Time to Say Goodbye?

Job cuts, more losses, cargo volumes continue dropping, more fleet cuts!
Is this now a final sign that Air France and KLM will part ways?
There is no firm information that both carriers, especially KLM, are considering parting ways, but many in the industry are seriously wondering whether this seemingly very unhappy marriage can continue.

Speculation or unavoidable reality?
There is tremendous pressure on both carriers to get their shops in order.
So far it seems that the contrary is the case.
Air France is in danger of suffering another spate of severe strikes as pilots refuse to agree to new contract terms.
The result of this discussion has so far been that the Air France management counters the pilots refusals with the threat of cutting up to 2,900 jobs by the end of 2017.
This threat was met with heavy objections and physical attacks on Air France managers by radical union members.

Another climb-down by de Juniac
In the meantime the AF management has made a turn-around and stated that less than a third of the 2,900 jobs will be lost and those leaving will be on a voluntary basis.
This, only if the unions agree to alternative savings measures by the beginning of next year.
At least this is what Air France’s CEO, Alexandre de Juniac said, stating that a Plan B could be initiated if both sides agree by the end of this year and if not, it’s back to Plan A.
How the unions might react, is surely somewhat different.

Recovery plans are dwindling fast
KLM does not have the staffing problem (so far) that Air France does.
The KL management is still in a clinch with the Martinair pilots union but here it seems that the MP pilots are getting little or no support from their KL colleagues.

Fact is that financial results are suffering and any plans the joint Franco-Dutch carrier may have had of stemming losses and getting back on the road to recovery are dwindling fast.

KLM runs the risk of being the biggest loser
It was not long ago that some sources inside KLM were pushing for a clean break with Air France and bringing the carrier back into being an independent operator once again.
Many have voiced the opinion that KLM has had no benefit whatsoever from their eleven year tie-up with Air France.
Both carriers operated independently within the holding until 2008, but it is clear that Air France is the dominating factor in the relationship with their 81% representation in the holding.
KLM as the smaller member had to give up slots in Amsterdam, cut routes to Caracas for example and it is said that they have the negative effect of the revenue sharing.
Whether this is true, is hard to determine.

Not a happy marriage 
Would both parties, especially KLM benefit from a ‘parting of the ways’?
Hard to tell at the present time as financial results are not very transparent.
On the air cargo side - a split might get KLM back to where it should be as Air France has divested itself of much of their cargo fleet and also announced drastic cuts on long-haul routes.
This reduces the cargo program even more, considering KLM’s (at the insistence of AF?) continued reduction of the Martinair fleet and the distinct danger of not being recognized anymore as a serious air cargo airline for the industry.
KLM still has seventeen B747-400Combi aircraft in its total fleet of 115 aircraft, but these are planned for phasing out as of 2016.

Who knows what the passenger figures look like, but the continued unrest especially with Air France is further endangering the AF-KL relationship internally and more importantly, with their customers.

Report suggests KLM is the better half
A recent report issued by CAPA Centre for Aviation seems to support the argument that KLM is the more productive partner in this marriage.
It shows Air France having seven years of operating losses and always less profitable than KLM.
It also states that a decade after the merger that KLM is the smaller, but more profitable partner, but also needs to trim its costs further.
Another interesting aspect is that the AF-KL Group is forecasted to deliver only a 1% operating margin this year. Compared to IAG, Europe’s most profitable airline group forecast of 10% - this is becoming deadly for AF-KL.

Labour costs are a millstone around AF’s neck
One of the main Air France problems is that despite cuts in headcount, that labour costs still remain far too high and there is no foreseeable solution to push them down to where they should be.
For example: Air France labour costs are equivalent to 32% of its revenue and KLM’s are 25%. Iberia has 21% and British Airways 20%, both far below their Franco-Dutch competitor.

Would a clean break give both carriers a better foothold for the future and avoid a total disaster?

We’d be interested in our readers’ views on this.

John Mc Donagh

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