The two-week strike staged in September 2014 by Air France pilots in protest against the expansion of the airline’s low-cost subsidiary, Transavia, illustrates the impact of this increasingly widespread model on labour legislation and social protection.
“If low-cost could be done with the operating rules of a traditional airline, we’d know about it! (...) You can’t go and work for Transavia with Air France pay and conditions, without killing off Transavia,” said Air France-KLM Group CEO Alexandre de Juniac.
De Juniac – who went straight from being the chief of staff to the former finance minister Christine Lagarde, under President Nicolas Sarkozy, to being the head of Air France in 2011 – can at least be congratulated on his frankness during an interview with French daily Les Échos: simply put, he is saying that expanding Air France’s low-cost subsidiary means cuts in pay and working conditions, or no expansion at all.
Transavia France, created in 2007, was initially meant to operate as a charter carrier, chartering certain planes rather than operating scheduled flights.
Given the difficulties Air France has been facing since the economic crisis hit in 2008, the management changed its strategy and has decided to turn Transavia into a low-cost airline, by making savings on labour costs.
The pilots of Air France-KLM were asking for a single contract for Air France and Transavia pilots. The management refused, offering no more than a three-month postponement of Transavia’s imminent launch.
The pilots were also concerned about the threat of jobs being relocated, given Air France’s plans to develop Transavia bases in other European countries, with staff employed under local conditions.
Two of these new European bases could be in Portugal, where the minimum wage is just €565 a month (US$706) and employer contributions are much lower than in France.
“In the long term, the plan is to transfer Transavia employees to other European bases,” says Mehdi Kemoune, chief steward and deputy general secretary of CGT-Air France.
Kemoune recalls the case of another Air France subsidiary, the customer service platform Blue Link. “Initially, it was only supposed to be developed in France, but then a centre was opened in the Czech Republic.”
The Blue Link centre in Prague now has telephone advisors working in 21 languages, including French.
The gross average monthly pay in the Czech Republic is €907 (US$1130) – that is two and half times less than in France.
Labour costs: infernal competition
Although the strike was only staged by Air France pilots, which represent seven per cent of the Group’s staff (4700 employees out of a total staff of 65,000), other unions supported the action.
The impact of the low-cost strategy on pay and conditions affects Air France employees across the board.
“We want all Transavia staff to be employed on Air France contracts, not just the pilots,” explains Kemoune.
“It is entirely possible to develop Transavia with Air France personnel.”
Already now, Transavia’s cabin crew, the flight attendants, are paid less than their colleagues at Air France, even though their flight hours are longer.
As for the ground staff, the strategy is wholesale outsourcing.
“Even if a Transavia flight comes in to land at an Air France base, it is subcontracted staff that deals with it. It doesn’t make sense, but it shows that the plan is to close the Air France hubs,” says the CGT representative.
“Air France clearly wants to transfer cash assets to Transavia with poorer pay and conditions for the pilots, cabin crew and ground staff,” insists Mathieu Santel, a member of the National Inter-Professional Bureau of the trade union Sud Aérien.
“It is a transfer of funds from Air France, as in the air transport industry in general, towards low-cost operations with lower pay and conditions.”
The growth in budget airlines certainly provides food for thought for Air France’s commercial directors.
Ryanair, with 81 million passengers carried in 2013, has already overtaken Air France (77 million passengers) in the ranking of Europe’s largest airline and now serves 31 French airports.
EasyJet, a British low-cost airline established in 1995, carried 60 million passengers in 2013 and increased its turnover by ten per cent. It covers 181 routes from ten or so airports in France.
The price of success
They may be great business success stories, but success comes at a price.
The four leading low-cost airlines – Ryanair, easyJet, Air Berlin and Vueling – are those that spend the least on their employees.
Less than 10 per cent of turnover for Ryanair and Vueling, and just over 11 and 12 per cent for Air Berlin and EasyJet is spent on staff costs.
Air France-KLM is currently at 30 per cent. Other major airlines such as Lufthansa and IAG (born out of a merger between British Airways and Iberia) spend between 20 and 25 per cent.
“The financial success of these low-cost airlines is built on drastic cost cutting, especially when it comes to staff. So it’s hardly surprising that, like Ryanair, they are at the forefront of labour optimisation techniques, circumventing European law, if not departing from it,” said French Communist Party senator, Éric Bocquet, in a report last April on social dumping in the European transport sector.
“In a context of heightened competition, there is a tendency to implement such practices within a number of major groups’ subsidiaries.”
The senator points to several ruses used by low-cost airlines to save on wages and social security contributions. Heading the list is the widespread use of self-employed workers as crew members, to avoid having to pay social insurance and employer contributions.
It is a practice used by many budget airlines.
“Although it does not have a monopoly on such practices – the Spanish airlines Vueling and Volotea, Hungary’s Wizz Air, Enter Air of Poland and Lithuania’s Small Planet, all do the same – Ryanair is undoubtedly the company making the most extensive use of this system.
“Seventy per cent of its 3200 pilots are reportedly hired under this status, and 60 per cent of the cabin crew,” notes the senator.
The Irish company has woven a complex web of arrangements, with a multitude of employment agencies, allowing the company not to appear as the employer of its own pilots.
In the case of Ryanair, these “freelance” pilots work exclusively for the Irish airline.
They are disciplined if they fail to follow instructions and have to provide three months’ notice if they wish to end their contract.
They have all the constraints of salaried employees, but none of the advantages, such as social contributions.
Those who have the good fortune of being employed directly by Ryanair are hired under Irish contracts, regardless of where they are based.
Thought it has to be said that employer contributions in Ireland are less than 11 per cent of gross pay.
Ryanair staff, pilots and cabin crew also have to pay out of their own pockets for internal training, costing between €2500 and €13,000 (US$3125 and $16,245), according to Senator Bocquet’s report.
“Such costs are usually covered by the carriers, and can represent up to three per cent of turnover,” he said.
This represents a substantial saving for the low-cost airline.
State-sponsored social dumping
The shadiest practices of low-cost airlines are coming under increasing legal attack.
Vueling and easyJet have been charged by French courts with employing undeclared workers and obstructing worker representation.
They were both condemned to pay €100,000 in fines, a decision upheld by the Court of Cassation in March 2014.
In October 2013, a court in Aix-en-Provence had already ordered Ryanair to pay a fine of €200,000 (US$250,000) for breaching French labour law and obstructing the exercise of trade union rights.
In addition to the fine, the court ordered Ryanair to pay €9 million (US$11 million) in damages and interest, awarded, for the most part, to the employment centre Pôle Emploi, the organisation collecting social contributions Urssaf, and pension funds.
The Irish airline appealed against this decision, but it has not seen the last of the legal challenges against it.
In May 2014, police raided Ryanair’s base in Marseille, within the framework of a new investigation by the Public Prosecutor’s Office into undeclared work, this time covering offenses committed since 2010.
“The situation is all the more shocking given that the company benefits from subsidies to maintain operations in the regional airports,” explains Senator Bocquet.
These subsidies reached €793 million (US$990 million) in 2011 and “allowed the company to be in profit”.
“Social dumping is currently benefitting from taxpayers’ financial support,” summarises the senator.
In a decision adopted by the European Commission in July 2014, state aid to airlines or airports was considered, in several cases, to constitute an undue economic advantage and to be in breach of the law.
Notwithstanding, this social and tax optimisation strategy is in the process of becoming the European model in the air transport industry. But with what consequences for passenger safety?
A longer version of this article was originally published in French by Multinationals Observatory.