Join the de­bate

READ­ERS SHARE THEIR OPIN­IONS (NOT NEC­ES­SAR­ILY OURS!)

Business Traveller - - YOUR COMMENTS - BUSI­NESSTRAV­ELLER.COM/FO­RUM

THE FU­TURE OF KLM AND AIR FRANCE

“If Air France does not make ef­forts to be­come more com­pet­i­tive, al­low­ing this flag­ship to be at the same level as Lufthansa and other air­line com­pa­nies, Air France will dis­ap­pear,” French fi­nance min­is­ter Bruno Le Maire said on May 6. This state­ment fol­lowed planned in­dus­trial ac­tion and the walk-out of chief ex­ec­u­tive Jean-Marc Janail­lac. Busi­ness Trav­eller Fo­rum users were quick to re­spond.

MARCUSGB

It seems that Air France staff are in a self­de­struc­tive, sys­tem­i­cally self­ish mode, which may lead to the com­pany not sur­viv­ing. This was em­pha­sised by the French fi­nance min­is­ter. Shares fell 14 per cent to­day (May 7), to less than half their value in De­cem­ber.

Is it time that KLM di­vides it­self com­pletely from fail­ing Air France? KLM is mak­ing profit, the brand is strong, and it has, as a com­pany, en­deav­oured to ad­just and do its best. The at­ti­tude is so dif­fer­ent within Air France, and you see it at its hubs and on-board. There ap­pears to be a dis­tinct at­ti­tude and be­hav­iour at each air­line that sim­ply does not meet.

I have flown KLM for 25 years. It has been an ex­cel­lent air­line. I find ev­ery­one sees it as re­li­able, hard­work­ing, con­stantly striv­ing to be bet­ter, teamor­i­ented (a fam­ily, as staff re­gard it), and one of Europe’s best air­lines. It has great re­spect in many of the coun­tries it serves.

KLM re­tains many des­ti­na­tions within Europe (more with its feeder net­work), and its long-haul net­work spans most of the world (though not Ocea­nia). KLM re­frains from go­ing lower cost with Buy On Board, and KLM Ci­ty­hop­pers are ex­pand­ing through smaller air­ports in Europe. There is an al­most com­pletely re­newed fleet, with more Dream­lin­ers in the pipe­line. KLM is set for the fu­ture.

I know sev­eral se­nior staff work­ing at KLM. Pa­tience and tol­er­ance (which the Dutch seem to have more of than most Euro­pean na­tion­al­i­ties) has run out.

Is it fi­nan­cially possible for KLM to break free as its own com­pany?

Fi­nan­cial re­ports are of­ten mix­ing the two, and hid­ing the sheer waste and de­struc­tion Air France is mak­ing to the KLM brand. Hop! and Joon [sub-brands] are not work­ing. I do not know why it is even con­tem­plat­ing tak­ing on Alitalia.

Surely the Dutch gov­ern­ment must now have some strat­egy, should this con­tinue, to sep­a­rate KLM and al­low it to thrive and stand on its own?

I can­not see the Dutch want­ing to lose KLM, nor the ex­cel­lent Schiphol hub – al­ways voted the best in Europe, and look­ing 20 years ahead with ex­pan­sion.

How se­cure is the [Air France-KLM] Fly­ing Blue pro­gramme, and your Miles? These can be worth a lot for re­deemed tick­ets world­wide in busi­ness class. All of us at the BT Fo­rum re­gard our col­lec­tions of miles as very valu­able!

I would like to see these air­lines di­vided and sep­a­rated. Let each fall or thrive on its own re­sults, and rep­u­ta­tion, and not let Air France hide be­hind the suc­cess of KLM.

EDSKI777

It is about time the French ap­point a pro­fes­sional rather than a po­lit­i­cal chair­man: some­one ca­pa­ble of deal­ing with the unions and restruc­tur­ing Air France. Re­sults over 2017 prove that Air France-KLM is head­ing for the cliff, and go­ing along with the unions’ de­mands, [it is tak­ing] “a big leap for­ward” – nor­mally not the best strat­egy while at a cliff’s edge.

