KLM continues to bloom despite ongoing industrial issues at partner airline Air France.
As anyone who travels for a living knows, if you want to get the flavour of what is going on in a country in which you have just arrived, ask your taxi driver.
When I arrive in Amsterdam in early May to interview KLM president and CEO Pieter Elbers, it’s fair to say that the company is in some turmoil.
While KLM appears to be running smoothly, all is not well with its bigger brother Air France. A wave of strikes for the French brand had cost it €300 million and culminated in the resignation of Air France-KLM CEO Jean-Marc Janaillac after staff rejected a pay deal.
This made the taxi driver’s outburst about the situation in France doubly impressive when he found out who I was about to interview. His knowledge of the finer details of an industrial dispute was only matched by his passionate delivery.
When I tell Elbers of the conversation I’ve just had, while he is unable to comment much on the details regarding the ongoing issues and the board’s response to them (at the time of publication Janaillac’s replacement is yet to be appointed), he is unsurprised by the taxi driver’s passion.
“It underlines the relevance of KLM in Dutch society,” he says. “With 30,000 jobs, we are the third-largest private employer in the country. The connectivity of this country is also very important, as we are an open economy with a high dependence on international trade.
“The strength of our network around the globe is very important to the country.”
Elbers is also keen to point out that while the man on the street might be angered by French industrial relations, the two airlines are still working effectively together.
He adds: “We were working in Brazil last week before all this happened – and sat in the terminal with a mix of all sorts. We had a great time working together, laughing together and fighting together against the competition.”
In addition, the pair reported strong results for 2017 with a 5.6% increase in passenger numbers to 99 million while operating income grew by 41.8% year on year to €1.4 billion, of which KLM delivered €1 billion. The one cloud on the horizon indicated in the results was the current rising price in oil which is predicted to increase the 2018 fuel bill by €150 million, although this is an industry-wide problem.
Perhaps this is just as well. While Elbers describes Air France-KLM as “two very distinct brands and two very separate brands”, he is silent when I ask him if the two brands could be split tomorrow and run immediately as separate airlines. It does seem as if it is in both airlines’ interests to resolve the dispute quickly and effectively.
In the meantime, Elbers is keen to talk about the work being done at KLM, which next year will celebrate its 100th anniversary, making it the oldest airline in the world. He adds: “It is a fantastic heritage. Wherever I am in the world, people have a vision of what KLM is and what it stands for.”
A combination of cost-cutting and investment in the past couple of years has seen around half the fleet replaced, while the company’s digital makeover continues with a focus on global social media.
KLM is also replacing its remaining fleet of 12 Boeing 747-400 aircraft – which includes eight combi versions – with 787s. And with 21 of the Dreamliners on order, he says they will be instrumental in driving the airline’s long-haul expansion.
“They are really providing us with a great opportunity in some of the second cities in China outside the big three airports at Beijing, Shanghai and Guangzhou,” he says. “They also allow us to step up our frequencies in places like Sao Paulo.”
On the long-haul front, he is also happy to work with his 20 SkyTeam partners to cover the airline’s white spots – specifically Delta Air Lines in the US, where KLM offers 14 destinations, and China Eastern Airlines, China Southern Airlines and XiamenAir in China.
When it comes to short-haul strategy, Elbers says the decision that saw KLM Cityhopper replace the last of its Fokker aircraft with Embraer 175s brings the total fleet number to 42, which has helped to optimise European operations thanks to their fuel efficiency and the ease of maintenance generated by having fewer aircraft types.
He adds: “The long-haul network is our backbone, while in the European landscape we use the Cityhopper network – and Cityhopper is very much an integral part of KLM.
[The Embraers] are really helping us to open up small cities around Europe, and that is the core of our network.”
Destinations from Schiphol (2017): 163 (76 intercontinental, 87 European)
Passenger numbers (2017): More than 32 million
While the aircraft are helping Elbers to penetrate Europe, perhaps his biggest local expansion concern can be found at the airline’s home and hub, Amsterdam Airport Schiphol, which he believes will hit full capacity this year.
He adds: “We are in the midst of discussions with the Dutch government and many stakeholders about how we can find a new balance between the benefits that Schiphol brings to consumers and the economy, while on the other hand dealing with noise and emissions.”
Elbers says the airline has been able to cut noise at the airport in the past couple of years while emissions are also down in the same period with levels of CO2 cut by between 20% and 25%.
He argues that this is a necessary work in progress, adding: “While we are in favour of continuing growth, we will do it in a responsible and responsive manner.
“Schiphol is at the heart of our network system, and two out of three customers connect there. For us as a home carrier here in Amsterdam, we can’t move. It is also a bit difficult to pick up 200 aircraft and some 30,000 employees and go to Brussels.”
However, he is confident that a solution will be found that is acceptable to every stakeholder invested in the talks.
And when the local Dutch taxi drivers start singing the praises of a new deal, we can be sure it is a good one.
When it comes to competing with the long-haul LCCs, Pieter Elbers is determined not to make the same mistakes he believes the European aviation industry made 20 years ago.
The KLM president and CEO argues that the continent’s traditional legacy and charter airlines were slow to realise the no-frills sector’s potential, even after the European Union’s decision to deregulate its skies in 1992. The decision gave Ryanair – which was founded in 1984 – the opportunity it needed to become the European giant it is today while also helping to drive the creation of easyJet in 1995, allowing it to become Europe’s second-biggest carrier.
Now, as Norwegian contests the long-haul market and has launched flights from KLM’s home in Amsterdam Airport Schiphol to New York’s John F Kennedy International Airport in May, he is confident that lessons have been learnt by older, traditional carriers keen to protect their own business interests.
Elbers says: “Being network carriers, we underestimated the rise of LCCs in Europe 20 years ago and I don’t think we should make the same mistake again. LCCs gave more choice and more flexibility and changed reality
for the network carriers.
“However, in terms of long-haul we are better prepared with a better mindset to compete.”
Elbers argues that this has led to traditional carriers offering more diversified product onboard while differentiated pricing and quickly changing fares are all part of the new normal and, more importantly, meet modern customers’ needs.
“In terms of giving more choice or variation and in terms of pricing, we’ve done it,” he adds. “We are far better at honouring our customers’ desires than we were 20 years ago.”
Elbers says KLM’s own low-cost subsidiary Transavia also allows the airline to compete with the European LCCs on their own turf, particularly thanks to the strength of its brand in Holland.
In 2017, Transavia carried 14.8 million passengers, an 11.3% year-on-year increase, while capacity rose 12.1% in France and 9.6% in the Netherlands. Improved commercial positioning and network rationalisation led to a 6.8% increase in unit revenue while the overall operating result increased to €81 million with a margin of 5.6% versus breakeven in 2016.