FRANCE/NETHERLANDS. Air France’s takeover of KLM Royal Dutch Airlines is certainly a first step in the much-needed consolidation of Europe’s fragmented airline industry. It also raises questions on the joint inflight sales operation, as the new holding company goes in search of synergies and cost savings, which may not be so easy to achieve.
KLM’s inflight sales are operated inhouse by the onboard arm of KLM Tax Free Services, headed by Koos Kruijswijk. The Air France business is managed by Aeroboutique Inflight Retail under a six year contract, which began in July 2002. Combined travel retail sales were approximately US$34 million last year, according to Generation DataBank.
The two carriers confirmed they are joining together to form a new holding company, whilst retaining the two operating names, to create Europe’s largest airline group and the third largest in the world (in terms of Revenue Passenger Kilometres). The Dutch government will exercise effective control over the KLM unit for three years. Alitalia has also expressed interest in joining the new holding company, but its own slow privatisation is likely to put that on hold. While Air France will have management control over the direction of the group, it has reportedly made many concessions to get the deal passed.
Meanwhile British Airways and Lufthansa, Europe’s other two giant carriers, have adopted different strategies and rely on oneworld and Star Alliance, their respective global alliances, to boost revenues and networks.
Air France claims it will bring in up to €495 million (US$545 million) in new operating income within five years – of which some €300 million (US$330 million) will come from cost cuts. Put in perspective, the total projected synergies represent just 2.5% of the combined group’s €19 billion (US$21 billion) cost base – or 7.5% of KLM’s expenses.
As things stand, the combined profits of Air France, and losses of KLM should just about counteract each other, to break even this year on €19 billion (US$21 billion) in sales. It is not yet known whether the cost cuts will involve any changes to the travel retail operation or the stripping of any redundant routes from Amsterdam Schiphol or Paris Charles de Gaulle.
