How Air France’s First Non-French CEO Waged Peace to Fix Its Dual Hubs

Where it started: chronic friction, labor deadlock, and structural fragmentation

For more than a decade following the 2004 merger of Air France and KLM, the French arm of the group operated as a case study in structural inefficiency. While KLM routinely generated operating margins near 8% to 9% out of Amsterdam Schiphol, Air France struggled to break even in Paris. The airline was trapped in a self-defeating cycle: aggressive union resistance, recurring strikes, dual-hub operational duplication, and high fixed costs rooted in national labor regulations and heavy French payroll taxes.

The structural vulnerability peaked in May 2018. Following months of rolling strikes organized by the powerful SNPL pilots’ union and cabin crew representatives—action that cost the airline €335 million (approx. $360 million) in early 2018 alone—Chief Executive Jean-Marc Janaillac put his strategic turnaround plan to a company-wide employee vote. When 55% of workers rejected the proposal, Janaillac resigned immediately, leaving Air France leaderless, financially strained, and facing widespread industry skepticism about whether any executive could manage French aviation unions.

Beyond labor unrest, Air France operated under severe structural constraints. Its hub operations were divided between Paris-Charles de Gaulle (CDG) and Paris-Orly (ORY). Orly handled point-to-point French domestic routes and French overseas territory services, while CDG managed long-haul international traffic and European feeder flights. This dual-hub setup created operational redundancy, diluted fleet utilization, and exposed domestic routes to fierce competition from France’s high-speed TGV rail network. Meanwhile, European low-cost carriers like Ryanair and easyJet chipped away at short-haul market share, while Gulf carriers systematically eroded Air France’s long-haul secondary connecting flows between Europe, Asia, and the Middle East.

The strategic bet: wage peace, single-hub centralization, and asset rationalization

In September 2018, the Air France-KLM board made a unprecedented move by appointing Benjamin Smith—the former Chief Operating Officer of Air Canada—as the group’s first non-French Chief Executive Officer. Smith immediately placed a multi-tiered strategic bet designed to fix Air France’s underlying cost structure without triggering a fatal union showdown.

First, Smith prioritized social dialogue over public confrontation. Within four months of taking charge, he negotiated multi-year categorical wage agreements with major pilot and cabin crew unions. In exchange for structured pay increases, management secured operational concessions, including the authority to streamline short-haul operations and dismantle Joon—a confusingly positioned sub-brand created in 2017 to target millennial travelers. Joon’s aircraft and crew were integrated back into mainline Air France, eliminating administrative overhead and operational friction.

Second, management made the strategic decision to consolidate mainline Air France entirely at Paris-Charles de Gaulle. Under a multi-year restructuring program culminating in March 2026, Air France systematically withdrew mainline domestic point-to-point routes from Paris-Orly (with the exception of Corsica services), transferring its valuable Orly slot portfolio to low-cost subsidiary Transavia France. This division of labor allowed Transavia to fight budget carriers using a low-cost structure, while mainline Air France concentrated every short-haul flight at CDG to feed long-haul widebody aircraft.

Third, Air France executed a widebody fleet overhaul. Rather than attempting to fill high-capacity, four-engine aircraft on volatile routes, management elected to simplify the long-haul fleet around fuel-efficient, twin-engine widebodies. When the COVID-19 pandemic struck in early 2020, Air France permanently retired its entire fleet of 10 Airbus A380s and remaining A340s years ahead of schedule. Though the decision forced significant balance sheet write-downs, it permanently removed millions in fixed maintenance overhead and laid the groundwork for a standardized long-haul network.

Hub & fleet: how the strategy is actually executed

(a) The Hub: Paris-Charles de Gaulle (CDG)

Paris-Charles de Gaulle serves as the foundation of Air France’s network strategy. Unlike London Heathrow, which operates at over 98% runway capacity with only two runways, CDG features four parallel runways operating in two independent pairs. This physical layout enables Air France to structure its timetable into six synchronized arrival and departure waves (banks) each day, maximizing connecting combinations between European regional flights and long-haul international departures.

However, operating at CDG imposes strict constraints. The airport enforces severe night curfews between 00:00 and 05:00, capping peak late-night departures. Additionally, French air transport taxes, environmental levies, and Groupe ADP airport charges rank among the highest in Europe. To make this high-cost hub viable, Air France cannot rely on low-yield transit traffic. CDG must balance connecting passengers with high-yielding local origin-and-destination (O&D) traffic generated by Paris—the world’s top international tourist destination and a major European corporate hub. The launch of the “Connect France” initiative between Air France-KLM and Groupe ADP in 2025 further reinforced this synergy, upgrading baggage infrastructure and Terminal 2 transfer halls to reduce minimum connection times.

