AF and KL tensions may lead to splitting: reports

[Flanker2]

Several reports on several media are reporting that a AF-KL split is on the tables.
BA-IB is also undergoing some heat.

I'll leave the resident reporter to report the different media articles.

[LJ]

Several reports on several media are reporting that a AF-KL split is on the tables.
.

The root of the report is anti-AF newspaper "De Telegraaf". Thus one has to wonder how big the issue is.

[sn-remember]

What's "De Telegraaf" does not seem to understand - or care to acknowledge - is that the merger is a sealed thing.
There is no way it will be unsealed. Period.
I would say it's all about putting "dutch" pressure at the time when austerity measures are being decided at group management level.
KL as a stand alone entity is something of the past ... and I believe will stay so.

[cnc]

actually they can still buy themselfs out with all the synergies i doubt it would be a good move

[sn-remember]

How ?
I don't see how it would be feasable ...

[Flanker2]

We are talking about synergies here, but actually they are overblown. In my dealings with these companies, it's clear that a lot of things are not purchased together.
Ok about big airplane purchases, fuel, etc...

I think that AF needs KL more than KL needs AF. For instance in Africa, I'm sure that KL is itching to expand but AF won't let them as they prefer to keep this lucrative niche for themselves. KL thinks it can make more money doing it themselves.

Dutch and French... a marriage of convenience, maybe followed by a divorce by inconvenience.

[sn-remember]

The truth of the matter is that there is no such things as AF or KL separated entities.
It's a common and unique airline operating from 2 hubs like LH/LX is operating from 3 hubs.
Like LH/LX, they kept separated brand names for marketing purposes and I am ok with that.
But don't get fooled, AF/KL is similar to .. let's say DL operating from JFK,ATL,DTW and other hubs.
They could as well merge their identities into a single brand/image let's call it ALPHA ...
Same as delta's operations from let's say DTW are not for sale, same are "alpha"'s operations from AMS not for sale ...
Get my point ?

[cnc]

no its more like belgium, the federal government and then you have the flemish and walloon government.

[sn-remember]

Look, business realities have more sense than .. B politics

[Boavida]

Funny they call it a "merger", while in reality it was a pure takeover of KLM by Air France.

[Flanker2]

Although the corporate structure is as you describe, the essence of each airline is different.
Different revenue strategies, different hubs, different operations, different training, different operations and totally different mentalities. KL is about obsession for efficiency (such are the Dutch), AF is about the savoir-vivre and making it easy on themselves, no matter if the airline goes bust (such are the French).

I think that they are 2 totally different entities with a common management and ownership structure and some synergies. Department heads are divided with presidents and vice-presidents of the respective companies, but there isn't much communication between them, unless they have to. So it's just a corporate title.

If you ask me, they can throw all that corporate garbage to the trash bin and save on overheads, because the purpose of management is to be in direct contact with the production, not a CEO managing a group of presidents, then president managing a team of senior managers, who manage a team of managers, who manage a team of department heads, who manage production leaders or chiefs, who finally manage workers.

Like that you have 5 managers for 10 workers, which beats the purpose of requiring managers in the first place. In an efficient company, no matter what size, the CEO should be on the workfloor managing the production when he's not doing other significant work. All he needs is a team of assistants who can present the facts, so he can make decisions and give directives.
I hate this 21st century corporate mentality where people try to run companies like governments, the most inefficient form of management.

AF-KLM Industries are also 2 totally independent enterprises, where they share very little work.

[sn-remember]

We agree, indeed as you say "they can throw all that corporate garbage to the trash bin"
They will probably end up doing it ... but meanwhile they are doing it stepwise ... and probably too slowly because this corporate structure is costing them too much.
Mentality wise, we should beware the usual clichés opposing the "lazy latin" vs "the brave german".. always makes me shrug, or the "responsible german" vs the "irresponsible latin".
However it would be stupid not to acknowledge a difference of enterprise culture (nothing to see specifically with French vs Dutch mentality which is another more global and complex topic) which should change but it will take time ..
AF is traditionally in the claw of the unions, they are merciless and will bring the enterprise to shatters if they think their personal intersets are attacked. Unions at KL seem traditinally more responsible at least more apt to compromise. As workers however, I would not pretend one is better than the other.
I am not a specialist of AFKL books .. However from what I've been reading it seems the management board is taking the right decisions. Maybe too little too late, let's hope not.

