into Air France was tacked onto the end of an Air France press release about this new agreement with cabin crew.

Joon's impact on helping Air France to reach new labour agreements is a positive, but too limited, legacy from the experiment.

In addition, Air France itself will now take delivery of the high density A350s that Joon was to have operated from 2019. It is to be hoped that the brief injection of a small amount of entrepreneurial spirit into the group may also be beneficial.

With Joon gone, Air France must cut costs and raise returns to KLM's levels

Nevertheless, and setting aside the challenge of integrating Joon's employees and aircraft back into the parent, Air France still has much to do to make its cost base competitive.

According to CAPA analysis, Air France's unit cost (cost per available seat kilometre, or CASK) is 25%-30% higher than those of other legacy European airlines of similar average trip length, including its sister airline KLM.

Ironically, the target CASK set by Air France-KLM for Joon is broadly similar to KLM's, according to CAPA estimates. KLM has consistently made better margins and a higher return on capital than Air France.

See related report: Air France-KLM margin trails airline rivals - and Air France lags its successful KLM partner

If the logic of profitability and return on capital were the sole determinant of resource allocation within the Air France-KLM group, undiluted by intra-group political considerations, one of two things would happen.

Either KLM would assume Air France's network, or Air France would lower its costs and raise its returns to KLM's levels (removing the need for failed experiments such as Joon).

With Joon now on its way out, Mr Smith and Mme Rigail cannot escape this logic.

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