From two sources I have heard this lately. Is KLM more profitable then AF? Has it been this way since the Merger into AF-KLM group? If true, what could be the reason? Is there somewhere a link to a breakdown of both carriers result of the last few years?

Thanks,

KL911

[Edited 2011-09-19 07:52:11]

It's already years like this.
Sometimes it's also clearly mentioned that all profit is made by KLM...

Mike

Quoting flyingfool (Reply 1): It's already years like this. Sometimes it's also clearly mentioned that all profit is made by KLM...

Could, in theory, KLM buy itself out of the merger again?

Edit: I have nothing against AF by the way, I actually prefer them over KLM longhaul.

[Edited 2011-09-19 08:27:02]

KLM's profit comes from a lower cost base, they have older planes, cheaper crews, no first class, no dedicated premium economy, older seats in business and coach. Basically it allows the AF-KLM group to offer two ranges of products, the KLM one being priced lower on the market. In times of crisis KLM will fare better. However I do not think they have interest in going it alone, the very reason why they joined AF is that they lacked critical size and this has not changed.

AF brings them a lot of clients, they share some of the infrastructure, order their planes together... I am not sure KLM would make the same profit if they were not part of the group.

AF has very difficult relationships with its unions and the management of Pierre-Henri Gourgeon over the past few years seems to not have handled these as well as the previous management did. Hopefully they will manage to improve this over time.

Quoting CuriousFlyer (Reply 3): KLM's profit comes from a lower cost base, they have older planes, cheaper crews, no first class, no dedicated premium economy, older seats in business and coach

KLM has new A330's , B777W, B737 and 738 and E190

KLM has dedicated primium economy

KLM has refurbished all longhaul planes incl new AVOD

Quoting CuriousFlyer (Reply 3): KLM's profit comes from a lower cost base

Our "Aviation Management" teacher (previously working at AMS) told us that the costs for each KLM plane operating to and from AMS is way lower than the low cost carriers like Easyjet at AMS. This because Schiphol wants to keep its biggest customer "happy". Don't know how things with AF and CDG are, but this can surely affect profits in bad times  

Yes klm is the more profitable of the two at the moment.

But, you can't say how they would be doing if they weren't picking the fruits of the AFKL merger.
The only clear thing is that klm has a lower costbase and af should work towards this.

But simply thinking kl can do it alone is wrong and buying itself out is not a realistic option.

Quoting kl911 (Reply 4): KLM has dedicated primium economy

Nothing to do with the premium economy of airlines like QF, AF, BA, AZ... just a bit more legroom and recline, same seat as coach. That's not dedicated.



The food in coach is inferior to AF. The lounges are inferior, particularly in terms of food and drinks.

Quoting kl911 (Reply 4): KLM has new A330's , B777W, B737 and 738 and E190

Also 747, Fokker and MD 11

Quoting kl911 (Reply 2): Could, in theory, KLM buy itself out of the merger again?

No. There is no more KLM as a separate entity. The KLM brand still exists, but not the company. Could AF-KLM decide to spin off KLM into a separate entity again? yes, I don't think they would have an interest in doing so or derive a benefit from it but its possible but KLM unilaterally just splitting from AF can't happen because there is no KLM per se. Its one company, two brands.

Quoting flyingfool (Reply 1): It's already years like this. Sometimes it's also clearly mentioned that all profit is made by KLM...

All seems unlikely to me, but KLM's cost structure has been quite profitable to the company. It is widely known that they generate more profit per passenger then AF. But we should look at this as one company now carrying two brands, since the individual companies AF and KLM do not exist anymore..

Quoting CuriousFlyer (Reply 7): Also 747, Fokker and MD 11

The 747's and MD-11's have newly refurbished interiors and AVOD.

The Fokkers are on their way out no?

The AF 773 I took CDG-YUL was in terrible shape, and AF bumped me out of their "dedicated" premium eco and put me in the last row. Good wine though!

What about Cargo? who's cargo-market is more profitable, AF's or KLM's??

