Air France wants level playing field with Chinese carriers

Air France wants the French government to limit Chinese airlines’ access to the country, saying they enjoy an unfair advantage because they can fly over Russian airspace closed to many other carriers.

The French arm of Air France-KLM is keen for President Emmanual Macron to introduce taxes or other measures that would create a similar cost base between Air France and Chinese airlines, according to people familiar with the situation. 

Opening up the door generously to Chinese airlines would give a boost to the country’s hotels and restaurants as China’s massive outbound tourism market recovers from strict Covid-19 travel curbs. But it also risks stumping the recovery of France’s flagship carrier, which used to operate 32 flights weekly to mainland China before the pandemic, said the people, asking not to be identified discussing private deliberations with the state.

“We support the ramp up of capacity between France and China but there needs to be a level playing field,” an Air France spokesman said. “Right now there is a distortion of competition which needs to be taken into account.” 

The government is seeking a “progressive and balanced” return of connections to China, and members from several ministries plan to meet as soon as this week to discuss the topic, a government official said. 

Retail Demand

The reopening of China after some of the harshest pandemic lockdown measures has created a conundrum for France. While Chinese visitors are a major economic factor for the retail and hospitality industries particularly in Paris, the state is also keen to protect its flagship airline, in which it owns which owns 29%. 

Other industries also are fighting to ward off mounting competition from China. Last year, the CEO of Stellantis NV blasted Europe’s politicians for welcoming Chinese manufactures with a “red carpet.” 

Air France is seeking to increase the number of flights to 14 a week in July pending Chinese government approval, up from the 6 weekly flights to China as of this month. Avoiding flights over Russia typically adds 2 to 3 hours to a flight back from China and requires additional crew, meaning extra fuel and staff costs per flight, according to Air France. While the longer flying times also impact other connections with Asia, Japanese and Korean airlines also avoid Russian airspace.

The biggest risk for Air France and other European airlines is that passengers “will prefer to choose Chinese airlines for cheaper fare prices” said Alphavalue analyst Yi Zhong.

While avoiding Russian airspace adds time and fuel costs, it also saves on overflight fees. Air France-KLM CEO Ben Smith said in February, at a time when there were only few flights leaving China, that charges to fly through Russia were so “astronomical” that avoiding them offset the extra cost of lengthier flights. 

Club Med

Air France’s situation is potentially more delicate than that of other European airlines because France and China signed a bilateral agreement in 2017 that allowing hundreds of connections per week to Chinese airlines. The agreement was due to take effect in 2020 but never came into force because of the pandemic. While Macron’s government buys time, pressure is mounting from players in the tourism industry to revive the accord. 

The chief executives of hotelier Accor SA, Chinese-owned resort chain Club Med SAS, department store owner Galeries Lafayette Group and Aeroports de Paris, which operates the Charles de Gaulle and Orly airports, wrote to Macron in March pleading for wider access to Chinese tourists. 

Prior to the pandemic, there were about 90 weekly flights connecting France to China, and Paris was Europe’s best-connected city to mainland China thanks to direct flights serving 13 Chinese cities, the CEOs wrote. Some 2.2 million Chinese tourists visited that year, accounting for 32% of the value of tax-free sales in France, they wrote.