Air France-KLM in Talks to Find New Asia Partner for Routes to Australia

By Jason Ng

KUALA LUMPUR--Air France-KLM (AF.FR)'s incoming chief executive Tuesday said the Franco-Dutch airline is seeking a new partner to give its business in southeast Asia and Australia some extra thrust, just as growth in China is slowing.

The company is in talks with "several" potential partners to fly into Australia via southeast Asia, said Alexandre de Juniac, currently chief executive of the carrier's Air France unit.

The airline wants to tap the region's fast growth, but its hand has also been forced since Australia's Qantas Airways Ltd. (QAN.AU) formed an alliance with Dubai-based Emirates in September. Air France ended its commercial tie-up with Qantas after that happened and has since teamed up with Etihad Airways, one of Emirates's main Middle East rivals.

Mr. De Juniac's comments come as Europe's biggest airlines are reassessing their long-haul alliances, particularly in Asia as a growing number of emerging-market carriers are fighting hard to take a bigger share of Europe-Asia traffic.

Air France's new route to Kuala Lumpur follows Malaysia Airlines' investment in new routes to France, on which it is flying A380 super jumbos made by Airbus, a unit of European Aeronautic Space & Defence Co. (EAD.FR). Malaysia Airlines has also joined the One World alliance, which includes European carriers British Airways and Finnair Oyj (FIAIS.HE). Air France-KLM is one of the founder members of the rival SkyTeam alliance.

"We have in mind at least two new routes in Asia... We see a dynamic flow of businessmen and tourists between Europe and Asia," Mr. de Juniac said in an interview, as Air France marked the launching of its Kuala Lumpur-Paris route.

Air France is also after new sources of growth in Asia as the economic outlook for China isn't as bright as it once was. The airline has no plans to expand on the nine destinations it flies to in China for now, but forward bookings remain "strong," Mr. De Juniac said.

"When the Chinese economy recovers to a normal growth rate, we will increase frequency, or open new routes," he added.

Part of Air France-KLM's caution stems from the pressure it is under at home, with a wide-ranging cost-cutting program underway to restore its domestic operations to profitability in the face of high fuel prices and stiff competition from budget airlines amid Europe's prolonged economic slowdown. Delaying aircraft orders is part of the plan.

Mr. De Juniac said Air France-KLM will delay delivery of one A380, having already canceled one unit after initially taking delivery of eight of the super jumbos. The company will take the remaining two units this year and 2014, respectively.

Mr. De Juniac is replacing Chief Executive and Chairman Jean-Cyril Spinetta, who is due to step down from the company's helm July 1. Mr. de Juniac has led the French unit for a year, having been brought in to turn the carrier around after four straight years of losses. Frederic Gagey, Air France's chief financial officer, is due to succeed Mr. de Juniac as the French carrier's CEO. Mr. Spinetta plans to step down from the position of chairman early next year.

Write to Jason Ng at [e-mail]

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