Warning: Grab a coffee. This will take a while.
Air France-KLM’s Chairman and Chief Executive Officer, Jean-Marc Janaillac, revealed details of the company’s Trust Together turn around strategic program this week, including the creation of new long-haul service to be offered by an airline with a name yet to be determined which for now is labelled ‘Boost.’
As the ‘Boost’ project is described, it will fail to accomplish its aim and run counter to the interest of the foundation brands: Air France-KLM.
News of a new Air France-KLM airline venture featured in last week’s Hot Aviation Happenings of the week. The plan, as previously described by CAPA, seemed like a stretch, but I was reserved in my judgment. However, the assumptions in CAPA’s report differ from what Air France-KLM has presented and I’m afraid they differ by too much.
The biggest change is that this airline ‘Boost’ (for now) will not be a Low-Cost Carrier. It will be somewhat leaner than the flagship brands, but not too lean.
“This new company will propose a simple, modern and innovative offer, whose positioning will not be low cost. It will offer its customers business and leisure destinations with standards comparable to those of Air France in terms of product quality and the professionalism of the crews.”—Air France-KLM explain.
On the consumer-side this is the same market niche Air France and KLM already fill. Each offers a limited but very excellent premium product, and very competitive unbundled fares to attract Economy passengers. Why would you create an airline which could leech passengers away from the core founding airlines?
From an operational side, CAPA’s expected low-cost model might have made a difference, ensuring greater efficiencies. But the organisational design of ‘Boost,’ as described by Air France-KLM does not fit this model. Therefore any potential cost-savings are lost.
This is not to say that a low-cost long-haul operation run by a flagship carrier is less risky. With very rare and carefully crafted exceptions Low-Cost Carriers launched by flagship airlines have had troubles. The long-haul low-cost model is still too delicate to predict. Norwegian and Air Asia seem to have come up with something workable, but it’s still a relatively new market niche and heavily contested. This is not a market niche to experiment in when you are having trouble getting your core business to function as it should.
As CAPA highlights in its report IAG has, for now, avoided a long-haul LCC brand. I’d argue IAG has been savvy, finding ways to lower costs in their operations and become competitive, while leaving the original brands and legacy operating models in peace. That is a rational business strategy.
A Cunning Plan vs. Pricey Turnips
CAPA viewed the anticipated Low-Cost Long Haul airline announcement favourably based on these three key points:
1. “Firstly, it will demonstrate progress in labour relations, as it will need pilot agreement to launch a long haul low cost business.”—CAPA writes.
There is no long haul low-cost business proposed. Probably because the airline could not expect to gain pilot support for that. It has packaged the airline as something other, and expects Air France pilots to volunteer. (More on this below.)
2. “Secondly, it will provide the group with the potential to compete more effectively on long haul point-to-point leisure routes.”—CAPA
We now learn that ‘Boost’ will not compete on long-haul point-to-point leisure routes. The airline is expected to boost traffic to the Charles de Gaulle hub. It is intended to be fed—just as the flagships are—by established short-haul network of Transavia and Hop! ‘Boost’ will reopen routes previously closed. Why would Air France-KLM need a new airline to do this? (More on this below.)
3. “Thirdly, it will give Air France-KLM management further leverage in future labour negotiations to have different growth options for its long haul production.”—CAPA
This is now doubtful. See point 1.
What is ‘Boost’, Anyway?
While Janaillac presented what Air France-KLM hopes ‘Boost’ will do, he failed to make a sound argument for the brand in the reveal. It was all fuzzy-wuzzy language and bold talk, but very little substance.
It’s important to remember that brand is currency. Reputation matters and it is built up carefully over the span of many years. KLM is the world’s first airline. It’s had 97 years to build a sturdy brand reputation. Air France is a much younger 83 years of age, but recognised around the world as a symbol of chic. Have the two brands lost their lustre from time to time? Sure. But that’s what brand refresh programs are for.
Brand recognition is invaluable. You don’t confuse consumers by tossing a new name at them that you yourself have yet to announce.
The stated objective of this airline is to fend-off aggressive long-haul competition from Middle Eastern and other carriers which have chipped away at the two flagships’ market share. According to Janaillac Air France-KLM Group’s ambitions are “to regain the offensive”.
“With Trust Together, Air France-KLM regains the offensive with a project which is both ambitious and realistic. It will enable us to capture our share of air transport industry growth by improving the competitiveness of our businesses. With our nine strategic priorities, we shall be fighting back on every front. Our strength lies in the fact that we are challengers. The status quo is not an option. We must launch a new dynamic to return to a leadership position in our markets,”said Jean-Marc Janaillac.