The cost of Air France’s per­son­nel [wages] is around 30 per cent of its rev­enue, while at Bri­tish Air­ways and Lufthansa it is es­ti­mated at around 23 per cent; at low-cost car­ri­ers such as Easyjet and Ryanair that pro­por­tion is around 15 per cent.

If Air France were to in­crease salaries by five per cent [the wage bill] would rise to a level that is un­com­pet­i­tive.

KLM has a re­sult of 8.8 per cent [profit mar­gin], where Air France didn’t get any fur­ther than 3.7 per cent – both in a bullish mar­ket. We all know that won’t last for­ever; strong eco­nomic head­wind is al­ways just around the cor­ner. Fuel prices are rock­et­ing, com­pe­ti­tion is fierce from low-cost car­ri­ers such as Norwegian, Ryanair or the ME3 [Emi­rates, Qatar Air­ways, Eti­had Air­ways], which are cut­ting into some of the most prof­itable routes.

Politi­cians are get­ting in­volved now. The trans­port min­is­ters of France and the Nether­lands had a con­ver­sa­tion about the sit­u­a­tion and they have re­it­er­ated that this is an Air France-KLM prob­lem for them to re­solve. The French prime min­is­ter has ex­pressed that when the air­line group gets into fi­nan­cial dif­fi­cul­ties the gov­ern­ment will not bail them out.

Dutch mem­bers of par­lia­ment are now openly dis­cussing the op­tion of withdrawing KLM and Transavia [its low-cost sub­sidiary] from the Air FranceKLM group. Some­thing done in the same way as the Dutch gov­ern­ment did with ABN/AMRO, the Dutch bank­ing group. KLM and Schiphol air­port are too big a fi­nan­cial and eco­nom­i­cal in­ter­est to the Dutch to let them be ru­ined by to­tally clue­less French man­age­ment and unions.

An­other op­tion dis­cussed in the Dutch me­dia is to ap­point Pi­eter El­bers, chair­man of KLM, as chair­man of Air France-KLM group. He is the chair­man of the only suc­cess­ful part of the Air FranceKLM group, has turned KLM around, and has ex­cel­lent re­la­tions with the Dutch unions and the per­son­nel.

Dutch man­age­ment and unions have much more eco­nomic sense and will­ing­ness to com­pro­mise in the in­ter­est of the or­gan­i­sa­tion than the French. Let’s call it com­mon sense and realism.

It is time for ac­tion to save this air­line group, or risk it fall­ing apart and dis­ap­pear. The prof­itable parts to be sold off and the rest to go bankrupt or con­tinue as a third-rate small air­line.

Chances are that the French unions will de­mand that, in or­der to prop up the fig­ures of Air France, ac­tiv­i­ties and routes will be trans­ferred from KLM to Air France. But that would re­sult in frus­trat­ing fights be­tween these two ma­jor groups.

From an in­vestor and pas­sen­ger point of view, it would be wise to aban­don the fixed dis­tri­bu­tion of air­craft/seats and ex­pand the KLM brand. This would also send a strong sig­nal to the unions that they have to co­op­er­ate with the man­age­ment in the in­ter­ests of the to­tal group in to­day’s eco­nomic en­vi­ron­ment.

As some­one based in the Nether­lands and a reg­u­lar pas­sen­ger on KLM flights, I would hate to see the demise of the great air­line that KLM is, to­gether with its highly skilled and mo­ti­vated per­son­nel, who pro­vide an ex­cel­lent ser­vice. I sym­pa­thise with the KLM per­son­nel, who are wor­ried about their fu­ture.

MARCUSGB

Thanks EDSKI777 for that in­sight, es­pe­cially to hear what is be­ing dis­cussed from the Dutch per­spec­tive.

We are clearly talk­ing about the Dutch and French cul­ture within each air­line be­ing dif­fer­ent.

