On November 27, Air France unveiled plans to aggressively target the leisure market next summer with a new low-cost carrier that will operate Boeing 737s to destinations in the Mediterranean and North Africa.

The boards of Air France and Dutch carrier Transavia.com approved the launch of the new French carrier that will use the branding of Transavia, which has been flying scheduled and charter flights for 20 years. "We will be taking position on a market segment from which we have long been absent," said Christian Boireau, Air France executive VP-commercial in France, who was named chairman of the new airline's supervisory board. "This initiative marks an important step in our group's development."

The management of this new airline will be separate from Air France because the costs and productivity "must be consistent with the applicable fares and will benefit from the very substantial synergies achieved with Transavia in the Netherlands." Air France said the new French-based Transavia will be a "sister" company to the Dutch carrier. Air France will hold a 60% stake in the new carrier, and the Transavia in the Netherlands will own 40%.

The carrier hopes to finalize aircraft leases next month and start hiring and training staff in January. The first flights are targeted to launch in the summer. In the first year, French Transavia will fly four Boeing 737-800s, seven by the end of the second year and nine by 2010. The aircraft will have a single class of 186 seats, and the inflight product will be the same as that of the Dutch Transavia, where passengers pay for food and beverages.

Next summer, the carrier will operate to nine Mediterranean destinations with 67 weekly flights from Paris Orly Airport. Next winter, the carrier hopes to serve as many as 15 destinations. The average stage length for the airline's flights will be about 2.5 hours with a daily utilization of 11-12 hours. The carrier is somewhat limited by curfew constraints at Orly.

Air France is starting the LCC to target the French leisure market, which has several distinct traits. The French spend fewer holidays abroad than other Europeans and when they visit a foreign country, they usually choose a medium-haul destination. Air France noted that the medium-haul leisure market in France is dominated by foreign carriers, as "very few French charters operate non-scheduled flights and their fleet is limited." Initially, the new carrier will likely serve cities in Morocco, Tunisia, Spain, Italy and Egypt.

If the business plan is approved, the new carrier should create 400 new jobs by 2009, including 80 ground staff, 100 pilots and about 220 flight attendants. Recruitment will begin early next year.

Separately, Air France-KLM's stock price dropped last week despite solid first-half financial results as investors reacted nervously to a possible tie-up with Alitalia.

Air France-KLM's operating profit rose 7.8% to EUR568 million (US$746 million) in the first half of the fiscal year. Net profit was cut in half to EUR374 million (US$491 million), down EUR717 million a year earlier, which included EUR530 million in exceptional gains.

The carrier said it was expecting a "significant increase" in operating profit in the year ending March 31, and it calculated that the merger between Air France and KLM would generate revenue and cost benefits of up to EUR1 billion by 2010-2011.

As he was unveiling his company's results, Air France-KLM CEO Jean Cyril Spinetta said his company was in "exploratory talks" with Alitalia that may lead to the opening of merger discussions if a number of conditions are met. Later, at a summit with Italian Prime Minister Romano Prodi, French President Jacques Chirac said, "We have a situation that concerns two private companies who are discussing an alliance that in my opinion is desirable."

But Spinetta insisted that a tie-up with Alitalia would happen only if it "brings value and does not drain the resources" of Air France-KLM. As well, "it is not going to come at the price of job cuts," he said.