Very masculine talk. It gives one chills.
But when you go into battle, you motivate troops based on a shared legacy and identity. Instead, Air France-KLM aims to forfeit the two proud flags before waging war.
Is it guerrilla warfare? If so, you don’t make a big announcement about it well in advance. Besides, even long-established brands can practice guerrilla marketing to great effect.
The fact is that “regaining the offensive” sounds nice, but what does it mean?
By shying away from the creation of a true LCC model, the program seems designed to avoid anything too controversial. That’s because creating a true LCC model would have been unrealistic for these airlines, Air France in particular, as it would have aggravated labour relations which are already strained.
But an Air France-KLM by another name is not a challenger. And Air France-KLM don’t need to be on the offensive or the defensive for that matter. They just need to be. They need to hold their ground and expand their markets, with confidence, standing on two very firm feet.
Saying that the ‘status quo’ is not an option again sounds very macho and impressive. It raises the little hairs on the back of your neck. But what is WRONG with the status quo? It only means, the state of things. The way things are.
If you have a legacy to preserve, high standards set over generations, then just make sure you continue meeting those high standards. Pick yourself up by your bootstraps and inspire pride in that STATUS. Status Quo is not a sin when the STATUS is so high that others aspire to match it.
Get Your Boost On
What ‘Boost’ will demand from Air France-KLM will prove more than this project can possibly contribute.
‘Boost’ would require separate administration, separate employee contracts and labour conditions. According to the airline’s announcement it will also “serve as a laboratory for the Group’s innovative ability in terms of products, digital and technology, catering, cabin design, services and the customer experience, as well as for working methods.”
Janaillac puts a lot of weight on digital platforms to streamline administration. Digital is a tool. One of many. It is not a magic bullet. There are efficiencies to be gained from digital, but digital doesn’t replace people.
Unless ‘Boost’ will consist entirely of new hires poached from leaner more agile airlines, with an engrained lean mindset, staff have to be reassigned from the primary companies and put in charge of a new, yet undefined, separate effort.
If they are hired from other companies, they will still have to interact with a management structure which is unfamiliar with the business model that ‘Boost’ aims to engender.
During the time that ‘Boost’ staff get their ‘feet wet’ with this new business, there will be inherent inefficiencies.
Unlike computers, people cannot be erased and restarted to factory condition when assigned a new role. Old work habits and learnings carry over.
This new airline would require the sort of innovation and lean thinking which make its target competitors successful. Instead, the organisation will confront the engrained: “that’s not the way we did it when…”
Laboratories are great things, but putting the burden for experimentation on an organisation whose service model is not quite low-cost but also not low-cost, goes against lean management strategies.
With lean management, the key is simplicity and consistency. It is essential to select an uncomplicated model. Everyone on the team must understand the mission and their role in it with little training required. You do not shift gears. You do not try things on for size. You do not re-invent the wheel. You simply get the job done, sticking to a strict formula for success. You don’t mess about.
Buzz-speak aside, change is not good. Change may be necessary, but it is often inefficient and it is always expensive. We strive for progress. That’s what people sometimes mean when they say ‘change.’But progress is also achieved through continuous improvement on a proven model—without breaking it.
Laboratories occasionally burn up. “Fail often, fail fast” is not a credo which carries over to aviation. (Airlines have done both over the course of decades, but it was unintended.)
The big problem for ‘Boost’ is that, regardless how efficient you become, bringing together two very different corporate cultures (Air France and KLM) is a difficult task. Complicating that process by creating another separate organisation will only make the difficult more difficult.
Let’s Burn the Flag
While the Middle East carriers are mentioned as motivation for this new airline initiative, there is, in fact, no market positioning overlap between the future ‘Boost’ and these carriers.
Middle East carriers have defined their brands very clearly and very differently. ‘Boost’ will not be offering their level of luxury. It will not pursue the same ultra-long haul routes. It is unlikely to appeal to the same passengers.
By default, ‘Boost’ will compete with the long-haul low-cost airlines, up-and-coming flagships like Finnair, and the original flagship founding airlines themselves.
Air France and KLM already offer attractive and competitive unbundled fares on a number of routes. KLM is often the ‘best buy’ for a number of destinations for those who want to pick and choose their services. What is more, service frequency of both Air France and KLM give them a distinct advantage over the competitors targeted by this new airline. So why aren’t Air France-KLM making it?