Both my Dutch and French friends have said it re­flects each coun­try as a whole; I have felt the dif­fer­ence the sec­ond you go into a ter­mi­nal or step onto an air­craft. I sim­ply en­joy the whole KLM ex­pe­ri­ence, its re­li­a­bil­ity and run­ning of ser­vices, yet I dread Air France and have al­ways had awful, poor ex­pe­ri­ences.

When hard times came to KLM, we must re­mem­ber that ALL staff came in to work in any way they could, vol­un­tar­ily, or moved roles – flight op­er­a­tions, ground ser­vices, en­gi­neer­ing, HR, ac­count­ing, ad­min, to keep “the fam­ily” go­ing. Pi­lots, cabin crew, en­gi­neers, ground staff. I have great re­spect for that, much my own style of man­age­ment – ef­fec­tive teamwork, com­mu­nity.

Air France has none of that. “Not my job or concern, I don’t care,” one purser said from Air France to a Dutch col­league!

It is a very com­pli­cated is­sue – in­di­vid­u­als, and in­vestor com­pa­nies, govern­ments hold­ing shares, the Dutch gov­ern­ment and city of Am­s­ter­dam hold­ing stakes in Schiphol. The suc­cess of each in­ter­linked. If “The Group” own KLM, I agree the best they can do is to part them in all ways possible, hold them to ac­count for their prof­its, ef­forts and brand.

RFERGUSON

The irony is that in France, paid-up trade union mem­ber­ship is lower than in the UK, yet the statu­tory pow­ers they hold are immense.

MARCUSGB

Many other car­ri­ers can take Air France’s place at Charles de Gaulle air­port, but the same would not be wel­come nor suc­cess­ful if KLM were to cease at Schiphol.

TRANSTRAXMAN

Does one re­ally think that Air France will be al­lowed to go bankrupt? That is a pos­si­bil­ity that nei­ther the French unions nor their gov­ern­ment will per­mit. The Euro­pean Union has proved in­ca­pable of con­trol­ling the French and Ital­ian govern­ments. They do pre­cisely what they want “in their na­tional in­ter­est”.

Thus the French might have to ac­cept KLM sep­a­rat­ing from Air France, but would that mean Air France go­ing bankrupt? I doubt it. There could well be two com­pa­nies go­ing sep­a­rate ways.

What the Euro­pean Union de­cides about Alitalia might be more sig­nif­i­cant. If the EU said that Ital­ian gov­ern­ment aid was enough af­ter more than €900 mil­lion was spent, then Air France might also have to fol­low suit. How­ever, France holds a stronger po­si­tion in the EU, so might well ob­tain the ben­e­fits of main­tain­ing Air France fly­ing with­out hav­ing to go into bank­ruptcy. Who knows?

EDSKI777

No mat­ter what KLM per­son­nel, pas­sen­gers or share­hold­ers may pre­fer, the chances that Air France will let KLM go are min­i­mal. KLM and other Dutch parts of the group are what keeps the group afloat, de­spite all the strikes by what is in­creas­ingly re­garded as un­will­ing and un­re­al­is­tic per­son­nel and unions, and highly in­com­pe­tent French man­age­ment.

Fi­nan­cial news­pa­pers re­port that each day Air France strikes will cost the group €25 to €30 mil­lion. The Air France-KLM group is ex­pected to op­er­ate at a loss this fi­nan­cial year.

Futher­more, Air France-KLM re­ports that, in April 2018, the group had fewer pas­sen­gers than in the same month the pre­vi­ous year. Air France trans­ported nine per cent fewer pas­sen­gers, while KLM re­ported a growth of five per cent. The to­tal num­ber of pas­sen­gers dropped from 7 mil­lion in April 2017 to 6.9 mil­lion in April this year.

To lose pas­sen­gers in this cur­rent mar­ket com­pared to last year is quite a per­for­mance (not!).