Two main reasons why KLM seems more profitable than AF :

- KLM operating costs at AMS are lower than AF's at CDG (including taxes)

- KLM is still operating under the Netherlands Fiscal Laws that are way much advantageous for KLM than the French fiscal and social laws are for AF (AF has to pay in France much more taxes of all kinds than any other airline in Europe). A recent internal study at AF shows that if AF was operating under the German Fiscal Laws applied to LH, AF would have a similar profitability to LH and would have post profits in the past 3 years ....

Quoting LAXtoATL (Reply 8): The KLM brand still exists, but not the company

Its more then just a brand, otherwise it wouldnt have :

Quoting FlySSC (Reply 12): Two main reasons why KLM seems more profitable than AF : - KLM operating costs at AMS are lower than AF's at CDG (including taxes) - KLM is still operating under the Netherlands Fiscal Laws that are way much advantageous for KLM than the French fiscal and social laws are for AF (AF has to pay in France much more taxes of all kinds than any other airline in Europe). A recent internal study at AF shows that if AF was operating under the German Fiscal Laws applied to LH, AF would have a similar profitability to LH and would have post profits in the past 3 years ....

Quoting kl911 (Reply 13): Its more then just a brand, otherwise it wouldnt have :

Its just a brand. AF-KLM has two brands that it operates independently. While they report results individually for the two brands, KLM does not retain those earnings it all flows into the same pot - the single entity of AF-KLM. If you don't believe me, try and buy shares in KLM (hint: you can't it doesn't exist anymore).


It is also important to remember that as this is now one entity, the results for the two brands will be blurred. While they report separate results - it isn't exactly a true picture of how the two brands perform independent of each other. The two brands share resources and infrastructure and that is not always accurately reflected when looking at the separate results. AF-KLM doesn't care if one brand looks better than the other as it all hits the same bottom line, in fact it is possible that AF-KLM favors seeing profits flow through KLM and losses flow through AF if they have a more favorable tax environment in Netherlands.

[Edited 2011-09-19 10:24:50]

Quoting TK1244 (Reply 5): Our "Aviation Management" teacher

Geert by any chance?

Quoting LAXtoATL (Reply 14): Its just a brand.

It's more than just a brand. Legally speaking, AF-KLM is a holding company registered in France, it is the sole owner and parent company of Air France, registered in France, and KLM, registered in the Netherlands. Air France and KLM each have their own books and pay their own taxes, and their profits (if any) flow back to AF-KLM, the parent entity.

Quoting FlySSC (Reply 12): KLM is still operating under the Netherlands Fiscal Laws that are way much advantageous for KLM than the French fiscal and social laws are for AF

And that is why, in addition to KLM's lower cost base, expenses that can legally be assigned to either entity end up on the Air France side to maximize profits at KLM, since French profits are taxed at a higher rate.

With that in mind, it is very hard to predict how either company would fare independently from one another. KLM would still have lower operating costs than Air France in all likelihood, but their expenses would nevertheless climb due to the dual factors of not being able to shift some of their expenses to Air France and not benefiting from certain volume purchase discounts. Whether either company would be profitable is something best left for forensic accountants.

Quoting CuriousFlyer (Reply 7): The food in coach is inferior to AF. The lounges are inferior, particularly in terms of food and drinks.

Definitely not the case intra-Europe. It is vice versa in fact.

Quoting CuriousFlyer (Reply 7): The food in coach is inferior to AF. The lounges are inferior, particularly in terms of food and drinks.

I flew AF ORDCDG and KL AMSORD last month, and thought the food in Y was phenomenal on both flights. KLM gives you more options which you can view on the PTV screen before you order, and the portion sizes appear smaller in pictures, but the food is actually delicious and the trays are very filling. The crews are also among the nicest I have ever encountered on an international airline.

AF also has great food as well, and the free champagne was money. I love this airline. Too bad they are in SkyTeam, otherwise, I'd fly them all the time!!!

Quoting blueflyer (Reply 16): It's more than just a brand. Legally speaking, AF-KLM is a holding company registered in France, it is the sole owner and parent company of Air France, registered in France, and KLM, registered in the Netherlands. Air France and KLM each have their own books and pay their own taxes, and their profits (if any) flow back to AF-KLM, the parent entity.

Thank you for confirming what I thought.  

