ThirtyWest
Topic Author
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Air France-KLM strategic review

Sun Jun 16, 2019 4:20 pm

In the aftermath of the power struggle between Ben Smith and Pieter Elbers, and the row over the Dutch state's subsequent acquisition of a shareholding in Air France-KLM, it was reported that a working group would produce an assessment in June of the group's strategy going forward, as well as the future of the CDG and AMS hubs. Any previews or educated guesses as to how the group will proceed from here? I'm particularly interested in whether the strategy (insofar as there is one) will change appreciably.

Here's a press article on the working group: https://www.flightglobal.com/news/artic ... ce-456299/.
 
Jetty
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Re: Air France-KLM strategic review

Sun Jun 16, 2019 4:50 pm

My educated guess.

- Air France has to become more profitable. (Ben Smith seems to be doing a good job rationalizing brands and preventing strikes, but the latter comes at a huge cost by giving in to union demands which isn't sustainable going forward as French unions basically demand all profit in good times leaving no margin for bad times. Doubtful if he or anyone else can succeed in the French business environment with huge taxes and very demanding unions.)
- Depending on this succeeding AF and KLM to integrate further. The Dutch government nor KLM would commit to this when AF is structurally loss making because of the consequences for KLM when the group fails.
- AF and KL to remain as separate brands, but full integration of Transavia as an European low-cost brand being part of the AFKL group (now Transavia France is 100% owned by the group while Transavia Netherlands is partly owned by the group and partly by KL).
- Both states agreeing to not buy any more AFKL shares or to divest an equal percentage.
- AMS is slot limited for the coming 2 years so all short-term growth has to happen at CDG (but it's doubtful how many profitable opportunities for growth they have when the current flights hardly turn a profit). When AMS allows for 40K more flights a year in ~2021 KL has to use the ~10K extra flights that could be allocated to them based on EU-slot allocation rules or they will be picked up by other airlines and the opportunity is gone.
Last edited by Jetty on Sun Jun 16, 2019 4:51 pm, edited 1 time in total.
 
Galwayman
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Re: Air France-KLM strategic review

Sun Jun 16, 2019 4:51 pm

ThirtyWest wrote:
In the aftermath of the power struggle between Ben Smith and Pieter Elbers, and the row over the Dutch state's subsequent acquisition of a shareholding in Air France-KLM, it was reported that a working group would produce an assessment in June of the group's strategy going forward, as well as the future of the CDG and AMS hubs. Any previews or educated guesses as to how the group will proceed from here? I'm particularly interested in whether the strategy (insofar as there is one) will change appreciably.

Here's a press article on the working group: https://www.flightglobal.com/news/artic ... ce-456299/.


Probably KLM to do lots more profitable flying to continue to compensate for inefficient and bloated Air France ...
 
ThirtyWest
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Re: Air France-KLM strategic review

Sun Jun 16, 2019 5:56 pm

Doubtful if he or anyone else can succeed in the French business environment with huge taxes and very demanding unions.


This seems like the fundamental issue. One must ask - given the immutable realities facing Air France with respect to union expectations and the French business environment, is there really any hope that AF-KLM will ever truly flourish beyond modest profits in good times and heavy losses in bad? Perhaps the company is the very definition of an airline that exists for the purpose of social benefits other than earnings for shareholders.
 
Mboyle1988
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Re: Air France-KLM strategic review

Sun Jun 16, 2019 8:17 pm

Why did KLM ever agree to the merger?
 
chonetsao
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Re: Air France-KLM strategic review

Sun Jun 16, 2019 8:21 pm

Mboyle1988 wrote:
Why did KLM ever agree to the merger?


The leader of KLM at that time was very fond of AF. The merge between KLM and BA seemed inevitable and some key agreements were agreed but KLM chose AF in a dramatic fashion. That is what I understand but the reality may differ.
 
Blerg
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Re: Air France-KLM strategic review

Sun Jun 16, 2019 8:27 pm

chonetsao wrote:
Mboyle1988 wrote:
Why did KLM ever agree to the merger?


The leader of KLM at that time was very fond of AF. The merge between KLM and BA seemed inevitable and some key agreements were agreed but KLM chose AF in a dramatic fashion. That is what I understand but the reality may differ.


I think I read at some point on here that back then KL was not doing financially well and that AF kind of bailed them out.
 
ITSTours
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Re: Air France-KLM strategic review

Sun Jun 16, 2019 8:31 pm

While high tax certainly does not help in a corporate point of view, the problem of AF seems beyond that. They are losing money even before tax (2018 Q4).
 
