Air France pilots' strike halts flights and hits shares

[September 15, 2014]  By Natalie Huet and Kirsti Knolle

PARIS/FRANKFURT (Reuters) - Pilots at Franco-Dutch airline Air France-KLM began a one-week strike at the French arm of the business over plans to cut costs, halting more than half of its flights on Monday and sending the group's shares down more than 3 percent.

Air France said on its web site it expected to operate 48 percent of its flights on Monday, but "last minute disturbances are not excluded".

Tuesday will be worse hit again, with only 40 percent of flights guaranteed to run, it said in a later statement.

New competition from low-cost rivals and fast-growing long-haul carriers in the Gulf has prompted Europe's legacy carriers to speed up restructuring measures and tweak their business models.

Lufthansa <LHAG.DE> is expanding low-cost services, Italian airline Alitalia is set to undergo restructuring and loss-making Finnair <FIA1S.HE> said last month it is taking rapid steps to cut its costs.

But Lufthansa and Air France-KLM, which have both issued profit warnings in recent months, are hampered by powerful unions in their efforts to lower costs.

The main pilots' unions at Air France have called for strikes from Sept. 15 to 22. And on Tuesday, Lufthansa pilots will hold an eight-hour strike - their fourth in three weeks - in a dispute over an early-retirement scheme.

Air France-KLM, Europe's second-largest network carrier, said earlier this month it would move ahead with a plan to open new bases in Europe under its Transavia brand in a bid to recapture market share from low-cost carriers and Middle East rivals.

By expanding its low-cost operations, the airline is following the example of Lufthansa, which is expanding budget services via its little-known Eurowings carrier and considering a budget long-haul unit.

Speaking to France Inter radio on Saturday, Air France Chief Executive Frederic Gagey said the strike would cost the airline between 10 and 15 million euros ($13-19 million) a day.

Air France-KLM shares fell 3.7 percent, making them the worst performers on the broad French SBF 120 index  Lufthansa shares fell 1.3 percent, making them the second-biggest loser on the blue-chip index Dax, which was trading almost flat.

Air France made a narrow operating profit of 130 million euros in 2013, its first in three years, but recorded a net loss of 1.827 billion euros that included an impairment charge.

Gagey and Air France-KLM CEO Alexandre de Juniac were due to give an update on the strike action at 1100 GMT (7 a.m. EDT) on Monday. Juniac said he was concerned about the progress of negotiations with pilots, saying positions had hardened.

(Editing by Andrew Callus and Mark Potter)

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