LUGANOPIRATE

An ar­ti­cle in The Econ­o­mist shows Air France-KLM staff are paid more than oth­ers, but the re­al­ity is it’s even worse, as Air France staff are paid more than KLM staff for the same job. A friend of my son’s, also in a se­nior po­si­tion at KLM, spent six months in Paris with a view to in­te­grat­ing their var­i­ous sys­tems. He said the staff were un­be­liev­ably lazy, ar­riv­ing later, long lunches, breaks and leav­ing early. He doubted they did more than four hours work a day, and even that was in­ter­rupted with per­sonal phone calls. No won­der Air France staff

out­num­ber KLM staff three times on a com­pa­ra­ble ba­sis.

KLM paid Alitalia €500 mil­lion, I be­lieve, as a “de­posit” to­wards the merger. As the Ital­ians could not agree staff cuts, etc, KLM walked away and should have had it money back. It never did.

How­ever, the grim re­al­ity is that KLM can­not de­volve it­self from Air France. The sys­tems are linked, fi­nance and leas­ing is cross-guar­an­teed by Air France and KLM and so on. The truth is if Air France goes bust, it will take KLM with it. That would be a sad and un­fit­ting end to the world’s old­est air­line!

CAPETONIANM

I did some work on in­te­grat­ing the sys­tems in about 2007, with both air­lines, and the at­ti­tude of the Air France staff was ex­actly as de­scribed above by LuganoPirate. Whereas the Dutch spoke ex­cel­lent English and were happy to do so, the French couldn’t or wouldn’t, even though it was made clear from the out­set that the project lan­guage was English. The French were a waste of of­fice space, ut­terly neg­a­tive, al­ways look­ing for prob­lems and ways of avoid­ing work, and con­tribut­ing noth­ing, while the Dutch worked hard and looked for solutions and a bet­ter outcome.

EDSKI777

Fol­low­ing the adage “Never waste a good cri­sis”, ac­cord­ing to a ma­jor Dutch news­pa­per the KLM man­age­ment will try to re­store the old struc­ture of Air France-KLM back in the days the group was cre­ated. Have a French chair­man to “run” the group, and have a Dutch right-hand man. The com­ing weeks will show whether the Dutch will suc­ceed, or whether Air France will drag all other parts of the group with it to their demise.

Work­ers at Air France are fi­nally start­ing to re­alise that the cur­rent sit­u­a­tion is cat­a­strophic. With oil prices rapidly in­creas­ing, fierce com­pe­ti­tion, di­min­ish­ing cus­tomer loy­alty and both the French and the Dutch govern­ments clearly un­will­ing to in­ter­fere and/or fi­nance the ensuing sit­u­a­tion, they are fi­nally wak­ing up.

BA789

What was the ra­tio­nale for KLM to link up with Air France? Air France has a his­tory of strikes and tense labour re­la­tions, so why would any air­line want to join forces with such a com­pany?

EDSKI777

In 2001/2002 KLM was hav­ing fi­nan­cial and or­gan­i­sa­tional prob­lems. As the consolidation in Europe started and IAG and Lufthansa be­came the dom­i­nant play­ers, KLM was deemed to be too small an air­line to sur­vive. Around that time we saw the demise of Swiss and Sabena (a Bel­gian air­line) as well. KLM was look­ing for part­ners, but both Bri­tish Air­ways and Lufthansa were seen as not at­tracted nor in­ter­ested for dif­fer­ent rea­sons. Then, part­ner North­west Air­lines was also not the health­i­est of or­gan­i­sa­tions, and had a fairly old fleet. So it was more of a tar­get than an in­vestor in the in­dus­try. Air France was the only air­line avail­able.

