By Tim Hepher
PARIS (Reuters) - Air France-KLM pledged to improve its core earnings by 8 to 10 percent a year through 2017 as part of a new strategic plan combining an assault on the European leisure market with efforts to improve its appeal to long-haul travellers.
The Perform 2020 plan calls for new planes for its Transavia low-cost unit in Europe, coupled with further restructuring of loss-making activities. Details were released ahead of an investor meeting later on Thursday.
Europe's second-largest traditional network carrier says more belt-tightening is needed to confront low-cost rivals easyJet and Ryanair in Europe, while trying to compete against fast-growing Gulf carriers on longer routes.
The plan is the successor to the Transform 2015 restructuring programme, which is due to expire at the end of the year after achieving more than 1 billion euros (796 million pounds) in savings.
Air France-KLM aims to keep its adjusted net debt below 2.5 times core earnings - measured as earnings before interest, tax, depreciation, amortisation and aircraft rental payments (EBITDAR) - from 2017, the group said in a statement.
It said its targets were consistent with a return on capital employed (ROCE) of 9 to 11 percent in 2017. This compares with 3.2 percent reported by the group for 2013.
Chief Executive Alexandre de Juniac said the plans would lead to a "significantly improved risk profile both operationally and financially".
However, the Franco-Dutch group faces a potential backlash from unions, with pilots already preparing to strike next week.
Air France-KLM said it would invest in improved products and services for long-haul networks and boost the performance of its hubs, while revamping its short- and medium-haul operations and expanding its low-cost unit, Transavia.
By 2017, Transavia will have a fleet of 100 jets, compared with 41 reported at end-2013, and start using foreign bases that French media have speculated will be located in Germany and Portugal. Transavia flies mainly Boeing 737s.
The first phase of Transavia's overhaul will be funded by 339 million euros raised from the partial sale of a stake in travel technology firm Amadeus this week, the group said.
Transavia's expansion to more than 20 million annual passengers by 2017 will contribute 100 million euros of additional EBITDAR in that year, with operating profits targeted by 2018, the Franco-Dutch group said in a statement.
Air France-KLM said it would also create a single business unit for point-to-point activities under its own brand and that of regional subsidiary HOP!.
Air France-KLM also aims to bring its cargo unit back to operating breakeven in 2017 as it implements plans, already announced, to reduce the fleet of all-cargo planes to five from 14.
The carrier is, meanwhile, ready to make acquisitions to support the growth plans of its maintenance division, which it expects to generate 50-80 million euros of additional EBITDAR in 2017.
Overall, Air France-KLM aims to maintain an annual unit cost reduction rate of 1 to 1.5 percent a year, the company said.
(Editing by James Regan)