PARIS—Franco-Dutch airline operator Air France-KLM plans a new medium-haul and long-haul budget airline that could tap the lucrative market serving cities in the U.S. and Asia to recapture market share lost to expanding low-cost rivals and Middle Eastern carriers.

The new airline, set to start flying on routes to Asia in the winter 2017, would take over some of the least profitable Air France services and will operate them with staff on lower salaries, the company said on Thursday.

The new company would transfer Air France pilots, who would fly more hours for the same pay, and recruit new flight attendants with fewer benefits than Air France crew currently enjoy. Service would be less lavish than on board Air France planes, but won't be as austere as on discount carriers, the company said.

Air France-KLM has lost ground over many years to budget carriers within Europe such as Ryanair Holdings PLC and easyJet PLC while it has faced rising competition from carriers such as Emirates Airline and Qatar Airways on long-haul routes in the relatively lucrative Asian market.

The carrier, which operates the Hop and Transavia brands within Europe in addition to Air France and KLM, has undertaken several restructuring programs to improve efficiency and cut costs without narrowing the gap in competitiveness with its most important European rivals.

That competition continues to grow in new areas. Discount airlines such as Norwegian Air Shuttle ASA are operating cheap flights to North America from Europe, including France from this year.

Europe's established carriers, as they did when the threat of lower-cost budget airlines emerged within Europe, have taken time to react to the risk of losing market share on long-haul routes. Air France is following the lead of Deutsche Lufthansa AG which set up a discount long-haul business within its low-fare Eurowings unit.

Air France-KLM said the new airline would focus on flights to Asia though could later fly planes across the Atlantic.

The airline would include four-engined Airbus A340 planes among its fleet even though the aircraft has fallen out of favor with other carriers preferring more fuel-efficient two-engined planes like Airbus Group's own A350 or Boeing Co.'s 777 and 787 jetliners. AirAsia X, the Asian low-cost long-haul carrier ran discount flights to London using the A340, but scrapped them because the plane wasn't economical.

Air France management is counting on the new airline to help it increase the number of passengers it flies to 100 million a year by 2020 from around 91 million today, to generate revenue of 28 billion euros ($31.14 billion), up from €26.1 billion in 2015.

Write to Inti Landauro at inti.landauro@wsj.com

 

(END) Dow Jones Newswires

November 03, 2016 05:55 ET (09:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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