KLM CEO Pieter Elbers is honest. He knows some of his employees question why KLM, which is thriving, needs its long-term marriage to Air France. But Elbers knows that in airlines, the biggest carrier usually wins. Plus, he knows there's no other way forward. For better or worse, Air France and KLM are probably together forever.
The doomsday scenario for Air France-KLM — that Air France disappears while KLM emerges as an independent airline based in Amsterdam— is highly unlikely to occur and is “not a relevant discussion,” KLM CEO Pieter Elbers, one of the three executives temporarily running the company, said Sunday in an interview.
The Franco-Dutch airline is in turmoil. KLM continues to thrive, but Air France is struggling to reach friendly terms with labor unions, and ongoing strikes and labor actions over the past several years have crippled it. In May, the CEO of Air France-KLM, Jean-Marc Janaillac, resigned after France pilots, cabin crew and ground staff rejected his offer of moderate raises in a referendum. The French government, which owns a significant portion of the company, has signaled it will not rescue Air France if it needs help.
The board temporarily replaced Janaillac with what Elbers called a “triumvirate” of three executives — Elbers, Air France CEO Franck Terner, and Frederic Gagey, chief financial offer of Air France-KLM. All also handle their existing jobs, and Terner continues to negotiate with Air France’s unions, but a long-term deal does not appear imminent.
Still, in an interview Sunday in Sydney before the IATA Annual General Meeting, Elbers said it remains business as usual, and he suggested the company will be fine, both short-term, and whenever it adds a permanent CEO. While fuel prices have been rising, it remains a favorable time to operate a global airline, as demand in many regions is robust.
“We are keeping the airline up and running,” Elbers said. “We have a stable situation right now. It is very important for all these employees to know what we’re up to and where we are, while the board is dealing with succession and with the governments.”
Rifts Between Companies
However, the labor issues — and Janaillac’s surprise resignation — has exposed rifts between the airlines.
Working with Elbers (pictured below), Dutch unions long ago accepted changes that give KLM a competitive cost base and allow it to compete with most major and low-cost carriers. But French unions mostly have rejected management’s overtures for a similar arrangement, and the broader company has suffered.
In the first quarter, a period when Air France suffered through strikes, the French arm lost 178 millions euros, or $208 million U.S., while the Dutch airline made 60 million Euros in operating income, or $70 million.
For the full-year 2017, Air France made money — 588 euros ($686 million) — but not nearly as much as KLM, which reported income of 910 million ($1.06 billion). This happened even though KLM’s total revenues were significantly less than Air France’s.
Given the recent turmoil, some groups, including the French government, have wondered if its all worth it. The government owns 14 percent of the company, and French Finance Minister Bruno Le Maire said last month that the airline could disappear, though Elbers downplayed those threats, and said a deal with labor should get done.
“There were some statements made by the French government,” Elbers said. “It’s clear in France, there a lot of reforms are going on. We should look also here to the broader context of reforming and some of the reforms going on in France.”
Meanwhile, in the Netherlands, some of KLM’s workers have questioned whether they need the French arm. In a letter last month to employees, Elbers said he had a “understanding for the anger” felt by workers but asked them to remain positive. On Sunday, he said some employees are still skeptical.
“Clearly these strikes are seen not only by customers but also internally as putting the group back rather than forwards,” Elbers said.
Airlines Need Each Other
Elbers said KLM needs its French sibling, albeit with a more competitive cost structure, and called the idea that the two airlines counterproductive.
Almost everywhere in the world, he noted, the largest airlines have an edge, and on its own, KLM likely would struggle against Lufthansa Group and International Airlines Group, owner of British Airways, Iberia, Aer Lingus and Vueling. Those two companies, along with Air France-KLM, control much of the European market. Smaller airlines not aligned with a large group, like Polish airline LOT or Tap Air Portugal, sometimes struggle to compete.
“It is a world of giants,” Elbers said. “If we look to the European consolidation, which is much slower than the consolidation in the U.S. the fact that Air France and KLM are together is really an asset. It’s an asset in terms of our network, it’s an asset in terms of a customer basis, it’s an asset to our partnership. We look to Delta and the deep cooperation we have with Delta in … Amsterdam and Paris. You really have to be of significant size there to do that.”
Long-term, Elbers said the company will be fine.
“If you see where we were at the end of ’17, the results have improved, both at Air France and KLM,” he said. “Transatlantic was thriving. Our network in countries like Brazil was developing, so really things were moving in the right direction. It is bad today with the strikes, there’s no doubt about it, but if you look at the bigger picture, it’s of two strong hubs and two strong brands, a great network, a very loyal customer base. They are still there.”
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Photo credit: Air France and KLM need each other to survive, KLM's CEO said Sunday in an interview. KLM