Quoting IrishAyes (Reply 18): AF also has great food as well, and the free champagne was money. I love this airline. Too bad they are in SkyTeam, otherwise, I'd fly them all the time!!!

Why can't you fly Skyteam?

And still not a single french comment....   

On a more constructive base: KLM knows how to operate more efficiently then AF at the moment.
Not only exploring new markets (eg. china), but also keeping their overhead costs down by outsourcing,
automation of processes and overal improvement in efficiency.

And as previously said: fleet modernization... (E190, A330, 777 and the A350/787)

Cheers...

Quoting PH-TVH (Reply 20): And as previously said: fleet modernization... (E190, A330, 777 and the A350/787)

And in a few years the F100 NG  

Quoting PH-TVH (Reply 20): KLM knows how to operate more efficiently then AF at the moment. Not only exploring new markets (eg. china)

It's not a "KLM" decision to explore "new markets" (eg. Chine) ... those are AF-KLM decisions and they are taken in Paris.
It's an AF-KL group strategy, not an AF side or KL side decision ...

Quoting kl911 (Thread starter): Definitely not the case intra-Europe. It is vice versa in fact.

Agree.
For my personal experience, AF is the worst of the "big" ones as service, while KLM is one of the best. Flown them also long haul, same results.
I believe the AF people fits more the AZ model in this regard, never marriage was more proper.
Well done to KLM, sorry for AF, wish more years of same results, maybe something will change.

Quoting blueflyer (Reply 16): It's more than just a brand. Legally speaking, AF-KLM is a holding company registered in France, it is the sole owner and parent company of Air France, registered in France, and KLM, registered in the Netherlands. Air France and KLM each have their own books and pay their own taxes, and their profits (if any) flow back to AF-KLM, the parent entity.

Quoting kl911 (Reply 19): Thank you for confirming what I thought.

blueflyer is correct in what he says, technically they are more than just a brand. But he is not confirming what you thought. They are still just one entity. KLM does not exist as a company any more.

So, as it pertains to your original question...

Quoting kl911 (Reply 2): Could, in theory, KLM buy itself out of the merger again?

The answer is emphatically no. KLM cannot buy anything because it no longer exists. The only company that exists is AF-KLM.

Here is how KLM describes it...

'Since May 2004, Air France and KLM Royal Dutch Airlines have become the largest European airline group: one group, two airlines, and three businesses. Each airline has retained its individual identity, trade name and brand. The three core businesses are Passenger Business, Cargo and Engineering & Maintenance. Both airlines run their own operations from their respective hubs Paris-Charles de Gaulle and Amsterdam-Schiphol.

For the purpose of this discussion the word 'group' and 'company' are interchangeable. There is only one company, KLM nor Air France exists anymore, its simply AF-KLM.

Quoting CuriousFlyer (Reply 3): AF has very difficult relationships with its unions and the management of Pierre-Henri Gourgeon over the past few years seems to not have handled these as well as the previous management did. Hopefully they will manage to improve this over time.

The fact is that Gourgeon is probably the worst CEO we'ev had for ages. Relationships between him, management and unions are just close to zero.

Quoting TK1244 (Reply 5): Our "Aviation Management" teacher (previously working at AMS) told us that the costs for each KLM plane operating to and from AMS is way lower than the low cost carriers like Easyjet at AMS. This because Schiphol wants to keep its biggest customer "happy". Don't know how things with AF and CDG are, but this can surely affect profits in bad times

Ask about ADP (Aeroport De Paris) excusive control over parisian airfields, and their stupid and ineficient management. They are the one and only controling CDG and ORY, they know it, and they act accordingly: by doing nothing. CDG is surely the main AF problem currently. The airport layout and organization is a nonsense, and it doesn't seem to improve in the near future. Comparing to AMS and its "passenger friendly" layout, there's no way to compete for CDG. Paris is just out of the game as a hub. Transits are a pure nightmare, event for frequent users.

Quoting FlySSC (Reply 12): - KLM is still operating under the Netherlands Fiscal Laws that are way much advantageous for KLM than the French fiscal and social laws are for AF (AF has to pay in France much more taxes of all kinds than any other airline in Europe). A recent internal study at AF shows that if AF was operating under the German Fiscal Laws applied to LH, AF would have a similar profitability to LH and would have post profits in the past 3 years ....

