KLM Cargo Boss Claims Half of 2013 Loss is “Artificial”

Well! At least this is what the Franco-Dutch airline’s top cargo man, Erik Varwijk has stated in an interview with the Dutch trade magazine, Nieuwsblad Transport.
What does this surprising statement really mean for KL Cargo and specifically for the fate of Martinair?

Says Eric Varwijk: “as a cargo division we are the victim of internal accounting rules”  /  source: hs
Says Eric Varwijk: “as a cargo division we are the victim of internal accounting rules” / source: hs

The AF-KL-MP cargo division made a loss of €202 million in 2013 and Mr Varwijk claims in the above mentioned interview that KLM along with Martinair contributed almost a third of this amount, namely €68 million.
The remainder, on paper at least, rests at the doors of Air France.

“One plus one does not add up to two in this case”
This is the conclusion that the cargo helmsman comes to when stating that a comparison of annual reports of KLM Netherlands and the Group AF/KL on cargo results gives the wrong impression on where the major losses were incurred within the combined airline group.
According to Varwijk, it is a fact that KLM Netherlands and including Martinair incurred only a third of the total loss on the group cargo operation, to an amount of almost €70 million. But, he further states, “then one ignores the fact that half of the total loss was artificial.”

This is where things seem to get complicated
The top executive went on to explain that an amount of €100 million of the group loss can be laid down to an “internal and very rigid cost attribution model.” This apparently means that the cargo division is burdened with a certain fixed cost allocation tied in with the total cost of certain passenger flights.
Varwijk explains that this is actually an artificial loss because one allocates costs internally to a sister company.
What does this then actually mean?
Mr Varwijk, in his interview, went on to explain that the internal cost allocation is particularly noticeable on the French side of the joint cargo division. The argument is that a large amount of this loss originates from the French side of the AF/KL product and is caused by the fact that AF operates into a large number of cities within the United States of America which are basically non- cargo destinations and for this reason the flights do not generate any or very little cargo revenue.

Victim of internal rules
KLM on the other hand seemingly and according to the explanation is far less impacted by these accounting rules, suggesting that KLM’s network destinations have a better passenger-cargo balance, with maybe the exception of flights into Bonaire in the Dutch Antilles.
He went on to say that “as a cargo division we are the victim of internal accounting rules.”
Mr Varwijk insists that he is presently being very active in trying to ensure that an end is brought to these rigid accounting rules, as in his opinion this practice provides a wrong impression of the added value of the cargo division of the total group.
In his closing remarks, Erik Varwijk states that the remaining 50% of the loss is realistic and that 60% of that was generated by the combined KL and MP cargo fleets, with the remainder through AF’s cargo aircraft.
In other words, that the largest share of the cargo losses are made in the Netherlands and not in France.
“That is also the reason why we, at MP, have to take drastic measures to end the loss situation in 2017.”

What cargo division will there be in the future?
The closing remark by the cargo boss certainly sounds like the final blow for Martinair.
It’s probably no secret that the management in Paris does not consider MP as being a future part of the picture.
The combined cargo fleets are being wound down with the MD-11 Freighters slated to be out of the fleet by latest 2016 and the Combi-aircraft by latest, if not earlier, than 2020.
That leaves four Boeing 747Fs, one of which is presently operating on behalf of Etihad Cargo and which is rumored to be parked in the desert once this contract finishes.

The three remaining Boeing 747-ERFs are still in good shape as well as the two Air France Boeing 777Fs.
What happens to these?
Is AF/KL really going down the road of having no own cargo freighter division and putting all of its eggs into the “belly capacity” basket?
A hard move, for the once both proud cargo divisions and one which could put themselves out of the cargo market altogether.

Martinair’s loss making five MD-11Fs are leaving the fleet successively /  source: MP
Martinair’s loss making five MD-11Fs are leaving the fleet successively / source: MP

Irritating figures
It’s of interest to note that when the “artificial” €100 million are taken out of the equation - 60% of the loss is attributed to the KL/MP freighter fleet which is still 6 MD-11s and 3 747Fs, whereas the remaining 40% goes to AF’s freighter fleet of only two B777Fs.
Something does not add up there!

Or! - are there still plans behind the scenes for utilizing the remaining healthy aircraft in some form or another?
It’s well known that the Martinair unions or works council are still adamant about being presented with a business plan, future fleet construction and so on.
So far, they’ve not received it.
CargoForwarder Global reported in earlier articles on the KL-MP issue that there were one or two carriers who had taken up contact with AF/KL cargo management in this respect.
Are they still out there?

The development and frostiness between AF and KL may make one wonder whether both carriers will remain married in the near future or whether they’ll once again go their own ways.

John Mc Donagh

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Comments: 1
  • #1

    Aris Zwart (Friday, 02 January 2015 11:56)

    I would advise to go out and sell your socks off.
    Organize differntly,
    Sell via one source, make salespeople specialist in all products, but keep the operational part of business units alive.
    Be more inovative in Sales! There are still many options available to make attractive margins.
    Is distribution via forwarders etc the only way to get the business in is my question and doubt as well.
    Get more grip by influencing the "final customer" (importer/exporter) see them.
    Where is the agresive KLM Cargo I know from the past?
    Polish all relationships, don't manage sales from the office desk, but get out and see the customers on a daily basis, deliver the best possible service for a reasonable price, do as was promissed and fight your place in the market, once know as best in class.
    And most important,....DON'T EVER GIVE UP, markets go and markets come, and it's my strong believe that the worst is behind us.
    Aris Zwart
    (50 year active Air Cargo Experience as from 1960, retired 2010)