Jetty
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Re: Air France-KLM strategic review

Sun Jun 16, 2019 8:54 pm

Blerg wrote:
chonetsao wrote:
Mboyle1988 wrote:
Why did KLM ever agree to the merger?


The leader of KLM at that time was very fond of AF. The merge between KLM and BA seemed inevitable and some key agreements were agreed but KLM chose AF in a dramatic fashion. That is what I understand but the reality may differ.


I think I read at some point on here that back then KL was not doing financially well and that AF kind of bailed them out.

:checkmark: A failed merger with Alitalia almost brought them to bankruptcy. KL has always been a good performing airline by European flag-carrier standards, but had a horrible choice of European partners.
 
jbs2886
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Re: Air France-KLM strategic review

Sun Jun 16, 2019 8:54 pm

Blerg wrote:
chonetsao wrote:
Mboyle1988 wrote:
Why did KLM ever agree to the merger?


The leader of KLM at that time was very fond of AF. The merge between KLM and BA seemed inevitable and some key agreements were agreed but KLM chose AF in a dramatic fashion. That is what I understand but the reality may differ.


I think I read at some point on here that back then KL was not doing financially well and that AF kind of bailed them out.


Correct, people have short memories, but KL was merging with someone because they weren't strong financially. Sure, the tables have turned now (a lot), but KL was not always this strong.
 
Blerg
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Re: Air France-KLM strategic review

Sun Jun 16, 2019 9:26 pm

Jetty wrote:
Blerg wrote:
chonetsao wrote:

The leader of KLM at that time was very fond of AF. The merge between KLM and BA seemed inevitable and some key agreements were agreed but KLM chose AF in a dramatic fashion. That is what I understand but the reality may differ.


I think I read at some point on here that back then KL was not doing financially well and that AF kind of bailed them out.

:checkmark: A failed merger with Alitalia almost brought them to bankruptcy. KL has always been a good performing airline by European flag-carrier standards, but had a horrible choice of European partners.


Thank you both but do you mind telling me a bit more about this failed merger with Alitalia. It seems like they were about to chose an even worse partner than AF, what was their logic behind it? Did they expect the Italian government to bail them out via Alitalia?
 
jfk777
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Re: Air France-KLM strategic review

Mon Jun 17, 2019 12:44 am

Jetty wrote:
Blerg wrote:
chonetsao wrote:

The leader of KLM at that time was very fond of AF. The merge between KLM and BA seemed inevitable and some key agreements were agreed but KLM chose AF in a dramatic fashion. That is what I understand but the reality may differ.


I think I read at some point on here that back then KL was not doing financially well and that AF kind of bailed them out.

:checkmark: A failed merger with Alitalia almost brought them to bankruptcy. KL has always been a good performing airline by European flag-carrier standards, but had a horrible choice of European partners.


KLM didn't have " a horrible choice of European partners". BA would have loved to merge with KLM as many other Anglo-Dutch corporations have before. Unilever and Shell are joint Anglo-Dutch firms. KLM's profits have been used to cover up loses at Air France. The best thing KLM could do is get spun off from Air France and merge with IAG. DO you really think BA wanted to merge with Iberia ? It was the only airline left to merge with.
 
Thibault973
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Re: Air France-KLM strategic review

Mon Jun 17, 2019 12:58 am

jbs2886 wrote:
Blerg wrote:
chonetsao wrote:

The leader of KLM at that time was very fond of AF. The merge between KLM and BA seemed inevitable and some key agreements were agreed but KLM chose AF in a dramatic fashion. That is what I understand but the reality may differ.


I think I read at some point on here that back then KL was not doing financially well and that AF kind of bailed them out.


Correct, people have short memories, but KL was merging with someone because they weren't strong financially. Sure, the tables have turned now (a lot), but KL was not always this strong.



People do have short memories. In fact, at the time of the merger, AF was the most profitable airline in the world. Can't find a link but here is a link from the French Senate highlighting the fact that in 2002, AF was the most profitable airlines in Europe, and the 3rd worldwide behind SQ and QF

https://www.senat.fr/rap/a02-070-19/a02-070-199.html
 
Thibault973
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Re: Air France-KLM strategic review

Mon Jun 17, 2019 1:06 am

People tend to forget that between 2002-2006, AF was the biggest airline in Europe and the most profitable one. In 2005 Air France was leading the European market with a 17 % market share in front of Lufthansa (16,2 %), British Airways (16,1 %) when KLM was 1/2 it's size with a 9,9 % market share. In 2001, AF had a profit of 450 millions euros when LH was losing over 600 millions, BA almost 400 and KLM 200. Context guys, context.
 