True, and the real question is, why AF doesn't move its headquarters to Netherlands? ....

Quoting JRadier (Reply 15): Geert by any chance?

How did you know it :P

Quoting airproxx (Reply 25): True, and the real question is, why AF doesn't move its headquarters to Netherlands? ....

Hmm, nationalisme maybe?   The French would never allow that to happen, not even when it makes sense.

Quoting TK1244 (Reply 26): How did you know it :P

Once Geert has been your lecturer at AM you don't forget  

Quoting JRadier (Reply 28):

lol 

Quoting kl911 (Reply 4): KLM has dedicated primium economy

Quoting CuriousFlyer (Reply 7): Nothing to do with the premium economy of airlines like QF, AF, BA, AZ... just a bit more legroom and recline, same seat as coach. That's not dedicated.

KLM more inches in a economy seat is not the same as BA , QF or virgin.

OK so the KLM product is not that bad in fact compared to AF, even in coach.

So to enhance my statements with what has been said above:
- KLM has a good product and is more efficient because of a lower cost base. This lower cost base is due to the fact that they have a better infrastructure in Amsterdam Schiphol, the law and taxation in the Netherlands is more favorable and they are able to automate more efficiently than AF.
- Also because of tax reasons a lot of profits are directed to KL entities in the Netherlands, so it might be that AF would have better results if its profits were not re-routed.
- KL cannot leave AFKL, it exists as a brand and not as an entity. AFKL could spin KL off but they would not have a good reason to do this as KL contributes positively to their profits.
- Many of the efficiencies at KL come from their participation in AFKL, the economies of scale and the flow of passengers coming from the group and its leverage are significant. It was KL's decision to join AFKL and this happened after many years were spent exploring other alternatives, including remaining an independent airline or merging with BA.
- KL's strategy is well adapted to a crisis/low margin environment. This comes at the expense of some premium offerings, Kl does not offer a first class and their "premium economy" product is not as premium as AF's (AF offers a better, larger seat in a separate cabin which books in separate more expensive fare codes -usually $500 to $1000 more than coach- , KL offers a coach seat with more legroom and recline than coach and for this advantage passengers pay a fee on top of their coach fare -usually less than $300-, and for Flying Blue Platinum passengers, booking an Economy Comfort seat on KL is free).
- AF is operating in a more difficult environment: CDG airport is not as well managed as Schiphol, taxes and regulations are tougher in France and unions are more demanding, moreover currently the AF management is not too good at handling the relationship with the unions.

Overall I think that AF is a good airline given the conditions, and that apart from a management problem which hopefully is temporary (not saying that PHG should go I do not know enough to say this and let's remember that he actually manages KL too, but let's say some work needs to be done with unions and to improve the perception of the AF brand), they are not inferior to KLM. Both brands and strategies exist well together and given the specificities of European air markets and regulations there are good reasons to keep the brands and strategies separate. The existence of two very close hubs seems to me to be an advantage, as they back up each other, and they serve somewhat different markets (France is a more premium market and a more important touristic destination, AMS is more an efficient hub).

Quoting IrishAyes (Reply 18): Too bad they are in SkyTeam, otherwise, I'd fly them all the time!!!

They are the reason why I fly SkyTeam...Seriously though, it depends where you fly... When you fly a lot to France outside of Paris, AF offers often the best time flexibility and frequency, and often the second best choice is KL. And often less expensive than if flying to CDG direct.
But well, CDG sucks to transit through. And missed connections must cost a lot to AF. AF staff always managed to find me a seat on their next flight to my destination, not always for my bags though, so all of this can't help the airline's finances. When they have to rebook a delayed pax and ship their bags 4 hours drive away in the middle of the Alps, no money is being made. As simple as that, and it happens ALL-THE-TIME...
AMS, on the other hand, is one of the most convenient airports ever. At least from a pax point of view. Don't know how it compares to CDG on the other side of the terminal, i.e., taxiing, baggage handling, gate assignments, but it can't be worse than CDG.