The old struc­ture, some­thing KLM seems to want to re­vert to, was a hold­ing with two or more brands un­der this Air France-KLM um­brella. With the French mak­ing up two-thirds and the Dutch (KLM, Marti­nair and Transavia) one-third of the or­gan­i­sa­tion. In or­der to keep labour re­la­tions un­der con­trol, it was agreed that in­vest­ments in the fleet would fol­low this line as well. Man­age­ment would be formed on the ba­sis of a French chair­man, Mr Spinetta, and a Dutch sec­ond in com­mand, Mr van Wijk. In later years, due to the eco­nomic sit­u­a­tion, Air France-KLM was forced to adapt both or­gan­i­sa­tions to the new re­al­ity. KLM was very suc­cess­ful in re­or­gan­is­ing its operation by cut­ting staff and costs and im­prov­ing on their per­for­mance, hard and soft prod­uct, and sub­se­quently on load fac­tors, rev­enue and profit. Air France lagged be­hind, hin­dered by strikes, po­lit­i­cal in­flu­enc­ing, bad man­age­ment and in­creas­ingly bad re­la­tions be­tween man­age­ment and per­son­nel, in­clud­ing the unions.

Where KLM kept its fi­nances tightly un­der con­trol, helped by a steady course and de­cent re­la­tions be­tween man­age­ment and unions, Air France didn’t meet the re­quire­ments. Air France still has a huge work­force in com­par­i­son to KLM for the amount of planes. Some­how the French will have to come to their senses and start re­al­is­ing that it is 2018 with global com­pe­ti­tion. Like it or not, in the air­line in­dus­try the mar­ket dic­tates. No longer are unions in charge and are govern­ments able and will­ing to sup­port ail­ing “na­tional” car­ri­ers.

The cur­rent in­vest­ment struc­ture makes no sense any­more. Any nor­mal com­mer­cial com­pany would in­vest in the most prof­itable and well-run side of the busi­ness, while the other part sorts out its prob­lems. Surely KLM per­son­nel feel like that. Frus­tra­tion and an­i­mos­ity be­tween the two sides of the com­pany are in­creas­ing. It re­mains a ques­tion how long this sit­u­a­tion can con­tinue and if re­la­tions can be re-es­tab­lished.

Did KLM make the right de­ci­sion in 2001-2002? With hind­sight: maybe not. But who else was able and avail­able at that time to sup­port KLM?

For now the French will have to sort out their own mess, kept afloat by a mon­ey­maker like KLM, but KLM is not gen­er­at­ing enough profit to sus­tain the losses caused by the French strikes. Air France is rapidly los­ing cus­tomer loy­alty, ob­vi­ously not helped by hav­ing CDG as

an air­port. Try­ing to win it back will take a lot of ef­fort and prob­a­bly money as well – money it has lost al­ready be­cause of these strikes.

MARCUSGB

First Quar­ter 2018 re­sults: Air France lost av­er­age for “The Group” of €25 mil­lion per day of the strikes. A €211 mil­lion loss by Air France. KLM prof­its dou­bled to €60 mil­lion. The Group’s prof­its were up 42 per cent for 2017, and 1.41 bil­lion Eu­ros. Share prices were around €14.50 in Jan­uary – now halved. What a com­plete fail­ure when prospects were so good.

It is very com­pli­cated to try to di­vide the two [com­pa­nies] so they can op­er­ate as two sep­a­rate air­lines again, but a way must be found. The stake­hold­ers in Schiphol in­clud­ing the Dutch gov­ern­ment and city of Am­s­ter­dam, KLM teams of staff, and se­nior ex­ecs of KLM, are look­ing at the sce­nar­ios and pos­si­bil­i­ties.

CAPETONIAMM

I am not hold­ing my breath that there will be any­one who can im­prove the sit­u­a­tion. In fair­ness, I doubt if that’s possible un­til the unions are neu­tralised and some­one with a spine and an in­ter­na­tional back­ground runs both the coun­try and the air­line.

So it will be, as the French say : “Plus ça change.” As Busi­ness Trav­eller went to press, it was an­nounced that while Air France-KLM searched for a new chief ex­ec­u­tive, it would be run by a three-per­son ex­ec­u­tive com­mit­tee com­pris­ing of group fi­nance direc­tor Fred­eric Gagey and the chief ex­ec­u­tives of Air France and KLM, Franck Terner and Pi­eter El­bers.

Newspapers in English

Newspapers from International

© PressReader. All rights reserved.