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New CEO Benjamin Smith is trying to do something his predecessors failed at — bring Air France and KLM closer together. The two airlines need to work in sync more if the group is going to compete better with rivals in Europe.

While Air France and KLM are part of the same holding company, they are two very different airlines.

In recent years the French arm has struggled, partly as a result of a long-running labor dispute. KLM, on the other, hand has quietly got on with business.

Air France-KLM’s new CEO Ben Smith wants to change this and bring the two businesses closer together.

“Obviously, [this is] a very unique set up, the way we have it here. There’s no comparable around the world. But the more we can do to optimize and do what most major groups do when they consolidate, that’s obviously our goal. And any internal struggles should be addressed as quickly as possible,” Smith told analysts on an earnings call after the company’s third quarter results, his first in his new role.

“So merging two cultures also with different types of competitive environments in the two major hubs, [is] challenging. But at the same time, [offers] future opportunities.”

Smith—a French speaker who has experience working through labor disputes from his previous job at Air Canada—also hopes more transparency will improve relations between the company and employees at Air France.

Smith struck a deal with some unions earlier this month  and talks with pilot group SNPL are scheduled to start in November.

“We are spending a lot of time to build trust and respect, which I think needs some work here,” he said.

Airline analysts see the upcoming talks as a key milestone for Smith and the company.

“The recent union deal is a big win for the group and for new CEO Ben Smith, but the upcoming SNPL negotiation will be an important barometer of how Mr. Smith plans to manage labour relations,” said Bernstein analyst Daniel Roeska in a note to investors.

Third Quarter Results

Air France-KLM reported a 4 percent rise in revenue during the three months to the end of September to $8.6 billion (€7.5 billion.) Pre-tax profit increased 7.3 percent to ($1 billion €915 million.)

While KLM contributes less in terms of revenue compared with Air France—$3.5 billon (€3.1 billion) versus $5.2 billion (€4.6 billion)—it had a higher operating profit – $650 million (€573 million) versus $559 million (€493 million.)

Like many of its European rivals, Air France-KLM believes the operating environment is going to get trickier over the coming months.

“The global context remains uncertain given the current geopolitical environment and rising fuel price trends,” the company said in its results release.

The company expects its fuel bill to go up $568 million (€500 million) this year and $1 billion (€900 million) in 2019.


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Tags: air france, air france-klm group, earnings, europe, klm

Photo credit: Benjamin Smith (right) Air France-KLM CEO. The French division is trying to strike a deal with pilots. Air France

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