(b) The Aircraft: Matching Gauge to Hub Structure

Air France’s fleet decisions directly mirror its hub design, replacing a fragmented mix of older jets with two core modern aircraft families:

• Short/Medium-Haul (Airbus A220-300): Air France selected the A220-300 to replace its aging Airbus A318s, A319s, and older A320s. Configured with 148 seats in a 3-2 cabin layout, the A220 delivers a 25% reduction in fuel burn per seat and a 50% smaller noise footprint compared to previous-generation narrowbodies. Crucially, the A220’s low trip cost makes thinner European regional feeder routes commercially viable, allowing Air France to channel passengers from secondary European cities into the CDG hub without oversupplying seat capacity.
• Long-Haul (Airbus A350-900 & Boeing 777-300ER): On long-haul routes, Air France relies on the Airbus A350-900 and Boeing 777-300ER. Configured with 324 seats (34 Business, 24 Premium Economy, 266 Economy) or 292 seats with expanded premium cabins, the A350-900 provides exceptional fuel efficiency and range (up to 9,700 nautical miles). It handles long, thin routes to South America, Asia, and Africa, while high-density Boeing 777-300ERs serve high-volume trunk routes to North America and the French Caribbean.

(c) The Order Book as Evidence of Strategy

Air France-KLM’s order book demonstrates clear capital allocation priorities. In September 2023, the group placed a landmark order for 50 Airbus A350 family aircraft with purchase rights for 40 more. Combined with earlier individual airline orders, Air France-KLM established itself as the world’s largest operator of the A350 family.

However, the shape of this order book underwent a revealing adjustment in August 2025. Airbus backlog figures revealed that Air France-KLM converted eight of its 11 ordered A350-1000s into the smaller A350-900 model. This shift illustrates management’s disciplined approach to gauge management. While the larger A350-1000 offers roughly 40% more space for premium seats, the A350-900 provides lower overall trip costs, better hot-and-high airfield performance, and longer range. By opting for the -900, Air France avoids taking on excess seat capacity that would require discounting fares during off-peak seasons, prioritizing unit revenues over gross seat counts.

As of mid-2026, Air France operates 42 Airbus A350-900s, with 29 widebody orders still pending delivery across the group. On the narrowbody side, Air France has taken delivery of 58 out of its 60 firm Airbus A220-300 orders. The gap between aircraft on paper and aircraft flying today shows an airline midway through a complete widebody fleet replacement, with incoming A350s systematically replacing 6 remaining legacy A330-200s (average age over 22 years) and older Boeing 777-200ERs.

Competitive reality: stacking up against IAG, Lufthansa, and Gulf rivals

Air France’s turnaround must be evaluated against its major European flag-carrier peers: International Airlines Group (IAG) and Lufthansa Group. In fiscal year 2025, Air France-KLM delivered a record group operating profit exceeding €2.0 billion (approx. $2.36 billion) on revenues of €33.0 billion (approx. $38.9 billion), representing an operating margin of 6.1% and carrying 102.8 million passengers.

While a 6.1% operating margin marks a major historical achievement for Air France-KLM, it trails IAG, which generated operating margins near 12% over the same period. IAG benefits from British Airways’ dominant position at London Heathrow—an airport constrained by slot caps that allow BA to extract extreme pricing power on premium North Atlantic routes. By contrast, CDG faces higher airport capacity and stronger low-cost pressure. However, Air France outperformed Lufthansa Group (operating margin ~5.1%), which suffered from escalating German infrastructure taxes, delayed Boeing 787 and 777X deliveries, and repeated ground-handling labor strikes.

Against Middle Eastern mega-carriers (Emirates, Qatar Airways, Etihad) and Turkish Airlines, Air France defends its long-haul market share by leveraging protected traffic rights and cultural ties in West and Central Africa (such as Abidjan, Dakar, Yaoundé, and Brazzaville). On these routes, point-of-sale pricing remains exceptionally high, and direct flights from Paris CDG offer a distinct travel time advantage over multi-hour detours through Gulf hubs.

