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KLM CEO Pieter Elbers at the CAPA-ACTE Global Aviation Summit: Responding to digital disruption
The CAPA-ACTE Global Aviation Summit kicked off at Hotel Okura in Amsterdam on 27-Oct-2016 with a keynote presentation from KLM CEO Pieter Elbers.
Mr Elbers addressed the 850 CAPA-ACTE attendees from 45 countries on the topic of 'Digitizing the Airline': Connecting the dots towards 2025. KLM, with its Amsterdam Schiphol hub, was a disruptor in how and where passengers connect, and now Mr Elbers is bringing change to the digital world.
KLM has experienced a rise in passenger website usage, with 33% of tickets sold online and 70% of passengers using online check-in. Mr Elbers is preparing for a shift from mobile first to mobile only: "Whatever people do, it should fit in this small machine".
KLM has embraced third-party apps like Facebook Messenger and WeChat, and believes the future is with these types of platforms. KLM is the first airline in the world to use Facebook Messenger. Mr Elbers wants KLM to be able to respond to customer service issues during the journey, eliminating situations where a passenger writes a follow-up letter or e-mail. This saves KLM time and makes for a better experience. KLM's average online response time is 42 minutes, with a target to lower this further.
Chinese long haul secondary city air routes: BA's Chengdu exit does not reflect the broader market
The fastest long haul airline growth is not occurring with Gulf airlines but rather, with services to and from secondary Chinese cities. It is not a secret that local incentives and subsidies, generally common in any market, are especially large in price and duration for secondary Chinese cities. An airline might expect over a third of revenues to be subsidised. This drastically alters the business case in a low-margin industry, hence the proliferation of secondary city services. This extreme dependence on subsidies raises the question of how long governments are willing to issue generous subsidies, and how many routes can be sustainable without them.
British Airways' decision to exit its only secondary Chinese route to Chengdu, in Jan-2017, might suggest the music is ending and the secondary long haul bubble is popping. There is added colour given the recent UK-China air service agreement expansion, and Brexit/British pound depreciation overhangs.
BA's exit does confirm market fundamentals: secondary city yields are low, and some routes are ahead of their time. Yet a number of factors unique to British Airways suggest caution in concluding that BA's Chengdu exit could foreshadow other withdrawals.