[LJ]

AF-KLM Industries are also 2 totally independent enterprises, where they share very little work.

And your knwoledge is based on???? Fact is that route development is done on a AF/KL level whereby KL and AF divide the different routes according to its particulars. Your example about Africa shows the lack of knowledge on AF/KLs route developmen. KL has histoically (and still is) been interested in the former British colonies and flower exporting countries (hence why KL flies to EBB and KGL and not AF). AF is strong in the former French colonies. Did I already mention LAD, where KL started AMS-LAD in order to provide Skyteam pax more connections to LAD? The network split for Latin America is even more clear. KL left Southern America with the exception of GRU years prior to the merger (EZE, SCL and GIG were axed years ago). Yet KL is (and alwys has been) strong in PTY, LIM, UIO, GYE, stations which AF doesn't serve or isn't the prime airline (KL serves LIM daily versus AFs 5 weekly). BOG was never a succesful KL station and only CCS left KLs route network. AF still doesn't serve Paramaribo just as KL doesn't serve Cayenne. Note that due to the increased volume you now see KL in EZE and GIG and as of W13 AF in PTY. In Asia AF took over the three weekly extra flights from KL as KL needed the aircraft for another route. Moreover, in Asia they divided the destinatins again. Wuhan is France oriented hence why AF does Wuhan. Chengdu is a KL destination and most increases in China went to KL and not AF becasue the market between AMS and China is bigger (and KL had the aircraft). Needless to say we don't see AF in Manila or Jakarta. Maybe I should also mention the Middle East where you see KL and AF doing their best to avoid eachother.

Next, how do you see AF Cargo operating a 777 freighter in cooperation with KL Cargo ex AMS (which will probably happen in W13)?

I think that AF needs KL more than KL needs AF. For instance in Africa, I'm sure that KL is itching to expand but AF won't let them as they prefer to keep this lucrative niche for themselves. KL thinks it can make more money doing it themselves.

Name one destination out of AFs Afrcan network which KL doesn't serve and which would be a typical KL destination. BTW don't come with Monrovia as the O&D out of CDG was bigger than AMS and thus CDG was the more logical choice. The truth is that KL expanded more in Africa than AF the previous years (daily KGL/NBO, new destinations like Lusaka, Harare and Luanda).

[Flanker2]

I can concur with you on the past, but I think that looking at the future, KL can and wants to be more than the supporting pillar of AF.

If they split, KL can double their longhaul fleet and expand into some of the lucrative AF territory and compete better against EK in Asia, which is starting to hurt them with their A380 in AMS.

At the present time, for KL it makes more sense to go on its own road and expand rather than be the golden rooster supporting AF's unsustainable spiral of losses. At some moment in the future, the money will run out eventually because AF's losses are much bigger than KL's profits, and AF could take KL down with it.

Would it make sense for KL to strive so much for efficiency, only to see AF waste it in their savoir-vivre?

[sn-remember]

I have to agree with LJ here ...
THers is very little friction betwwen ams and cdg for the obvious reason that the 2 networks overlapped very little already before the merger took place. Incidentally this was one major reason this merger was deemed to be successfull.
As many posters here, I followed very closely the business development pre and post merger and I must say it was conducted in a very professional way.. but what else to expect ?
There is always only ONE best suited operational choice, and concerning the l/h network at least, it was well conducted imo.
There is only one destination that I would personally have left KL serving and this is CCS. In my humble view there was place here for both carriers, anyways I was probably wrong ..
AF dropped mnl to be solely a nonstop kl route (recently tagged from tpe)
Middle East is mostly in the hands of KL (which is a big stepback from previous AF time) as is East Afi.
Cargo wise, ams has taken a decisive boost also profiting from the postmerger management.
That's why it's really out of reality to pretend one hub is failing and the other better let go. It's simply not the way things are organised and run. It's stupid for instance to comment the financial results with such a biased and completely inaccurate approach. The reality is to make the most from the dual hub operation in a most pragmatic way, knowing that nether pole could/will ever break the "tie" and fly solo. They would be too small fry , an easy prey for the big boys, that's why the merger took place in the first place. It's a seamless operation from post-merger on.