The demand side: reach, premium volume, and product

Supply-side efficiency (fleet standardization and slot management) only works if passengers pay for the product. Air France’s recovery strategy relies heavily on up-gauging its premium passenger revenue.

Following a collapse in passenger traffic during the 2020 pandemic (falling below 35 million group passengers), Air France-KLM steadily rebuilt volume, surpassing 102.8 million passengers in FY2025. Crucially, the financial quality of this passenger base improved. By late 2025, premium cabins (La Première, Business, and Premium Economy) generated 36% of total group network revenue, up from 26.9% in 2024. Premium Economy alone saw revenue grow by 18% year-over-year in 2025, driven by leisure travelers upgrading for enhanced comfort.

Two specific, named routes highlight how Air France’s network structure functions in practice:

• Paris CDG to Papeete (PPT) via Los Angeles (LAX) — Flights AF028/AF029: This flagship transpacific route spans 15,700 kilometers (approx. 9,750 miles). Air France operates the sector using Airbus A350-900s, utilizing fifth-freedom traffic rights to carry passengers between Los Angeles and Tahiti in addition to direct travelers from Paris. The route leverages sovereign connections to French Polynesia while capturing lucrative West Coast U.S. premium leisure travel.
• Paris CDG to Cape Town (CPT) — Flights AF0870/AF0871: Re-introduced as an extended seasonal service running through May 2026, Air France operates up to five weekly non-stop flights using A350-900s. The timing aligns with European winter demand, connecting South African point-of-sale business and tourism traffic directly into the morning wave at CDG.

On the product side, Air France invested heavily to differentiate its premium offering from European competitors. The carrier re-designed its ultra-exclusive La Première first-class cabin on select Boeing 777-300ERs and incoming A350s. Featuring private suites with floor-to-ceiling curtains, full-flat beds, Michelin-starred cuisine, and private Porsche chauffeur transfers at CDG, La Première functions as an effective halo product. Fares frequently exceed €10,000 (approx. $11,800) per round trip on routes to New York (JFK), Los Angeles (LAX), and San Francisco (SFO), elevating the brand's premium reputation and boosting yields across the entire Business Class cabin. Furthermore, the airline began rolling out free, ultra-high-speed Starlink Wi-Fi across its entire fleet in late 2024, with complete implementation scheduled for 2026.

What the evidence shows: connective logic and unit economics

The financial and operational data reveals a clear analytical thesis: Air France’s multi-year recovery is not an accident of post-pandemic travel demand, but the result of matching specific market constraints with asset selection.

When management replaced aging A318/A319 narrowbodies with 148-seat A220-300s, it lowered cost per available seat kilometer (CASK) on European feeder routes while offering a product that feeds premium passengers into CDG. By exiting domestic Orly flights and handing those slots to Transavia France, Air France protected group market share against easyJet and Vueling without burdening mainline Air France with low-yield domestic traffic.

The decision to convert eight A350-1000 orders into smaller A350-900s demonstrates disciplined capital allocation. Rather than taking on heavy widebody capacity that could depress yields during demand troughs, Air France prioritized flexibility and lower trip costs. Combined with the complete repayment of €10.4 billion (approx. $11.3 billion) in French and Dutch state COVID aid by April 2023, Air France-KLM freed itself from EU ban restrictions on corporate acquisitions. This paved the way for the group’s acquisition of a 19.9% stake in SAS Scandinavian Airlines in 2024, set up for a path toward majority control in 2026.

Where this leaves Air France: the road ahead and open vulnerabilities

Air France has successfully engineered a structural turnaround, shifting from a loss-making, strike-prone carrier into a profitable network airline centered on a single Paris hub. Its long-haul fleet is modernizing rapidly around the A350-900, labor relations remain stable under Ben Smith’s leadership, and premium cabin yields continue to outperform historical benchmarks.

However, serious open risks remain. The carrier faces escalating French environmental taxes, rising corporate taxation introduced by the French government, and expanding EU Emissions Trading System (ETS) carbon costs that disproportionately affect European network hubs compared to non-EU rivals. Furthermore, operational challenges at sister airline KLM—stemming from proposed flight caps at Amsterdam Schiphol and Dutch supply chain bottlenecks—place an increasing operational burden on Air France to maintain group earnings.

To achieve its long-term strategic objective of an 8%+ operating margin by 2028, Air France must complete its widebody fleet renewal, integrate SAS into the SkyTeam alliance without diluting yields, and successfully defend its high-yield African and transatlantic routes against expanding foreign competition.