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Air France-KLM will continue freighter business

By control on October 11, 2013

By Martin Roebuck

The Air France-KLM group (AF-KL) has pledged to remain in the maindeck cargo business, despite further reductions in its freighter complement. In a media briefing at Amsterdam’s Schiphol Airport, Erik Varwijk, executive VP of Air France-KLM-Martinair Cargo, said that over the next two years, the group will shed four of its current 14 freighters.

By 2015 there will be eight KLM and Martinair freighters based at Schiphol and two Air France freighters based at Paris Charles de Gaulle. Air France is phasing out its last B747s while Martinair is losing a B747-400ERF, operated on lease from KLM, and an MD-11 freighter.

KLM’s B747-400 combi fleet, of which 15 are currently operational, will also be phased out between 2016 and 2020. They are due for retirement, and neither Boeing nor Airbus is bringing new planes of this type to market. “We are still contemplating how we deal with that,” Varwijk admitted.

However, he affirmed that “It’s not the right thing to do to lose all our maindeck capacity. It’s important in our product offering and important to our relationship with freight forwarders.”

The remaining freighters will be operated direct rather than sub-contracted as, for example, IAG Cargo does. Whichever way AF-KL approached this, capacity would still be tight at times of peak demand, while in a weaker market it would still face the same issues of maintaining rates and yield.

“We believe operating freighters ourselves is important,” Varwijk said. “We can dictate changes to schedules as little as two days ahead if we need to—it’s part of our agility.”

However, the scale of the problems confronting AF-KL’s cargo operation was starkly underlined in the first-half figures. An improvement on the bottom line, with half-year losses reduced to €100 million (US$135.6 million) compared with €174 million (US$236 million) in the first six months of 2012, was “not because of the market but because our unit costs are down,” Varwijk said.

This has been partly achieved by cutting the workforce. A further 300 cargo personnel are to lose their jobs over the next year, in addition to 200 redundancies already announced.

While the entire West European cluster of major airlines—British Airways, Iberia and Lufthansa as well as Air France and KLM—faces intensifying competition from Asian and Middle Eastern rivals, the particular challenge of operating twin hubs with many duplicate functions, only 300 miles apart in Paris and Amsterdam, is becoming ever clearer.

The AF-KL group has 50 B787 and A350 passenger aircraft on order, as well as more B777-300ERs on the way. While these will partly replace retired planes, they still represent a significant increase in belly capacity—not least because the 777 has 10 pallet positions and this twice the cargo capacity of a 747-400, comfortably carrying 30 tonnes.

Yet it was an unwritten condition of the merger—not to mention the expectation on the French and Dutch travelling public—that Air France and KLM would separately serve many of the same destinations.

Even in a buoyant market, that would be a big ask for the cargo sales teams, but Varwijk reported that “Conditions continue to be harsh. Everyone is hoping for an uptick.”

There was some seasonal optimism around the launch of new technology products in the fourth quarter, but he admitted: “We don’t know if [peak season] will be better than 2012.”

Speaking exclusively to Air Cargo World after the main briefing, Varwijk said: “There is more clever planning by shippers, so even if there is a new PlayStation or smart phone coming on the market, older-generation products will move by sea.”

The shift in cargo flows that was already apparent ahead of the downturn may be permanent, he believes. “Europe-China and U.S.-China was booming and everybody wanted to be in it. Now there is much more capacity in the market and trade flows are shifting.
“We’re seeing a bit more north-south traffic, but some of the east-west flows may never come back. Asian carriers are increasing their share, it’s a fact of life,” Varwijk said.

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