Caviar and champagne: Air France's luxury shift helps ride out Iran war impact

By Joanna Plucinska

LONDON, Sept 18 (Reuters) - With generous helpings of caviar and champagne, Air France's costly bet on luxury appears to be paying off, helping the Paris-based carrier weather the fallout from the Iran war, Chief Executive Ben Smith told Reuters on Friday.

Airlines worldwide, including parent Air France-KLM AIRF.PA, are grappling with soaring jet fuel bills and disrupted travel patterns caused by the nearly seven-month-old Iran war, which has forced some to cut capacity and rein in spending.

Air France, meanwhile, is riding things out. The airline has tapped into the buzz created by the "Emily in Paris" TV show and tourists' enduring fascination with the French capital's fashion, food and hotel scene. It has doubled down on premium offerings, upgrading onboard menus with luxury-branded products and investing heavily in its most lucrative cabins.

"All the luxury brands are based in Paris. We have more Michelin-starred restaurants than anywhere in the world in Paris," Smith said on the sidelines of a London awards show where Air France won best first-class cabin.

"So it is a very specific city. Not only is it gorgeous as a cultural location, but as a luxury city."

Europe's three largest airline groups, including British Airways owner IAG ICAG.L and Lufthansa LHAG.DE, have all unveiled redesigned first-class cabins in recent years as they chase growing demand for premium travel, particularly from affluent US passengers.

Smith said Air France's wealthiest customers have not been put off by higher prices. Some former private jet users are even switching to first class, he said, seeking to avoid the scrutiny attached to the higher emissions associated with private flights.

Premium, business and first-class cabins have all delivered growth in bookings and revenue this year, despite Air France raising fares to offset surging fuel costs, Smith said.

Revenue from first-class and premium travel has risen 11%, according to company data. Smith also played down concerns that rising inflation in the US could hit premium spending.

"We've raised ticket prices significantly, but no, it's quite solid. It's better than I would have expected," he said.