Blerg
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Re: Air France-KLM strategic review

Mon Jun 17, 2019 2:31 am

Thibault973 wrote:
People tend to forget that between 2002-2006, AF was the biggest airline in Europe and the most profitable one. In 2005 Air France was leading the European market with a 17 % market share in front of Lufthansa (16,2 %), British Airways (16,1 %) when KLM was 1/2 it's size with a 9,9 % market share. In 2001, AF had a profit of 450 millions euros when LH was losing over 600 millions, BA almost 400 and KLM 200. Context guys, context.


So what changed after 2006?
 
Thibault973
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Re: Air France-KLM strategic review

Mon Jun 17, 2019 2:58 am

Blerg wrote:
Thibault973 wrote:
People tend to forget that between 2002-2006, AF was the biggest airline in Europe and the most profitable one. In 2005 Air France was leading the European market with a 17 % market share in front of Lufthansa (16,2 %), British Airways (16,1 %) when KLM was 1/2 it's size with a 9,9 % market share. In 2001, AF had a profit of 450 millions euros when LH was losing over 600 millions, BA almost 400 and KLM 200. Context guys, context.


So what changed after 2006?


Things went downhill from 2009, when they started losing money on their European, North American and Asian operations (with their worst performing route being CDG-HKG which alone lost 21,3 millions euros between march 2008 and march 2009). I guess what happened was Lufhansa getting stronger and stronger on the long haul front and easyjet eating them up on the European front. I remember reading an article around 2010 about how Lufthansa aggressive expansion in Africa, which was (and still is) their bread and butter was hurting them. At the time 9 out of their 10 most lucrative routes where in Africa (with Luanda being their better performing and Libreville their most lucrative routes). The only non african route of their top 10 cas ORY-CAY.
Last edited by Thibault973 on Mon Jun 17, 2019 3:26 am, edited 1 time in total.
 
Blerg
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Re: Air France-KLM strategic review

Mon Jun 17, 2019 3:18 am

Thibault973 wrote:
Blerg wrote:
Thibault973 wrote:
People tend to forget that between 2002-2006, AF was the biggest airline in Europe and the most profitable one. In 2005 Air France was leading the European market with a 17 % market share in front of Lufthansa (16,2 %), British Airways (16,1 %) when KLM was 1/2 it's size with a 9,9 % market share. In 2001, AF had a profit of 450 millions euros when LH was losing over 600 millions, BA almost 400 and KLM 200. Context guys, context.


So what changed after 2006?


Things when downhill from 2009, when they started losing money on their European, North American and Asian operation (with their worst performing route being CDG-HKG which alone lost 21,3 millions euros between march 2008 and march 2009). I guess what happened was Lufhansa getting stronger and stronger on the long haul front and easyjet eating them up on the European front. I remember reading an article around 2010 about how Lufthansa aggressive expansion in Africa, which was (and still is) the bread and butter of AF network was hurting AF bad. At the time 9 out of their 10 most lucrative routes where in Africa (with Luanda being their better performing and Libreville their most lucrative routes). The only non african route of their top 10 cas ORY-CAY.


Interesting, thanks. So I suppose the key to LH's success was getting its costs down, something AF couldn't do? From what I remember LH put a great emphasis on eastern Europe and on building up frequencies, something AF has not really done and is only doing now. Not to mention that LH has the luxury of combining flights via FRA, MUC, VIE and ZRH on a single ticket which considerably improves connectivity. AF on the other hand 'only' has AMS.
 
ThirtyWest
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Re: Air France-KLM strategic review

Mon Jun 17, 2019 5:45 pm

Such an interesting discussion. I do remember the heady days in which Air France was among the world’s most profitable carrier. So much has changed since then.

It seems like, in general terms, we’ve been discussing the same “recipe” for a true turnaround for the last 9 years. Is there a sense that there’s any real hope for AF-KLM to regain its strong financial position?

As I posited earlier, it seems to me more likely that the company more or less wallows on as an enterprise that exists for social benefits other than the enrichment of its shareholders—making modest profits in good times and recording significant losses in bad times. What do others think? Is that even sustainable?
 
Thibault973
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Re: Air France-KLM strategic review

Mon Jun 17, 2019 8:37 pm

ThirtyWest wrote:
As I posited earlier, it seems to me more likely that the company more or less wallows on as an enterprise that exists for social benefits other than the enrichment of its shareholders—making modest profits in good times and recording significant losses in bad times. What do others think? Is that even sustainable?


As someone who has worked for both the Ministere for transport and the French Parliament, I will tell you this, nowadays, the French government has little to say in how AF is run really. Before the all Dutch Government buying shares debacle, Bruno Lemaire, our current minister for economy had even warned that in case a case of another major crisis at AF, the state would not bail out the company.
 