[Flanker2]

Operationally they both work in their markets, but businesses are there to make money, not to become big and lose money. Although I also think that the merger was a success, what's in it for KL now that they are being dragged down by AF?

They can still work together after splitting.

[sn-remember]

Think of them as "alpha", not afkl. it will avoid lentghy/empty discussions.
You know the KL brand was guaranteed to survive only 6 yrs post-merger, probably time to standadize their image ...
Why not alpha or omega or whatever naming ? with blue-white-red stripes since both country flags feature these 3 colours
In the US, it would have been standardized for quite a while already.

[LJ]

If they split, KL can double their longhaul fleet and expand into some of the lucrative AF territory and compete better against EK in Asia, which is starting to hurt them with their A380 in AMS.

Not possible due to slot restrictions at AMS. This was one of reasons why CDG is so a good airport as it doesn't have slot restrictions. Moreover, EK is cheap because they benefit from low taxes and low employee cost. The cost base at KL would still be much higher than EK. Second, KL would be squashed by LH, BA and AF if they woould operate as a stand alone. As mentioned previously, it's KLM themselves who said after the merger with AZ collapsed that they would have top merge with one of the remaining legacies as the stand alone option wasn't viable anymore.

Finally, I doubt the finacial markets would be interesting in financing a small airline like KL alone.

They can still work together after splitting.

Why would AF do that? First you spend hunderds of millions seperating the business, then you're going to work together again?

[HT-ETNW]

If the operations that are being carried out under the "KLM"-brand are loosing money chronically, then the usual measures should be taken, like reviewing each route for profitability. If a route is not profitable (by the airline's own standards), then operations should be scaled back or the route be closed.
Shareholders are not very keen on airlines loosing money.

"Selling off" the KLM-operation hardly is something Air France will like. One goal of the merger was to get a certain market presence and to get rid of competition between the two airlines and their overlapping pax recruitment areas. So, creating a new competitor of substantial size by selling off the KLM-operation would be no good move.
A different story of course would be if the KLM-operation could be sold off to any other entity that is friendly to Air France and KLM. Etihad (or related funds) come to my mind taking up the maximum possible shares. That way fresh money would be injected into the operation.
-HT

[Flanker2]

If they split, KL can double their longhaul fleet and expand into some of the lucrative AF territory and compete better against EK in Asia, which is starting to hurt them with their A380 in AMS.

Not possible due to slot restrictions at AMS. This was one of reasons why CDG is so a good airport as it doesn't have slot restrictions. Moreover, EK is cheap because they benefit from low taxes and low employee cost. The cost base at KL would still be much higher than EK. Second, KL would be squashed by LH, BA and AF if they woould operate as a stand alone. As mentioned previously, it's KLM themselves who said after the merger with AZ collapsed that they would have top merge with one of the remaining legacies as the stand alone option wasn't viable anymore.

Finally, I doubt the finacial markets would be interesting in financing a small airline like KL alone.

They can still work together after splitting.

Why would AF do that? First you spend hunderds of millions seperating the business, then you're going to work together again?

Why would it in your opinion cost "hundreds of millions" to separate the business? KL and AF are each part of AF-KL holding but still are 2 different entities. Splitting the business would just mean that KL would be spun-off. Sure there will be financial expenses with regards to shareholding procedures, but they will be fairly limited compared to a merger.
A recent case that comes to mind is the demerger of giant Fiat into Fiat and Fiat Industrial. Shareholders each received 1 share of Fiat and 1 share of Fiat Industrial. The operation cost almost nothing and the shares are doing much better individually, as the businesses are now independent, attracting shareholders who want to invest in the branch that suits them best.

KL is not as small as it seems. Their yearly revenues are above 6 billion euro's, 6 times more than SN.
Their fleet has more than 200 aircraft if we include subsidiaries Cityhopper, Transavia and Martinair.
If you count their share in AF-KLM Industries (the MRO branch), it would be more than 7 billion euro's, about on-pars with express giant TNT Express.

Right now, the AF-KL group is losing 1 billion euro's a year, or 3 millions a day.
Unfortunately, their financial statements do not present the figures per business entity, but rumors are that KL is turning a profit or break-even and that the loss is all on AF.

IF it continues like this, AF will drag down KL and they could be buried together.
I don't see much hope for AF, their cost base is too high, competition too fierce.
The only luxury they have is time.