CAPA Live: KLM flying 90% of Europe routes, with 50% capacity
Talking at the CAPA Live event on 11-Nov-2020, KLM’s CEO Pieter Elbers spoke with CAPA’s chairman emeritus Peter Harbison. This report contains key highlights.
KLM is currently operating to 90% of European destinations, although with 50% capacity, flying wherever they can fly.
Funding received from government has conditions attached, including a requirement to reduce CO2 emissions and increase the use of sustainable aviation fuel.
KLM has small business class on the North Atlantic, which, with its modern fleet, puts it in a strong position to move forward. Cargo is a silver lining in a very large dark cloud.
KLM expects to have much closer partnerships with technology companies in the future.
KLM is operating to 90% of European destinations but with only 50% capacity and using regional aircraft. Long haul recovery will be led by the hub, but wherever we can fly, we are flying
“We’re in the range of 60% to 70% of our European flights operating, still with lower load factors, different yields, but overall traffic was coming back pretty rapidly. Obviously as from September onwards, with new lockdowns new cases and the lack of intercontinental recovery, we have seen basically a return in Europe to much lower levels."
“I would say compared to some of our European colleagues or competitors, we have a relatively high level of operation, this is our ambition to restore that network. We have 90% of the destinations, but on roughly 45% to 50% of the capacity only. That's today situation, I think for 2021, we would see some recovery. We expect some form of recovery, both on the European side, as well as in the continental side; obviously the news this week on a vaccine is a very important step and widely recognised as a crucial element in recovery of the traffic show. We'll have a somewhat more optimistic view than today’s situation. I think on the other hand we're heading for a very cold winter. Going forward again with the vaccine and some of the measures we're optimistic."
"Some of the, especially long haul, recovery will be led by the hub. We are operating 90% of our European network, lower frequency level and on a much lower capacity level. So we operate mostly with regional aircraft rather than with our 737. But with that, we're able to sustain a much lower capacity, but still 60% to 70% of the long haul destinations."
"So wherever we can fly, we are flying. And that combination of having all these small flows from Europe, we still have to travel for one region or the other in combination with cargo volumes, makes us sort of able to sustain a significant part of our network and using significant parts of our fleet for that. That's why we didn't go into massive fleets of parking and phasing out. That combination of networking cargo is really helping us."
We received help from the government and credit facilities which is helping us. One of the conditions of the loan is to reduce CO2 and the use of sustainable aviation fuel
“We’ve received EUR3.4 billion indeed – to be more precise, EUR1 billion in launch directly from the government and EUR2.4 billion in bank credit facilities backed by guarantee with conditions attached to it. There's no such thing as a free lunch. So clearly these conditions are there and there are also requirements to match all the conditions of the European framework, which is there for support."
"We're obviously very pleased with that support. That's helping us a lot to get some sort of solid ground under our feet to move into 2021, and to move ahead with the restructuring. We have already, unfortunately and regretfully, let go some 5000 colleagues, and a reduction of the workforce."
“The conditions for the government are mostly on further CO2 reductions on usage of sustainable aviation fuels. And we're committed to that, so we will come to new fleet, we will continue our programmes for sustainable aviation fuel. We'll continue our research and cooperation with universities and so on and so forth. So it will not affect the network. It will sort of encourage the steps we have been undertaking already.”
Insights from KLM CEO Pieter Elbers at CAPA Live, 11-Nov-2020
Paris and Amsterdam are two strong hubs in Europe and that will remain after COVID and while business traffic will be slow to recover, but it will be led by traffic through hubs. KLM has a smaller business class than many competitors on North Atlantic, which with our modern fleet puts us in a good position moving forward
“We know that the combination of Paris and Amsterdam makes a combination of two very powerful and strong hubs in Europe. That was the pre-COVID situation, that will be the same case after the COVID situation. My belief is that many of the smaller long-haul flows, and some of the point to point, or hub to a smaller spoke destination will be under pressure for that recovery for the very region as you mentioned, that a lot of this business traffic will be slower to return. So I do firmly believe that recovery of long haul business traffic will be led by traffic through the hubs rather than point to point or hub to spoke."
“We at Air France KLM together with our partner Delta and Virgin in the UK will have a pole position to take benefits from that. And we as Air France KLM on the European side together with Virgin and Delta should be the number one option for these customers to travel. And some of the alternatives they may have had before COVID won't be there. So I believe that the strength and the power the hubs are having in combination with our partnership [will be] even stronger post COVID.”
“We'll all have a serious cost issues on our hands going forward. And we know that with the slower return of business travel, we have to address our costs. And that's precisely why the Dutch government, as one of the conditions for this loan has put, not only staff contribution up to 20%, but also a 15% cost reduction as one of the targets to be met."
“Specifically for KLM, we do have [a] relatively small business class where 30 to 35 seat configuration in our business class. That's much lower than some of our competitors. For obvious reasons we had a smaller business class. So I believe that modern fleet, relatively small business class, lower costs should help us to be in a good position moving forward.”
The effects of COVID made it clear early in April that we have to pause and tighten our belts, review size of fleet, get hygiene higher on agenda and be more customer-centric with digital innovation. We will need to have more partnerships with technology companies with more resources, more knowledge, more capabilities. I see trends in closer working relationships to help us use AI
“After the devastating effect of COVID became clear in April, May we stopped everything, and we sort of say, okay, 'we pause for a moment. We stop spending, and we tighten our belts, and we should navigate through that initial phase'. "
"What we are basically doing now is, we're starting to plan and prepare for the future. What should be the size of our fleet, what should be our customer proposition, how to get the hygiene higher on the agenda, or even more customer-centric with digital innovation to help to communicate them. And the same of course apply for some of the distribution."