VSMUT
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Re: Air France-KLM strategic review

Mon Jun 17, 2019 8:50 pm

jfk777 wrote:
The best thing KLM could do is get spun off from Air France and merge with IAG. DO you really think BA wanted to merge with Iberia ? It was the only airline left to merge with.


You have got to be kidding? When did you last try British Airways? That company is as bad as Ryanair nowadays with their penny pinching and low-cost concept. The last thing KLM needs is to be pulled down to BAs standards.
 
jfk777
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Re: Air France-KLM strategic review

Mon Jun 17, 2019 9:57 pm

VSMUT wrote:
jfk777 wrote:
The best thing KLM could do is get spun off from Air France and merge with IAG. DO you really think BA wanted to merge with Iberia ? It was the only airline left to merge with.


You have got to be kidding? When did you last try British Airways? That company is as bad as Ryanair nowadays with their penny pinching and low-cost concept. The last thing KLM needs is to be pulled down to BAs standards.


Air France can claim how great they are but that doesn't make $$$. BA(IAG) and their awful Club World make money AF can only dream of. BA is getting new A350-1000 and 777-9 starting this year, the 747 will be gone by 2023 -24. The BA fleet has new planes and new products in them. By the way last time I flew BA was last August fro LHR to PHL in a 744.
 
Jetty
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Re: Air France-KLM strategic review

Tue Jun 18, 2019 1:28 am

Blerg wrote:
Thank you both but do you mind telling me a bit more about this failed merger with Alitalia. It seems like they were about to chose an even worse partner than AF, what was their logic behind it? Did they expect the Italian government to bail them out via Alitalia?

The logic was that KLM wanted to have at least a merger of equals, that initially ruled out LH, BA and AF. AZ made sense network-wise if it would be turned into a competitive airline. There were agreements about a new hub at MXP, the closure of LIN and the divestment of Italians government shares in AZ. The latter 2 didn't happen and KLM figured out too late it wasn't viable to make AZ competitive. When they did brake up they had to pay a huge fine to AZ.

jfk777 wrote:
KLM didn't have "a horrible choice of European partners". BA would have loved to merge with KLM as many other Anglo-Dutch corporations have before. Unilever and Shell are joint Anglo-Dutch firms. KLM's profits have been used to cover up loses at Air France. The best thing KLM could do is get spun off from Air France and merge with IAG. DO you really think BA wanted to merge with Iberia? It was the only airline left to merge with.

Sorry, I meant to say they made horrible choices with first AZ and then AF. They ended up choosing AF and not BA (they were still attractive enough to be able too choose when they had to accept a 'merger' being the junior partner) because AF allowed them relative autonomy and BA would not commit to that. In a way they were right because if the merger with BA would have happened no doubt London would have more to say than Paris does now. That's also an issue with Ben Smith's vision of more integration: the main reason KLM chose AF is because they allowed a corporate structure which gives KLM the autonomy it has. If Ben Smith has his way KLM would have been better off merging with BA 15 years ago even when highly valuing the relative independence of KLM.
 
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vhtje
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Re: Air France-KLM strategic review

Tue Jun 18, 2019 5:52 am

VSMUT wrote:
You have got to be kidding? When did you last try British Airways? That company is as bad as Ryanair nowadays with their penny pinching and low-cost concept. The last thing KLM needs is to be pulled down to BAs standards.


Hyperbole, much?

Do we need yet another ‘AF is mismanaged and dragging KL down, KL is better off without AF’ thread?
I only turn left when boarding aircraft. Well, mostly. All right, sometimes. OH OKAY - rarely.
 
blueflyer
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Re: Air France-KLM strategic review

Wed Jul 03, 2019 9:28 am

Not entirely surprising given the number of topics to discuss, the working group did not turn in their conclusions by the end of June, and won't be anytime soon. It could take as long as until September before they are done.

https://www.latribune.fr/entreprises-fi ... 22379.html
The Trump/Johnson special relationship: Special people on both sides of the Atlantic
 
kimimm19
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Re: Air France-KLM strategic review

Wed Jul 03, 2019 10:20 am

I remember in the early to mid 2000s never having a chance to fly AF because the prices were very high transatlantic.

I feel like we will see KLM begin to need to introduce larger aircraft on routes because of the slots, which I wonder if it will affect Delta at any point... This I can only imagine will be the 777X in addition to the 77Ws & 781s that they are adding.

This seems to be a trend in Europe anyways. Places like LHR, AMS, even ZRH at certain times, and certainly the airlines need to adapt with larger aircraft instead of all this frequency which is already covered.

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