UPDATE 1-Air France ties short-haul future to cost cuts
* Airline says costs still too high, more savings needed
* Long-haul growth engine in 'slow motion'
* Links short/medium-haul future to drastic cost cuts
* Targets medium-haul breakeven in 2014 (Adds details)
By Tim Hepher
PARIS, April 2 (Reuters) - Loss-making Air France called on Monday for increased efforts to overhaul its European passenger network and signalled the survival of its short- and medium-haul operations depended on the willingness of staff to accept "drastic" cost cuts.
The French arm of Franco-Dutch group Air France-KLM said it needed to reduce its controllable costs by 20 percent, in part by extending a high-productivity formula thrashed out at regional bases to Orly, Paris' second airport.
"Air France will continue to offer short and medium-haul service on the condition of achieving extensive restructuring and a drastic reduction in costs," it said in a statement.
With French presidential elections looming in three weeks, recently appointed Chief Executive Alexandre de Juniac stopped short of announcing politically sensitive job cuts at the carrier, whose parent is 15.8 percent owned by the government.
But unions have warned of job cuts as a result of new labour contracts due to be signed in June, when a second phase of the company's existing restructuring plan is due.
Ground workers disrupted some Air France flights on Friday and one in five Orly flights were hit on Monday by a separate strike over reforms by state-employed air traffic controllers.
Among the latest moves, Air France said it would develop low-cost unit Transavia subsidiary and accelerate an overhaul at the freight division, which is suffering from weak demand.
"The goal is to return to break-even for point-to-point service in 2013 and for the entire short and medium haul business in 2014," the airline said.
Point-to-point travel -- flying directly to destinations rather than changing at hubs -- is the battleground for fierce competition with low-cost airlines, which continue to take passengers from legacy carriers on European routes.
Air France-KLM shares have fallen 64 percent in the past year, buffeted by relatively high costs as the industry tackled rising fuel prices. On Monday, the shares fell 1.2 percent.
Its woes contrast with 30-40 percent gains over the past year for low-cost leaders easyJet and Ryanair.
Air France-KLM slumped to a net loss of 809 million euros in 2011 from a year-earlier 289 million euro profit.
In March, the airline unveiled the first stage of a restructuring plan that included lower aircraft investments and 1 billion euros in cost cuts.
On Monday, however, the airline said additional savings must be found to break even in 2014.
"This is a warning that airlines like Air France really will capitulate to low-cost carriers if they don't make extensive changes," said UK aerospace analyst Howard Wheeldon.
De Juniac, a former chief of staff at the finance ministry brought in to shore up the company's share price, aims to restructure the company in two stages straddling the elections to avoid a political storm.
But the company has come under mounting pressure to act quickly as its long-haul operations, the traditional cash cow, failed to make up for the domestic and regional European losses.
Monday's statement did not address press speculation that Air France might apply the low-cost recipe to long routes, but said the long-haul operations would be revamped and repositioned to "better respond to growing leisure travel demand". (Reporting by Tim Hepher; Editing by Christian Plumb, John Irish)
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