“What I would see is even more pressure on the financial means airlines are having, and we're no different to that, will push us even more towards partnerships with others. I should say, technology firms with more resources, more knowledge, more capabilities. I would see in trends of closer working relationships with some of the tech firms to help us to use artificial intelligence for some of action steering."
"We have been investing quite a bit over the last 12 to 18 months to step up our operational efficiency. Before COVID, we had some of the highest utilisations in the world of our long haul fleet and clearly, technology and predictive maintenance and things like that are helping us a lot to achieve that. So we'll continue with that, the pressure on funds will probably lead us to more partnerships with different companies."
“We need to step up our own efforts and our own initiatives, but clearly the speed of technology is going with such a pace that, from my perspective, you should stick to what you're good at, and that's running an airline and giving our customers a good experience, and then work together with technology firms. As an airline, we would not be building our own aircraft, so why should we build all our technology ourselves? In that sense, the next step would be moving even closer in some of the tech firms corporation.”
There will be consolidation but we’ll need to get out of the crisis first. The lack of return of some traffic will put some airlines in a difficult situation
“There are some other airlines in Europe which were at one point in time being seen as those who may be leaving the arena and are still there. So I wouldn't dare to make any prediction on that. But having said that, probably 2021, at least the first part of 2021, it's going to be for many of us still a sort of, 'let's get out of this crisis first'. And seeing today's uncertainty and today's still changing rules and regulations locally when it comes to all COVID measures, borders are opening and closing, it still requires so much hands-on attention that probably this consolidation itself will move a little bit further forward."
“Having said that, the lack of a return of traffic or a slower return of traffic will of course bring more airlines into a difficult situation. A lot of capacity has been taken out, already a lot of airlines have retired aircraft permanently. We have retired the 747s, Air France has retired the 340s to 380s. Many of our competitors have retired aircraft."
"These aircraft will not return into the sky in 2021. And then we have other airlines which have drastically downsized or may eventually be disappeared also. There are two elements. One, a somewhat more optimistic view would be, if we get things more in control, taking a little bit the example of China domestic, we can see a swift recovery of travel within Europe or domestic Australia, even domestic US, which is going up. So there could be probably eventually a bit more demand.
“And the second point is that, there's going to be less capacity partly by airlines permanently retiring aircraft, partly driven by probably airlines which will come into deeper problems than they are today already. That's why it was so important for us at KLM to get that EUR3.4 billion loan, because that will help us to navigate to this sort of recovery phase of the industry. My internal focus is we have crisis management for the last six to nine months."
"We're now in the phase of recovery, it's not going to be linear recovery, [it] is going to be a bumpy recovery. And at the same time, we start with more fundamental restructuring of the company and downsizing it. And I just said, we brought down already the staff numbers 5000. Well, that's long ago that we had that basis of number of people working for us. So as we go along, all the companies are restructuring, which will eventually change the industry.”
Cargo yields are up and cargo has become an even more prominent position with 15% of cargo-only operations. We have established a task force to get ready for the vaccine which is going to be much more important than the cargo revenues it would bring
“Since the start of COVID, we have put cargo at a more prominent position than they already had. I think for us at KLM, we do offer 66 widebody aircraft. And in fact, we're operating today, quite a few of them just for cargo only. The Dutch government had decided to have a sort of labour support programme in place, which is helping us to support labour and make sure that we have pilots who fly these aircraft to all these places. So we do have today some 10 to 15% of cargo-only operations, and it's quite efficient. We even brought back some of our 747s[,] which we had retired already in March. We brought them back in April and we flew them for the last six months and in our operational line up for medical equipment and even cargo on seats."
“I did one of the fights myself. It was really impressive to see 1.3 million masks, and we just ship it over. I think with that, our cargo Air France KLM, Martinair Cargo team has gained a lot of experience over the last month especially, in dealing also with governments, with pharmaceutical companies and things like that. In fact, that's coinciding with the strategy, which we put forward a few years ago when we got rid of many of the full freighters to move to different market segment, more on the pharmaceutical side. And clearly with that experience and all the special equipment we've bought for that, we are now in a very good starting position to make use of that."
“Air France, KLM, Martinair Cargo, we have established a task force, we have here at Schiphol some special facilities in order to have that available. That's one of the reasons why we've kept also our 777 fleet in order to be ready for that next wave."
"I think overall for the entire industry, the vaccine is going to be much more important than the cargo revenues it would bring. But having said that, we're ready to do that. We are prepared to move forward on that, and we were recently recognised as the cargo airline of the year, which was very meaningful for the team, so I've been working so great to get all these shipments. So that's a sort of silver lining in a very big cloud we're facing with this COVID, the fallout.”
Transavia is an established brand in the Netherlands and in a strong position[,] so we have no change of plans for the carrier
“Transavia is an established brand in the Netherlands and very well it has created, in 10 years, a very strong position in France. Recently, new labour agreements were reached where they can sort of step up the operations in France and from France. So it's a very important, very powerful tool in the group, and I think it's helping us both in the Dutch as well as in the French market. So, no change of plans.”
Highlights from CAPA Live, 11-Nov-2020
CAPA Live delivers a monthly virtual “Summit”, jam-packed with information, data and live interviews. CAPA experts, global airline CEOs and other cutting-edge industry leaders will be presenting live from a next-gen virtual event platform. Registrations for December are now open. Subscribe here.