Go back to those same organizational inefficiencies for part of the answer, and blame those alliances Janaillac touts for the rest.
Friends Like These
Two other objectives which Janaillac listed for Trust Together were:
* Built around major airlines—Air France and KLM— coordinating two European hubs, mainly focused on:
* Its long-haul network, at the heart of a network of alliances.
The biggest single threat to Air France-KLM is alliance partner Delta. The other two are United Airlines and American Airlines. It is an uncomfortable truth.
European carriers have struggled and been diminished since the start launch of Open Skies agreements between the two continents. It’s not me saying that. The U.S. Department of Commerce says it.
This past March, I wrote a report for Skift which illustrated the absolute dominance of U.S. carriers on U.S. International non-stop routes.
It shows that U.S. carriers effectively dominate international traffic and carry many multiples of their partners’ traffic to and from the U.S. These agreements are extremely lopsided in favour of the dominant U.S. carrier with which each EU carrier partners.
When KLM put out that ad explaining to the U.S. market that it is an airline, it was a sign of trouble.
If KLM—the world’s first airline—has lost brand recognition in the U.S. it is because it first forfeited much of it. KLM shared much of its international service with Northwest, which then carried over to Delta.
And please stop droning on about the ME Big 3.
“The Gulf carrier passenger share was 2.6% of all international passenger traffic to/from the U.S., up from 2.1% during 2014. Over 2.8 million passengers were inbound to the U.S. of which 1.7 million were foreign travelers,” the U.S. Department of Commerce’s International Trade Administration report states.
Blaming Middle Eastern carriers for diminishing market control on either side of the Atlantic is a nonsense.
It is little more than U.S. carriers wanting more of what they already have and EU carriers bending to the will of their stronger partners.
‘Boost’ will not fix this problem. Fresh and lively, independent, competition will fix it.
Reopening Lost Routes
“It will be focused on ultra-competitive markets and will enable the Group to go on the offensive by opening new routes, re-opening routes closed due to their lack of profitability and maintaining routes under threat.” Air France-KLM states. “It will number 10 long-haul aircraft by 2020 with some 30% of operations focused on newly-created routes.”
But if these routes are unprofitable, why re-open them? If they can be made profitable by offering an alternative fares structure and cabin service, the existing Air France and KLM can offer that, with seasonal service as applicable.
Sketchy Labour Plans
Air France-KLM is banking on Air France pilots volunteering to work for this airline ‘at work conditions adapted to its competitive positioning.’ After the backlash against Transavia and Hop! it’s difficult to imagine a series of pilots volunteering for this. But let’s grant for a moment that it persuade a certain number of pilots to get the airline started. Air France-KLM is still faced with other labour issues threatening the flagships. The creation of a diluted non-low-cost airline does not show any negotiating strength in this regard. Instead, it smacks of capitulation. “We’re willing to fight, but let’s be gentle about it.”
Air France-KLM also intends to create an “independent career path [for cabin crew] to enable this new company to be operated at the level of market costs.”
Will new cabin crew who apply to Air France-KLM be encouraged to work for ‘Boost’ instead? Will the airline be recruiting cabin crew exclusively for ‘Boost’? Will existing cabin crew be encouraged to switch over?
Back to the Hubs
Point-to-point service is out as an option for ‘Boost’.
“The Paris-Charles de Gaulle hub will also gain renewed dynamism, within the framework of the Boost initiative, through the launch of the new company on the medium-haul network with a simple, modern and innovative offer.
The Amsterdam-Schiphol hub will be reinforced by closer coordination between Transavia and KLM, particularly in terms of investment in the fleet and the development of the network and new joint commercial approaches.”
Up to now—labor complications aside, because it’s France—I believed that the airline group was working towards a sustainable model in the long term, with KLM leading by example.
They have struggled from the inherent inefficiencies of bringing together two very different organisations with corporate cultures which have evolved separately over decades, each with their own work habits and group-think.
Harmonising those two cultures is a mammoth endeavour. It is exhausting. I cannot fault de Juniac for deciding that Director General of IATA sounds like a less contentious and stressful job.
I do not envy Janaillac his job.
But running away from the labor of Sisyphus does not make the boulder go away. If you stop pushing, the boulder will only gain speed and roll over you.
Creating a ‘Boost’ side-project is a nice distraction. But it isn’t the answer. It is a mistake.
I’m glad I got that off my chest.
I should say that I love these two airlines and hope that I’ll be proven wrong. I will happily buy a hat so that I can eat it in 2025.
Perhaps a red béret, with a side of crêpes.