Quoting PH-TVH (Reply 20): And still not a single french comment....

Oh, don't get me wrong, there is a lot of AF bashing in France. Some of it is educated thought, most of it is not, like everybody else for their home airlines.

Quoting IrishAyes (Reply 18): I flew AF ORDCDG and KL AMSORD last month, and thought the food in Y was phenomenal on both flights. KLM gives you more options which you can view on the PTV screen before you order, and the portion sizes appear smaller in pictures, but the food is actually delicious and the trays are very filling.

I've only had bad food experiences on KL long-haul but haven't flown them so recently. I've found AF always better than all competitors in EU and NAm. Intra-Europe is actually quite the opposite indeed.

Quoting kl911 (Reply 27): Hmm, nationalisme maybe? The French would never allow that to happen, not even when it makes sense.

Yeah ..... I know..... I wasn't really asking the question, because I unfortunately know the answer. But what's worrying me, is the last (and very true!) part of your statement.   

Quoting CuriousFlyer (Reply 31): - AF is operating in a more difficult environment: CDG airport is not as well managed as Schiphol, taxes and regulations are tougher in France and unions are more demanding, moreover currently the AF management is not too good at handling the relationship with the unions.

  

Agreed.
In fact, AF had, before PH Gourgeon, a very good CEO, in the person of Mr Spinetta.
No need to make a list of his fantastic actions for AF and KL. He built AF/KL group, made the partership with DL possible, and more recently, the takover of AZ (despite a tough competition with LH).
AF and all its employees owe him much more than they ever could.
I really do like the man, and the CEO.
This guy deserves all our respect.

But, in my humble point of view, he made one mistake: what he called at that time the "social peace". Understand "peace" between unions (very powerful and dangerously far far far away of all managing considerations) and management team.
During years, he basically gave the unions all they requested, leading them into the impression that to get, you simply had to ask. AF has been hiring too much for a large panel of jobs. French cities of Nice, Marseille, Toulouse and Bordeaux are filled with useless but fully unionized ramp agents costing a lot for nothing (ex: 800 ramp agents for a small city like Nice, or even Toulouse?!?!?). Just like many jobs "created" inside AF headquarters in CDG, leading to a giant administrative mess. The situation became ridiculous, inside, but apparently calm from the outside: no more strikes, and an impression of rather sharp organization.
But today, AF pays for this policy.
The result is a misundertanding of AF employees regarding the need of a company reorganization (ex: the new "bases provinces" = new bases out of Paris for medium haul), and a giant social fee to pay for AF.

Combined with a crisis, bad results, fuel costs protection strategy that becomes a trap, and lately, but not the least, a very very bad new management team (since the departure of Spinetta 3 years ago) leaded by a (and I do weigh my words) a crappy and useless Pierre Henry Gourgeon, who's nothing but a profiteer... .... yes the airline is in bad shape actually.

So... please Dutch people, send us one of your men to run the game!

My experiences with Air France and KLM mean this comes as no surprise to me.

KLM were brilliant for me, AF crew on all my flights had attitudes that stank. It's a shame that they're associated with each other.

Quoting CuriousFlyer (Reply 3): KLM's profit comes from a lower cost base, they have older planes,

Average fleet age Air France: 9,4 years

(Brit Air: 10,5 years, CityJet: 16,1 years, Régional: 11,5 years, Transavia.com France: 5,9 years)

Average fleet age KLM: 9,9 years

(KLM Cityhopper: 16 years, Martinair: 18,1 years, Transavia.com: 7,4 years)

Frankly, I can only agree with the above.

CDG is such a mess that I never again again fly there.

I am a Star Alliance-only flyer, which makes some sense in Luxemburg, given the that LG is a member and also part to Miles & More, while LH, LX and SK have a good foothold there.

And even though AF sometime offers good deals to Longhaul destinations in Business class from LUX.

Things would be different if AF decided at last to operate 2-3 daily flights LUX-LYS, connecting with their French regional flights there.

You always forget that airline groups tend to be more profitable in the country that has the lowest corporate taxes - Swiss more than LH, KL more than AF, and I predict BA will make more profits than IB...