This is the subject that made some noise at the beginning of the week in the travel industry: AccorHotels is said to have its eye on the state’s stake in the capital of Air France-KLM. More than a rumor, the idea is really making its way at the French hotelier but at TravelGuys we think that it would be better to turn back instead of continuing to advance.
Yes, the French State must get out of the capital of Air France-KLM
Let’s take things in order. If the idea was born, it was initially because the idea of getting rid of its stake in Air France-KLM was starting to take shape at the top of the state. And before asking ourselves whether AccorHotels would be a good buyer, let’s first ask ourselves whether the State has an interest in selling.
Let’s not beat around the bush: the sale of the State’s shares in Air France-KLM would be an excellent thing both for the State and for the airline.
First of all, for the state, because its 14.3% stake in Air France-KLM is not a good investment and is also a real source of problems. Not a good investment because unlike Paris Airports, which is a cash cow that pays its shareholders handsomely, Air France-KLM looks more like a speculative stock and we can already expect that 2018 will not be a good year. A source of problems because his presence at the capital of the business makes him an unwilling actor in the internal psychodramas of which the company with the hippocampus has the secret, whereas he has neither the means nor the legal possibility ( due to European law) to come to its rescue.
Secondly, for Air France, because, above all, the disappearance of a shareholder that some people imagine – wrongly – as a savior of last resort would make it possible to bring certain stakeholders face to face with their responsibilities and make them understand that, yes, Air France-KLM can die and that Zorro will not appear at the turn of a strike to make up for losses or finance a brand new fleet. Secondly, because, in terms of industrial vision, the state has always been a poor shareholder, with the aim of guaranteeing social peace rather than building competitive businesses. Finally, because this state supervision has turned Air France into a machine for recycling government clerks at the expense of real captains of industry, populating it with administrators where entrepreneurs would have been needed. The current state of the airline and its track record over the past 15 years will hardly prove otherwise.
It is understandable that there was a time when a national airline controlled by a state made sense as a lever for economic development, tourism and independence. In 2018 if the debate can take place on the strategic nature of the state’s participation in airports, it is clear that it has nothing to do in the capital of an airline.
14.3% of Air France, what for?
I have read a little too often “Air France-KLM buyout by AccorHotels” or “takeover”. Let’s be clear, with 14.3% you become a major shareholder of Air France but you never take control.
The Delta/China Eastern duo weighs more than the state. Except that…. the state has double voting rights, making it a shareholder whose vote counts. But if AccorHotels buys back the state’s shares, logic would dictate that they would only get back single voting rights, and therefore a lesser weight, the double voting rights having been acquired at the cost of a legislative sleight of hand in order to favor the state and not a private shareholder.
So with 14.3% AccorHotels would count but not enough to be a decision maker or push its strategy.
Air France-KLM and AccorHotels: what synergies?
If the hotel group wants to become a shareholder of the airline, there must be an industrial logic. There has been a lot of talk about building a “European travel group” and synergies in digital, meaning data.
One can question the notion of “European travel leader”. In this industry, you are either the local leader in a niche or you are a worldwide leader. To speak of European leadership already means that AccorHotels is surrendering to Marriott.
The ability to sell flight/hotel packages? A partnership already exists between Air France and AccorHotels and I doubt very much that Delta Airlines would see Air France going further with the French hotelier when they themselves have a nice partnership with Starwood (which will obviously end with the merger with Marriott knowing that the latter itself has a partnership with United). The same goes for China Eastern, again with Starwood. However, unlike what Air France and AccorHotels do today, these are much more advanced partnerships with an “integration” of loyalty programs, as it is also done between Emirates and Starwood: the fact of having a status on the airline gives advantages in the hotels. You don’t need an equity investment to get there, a good partnership is enough.
And let’s add that from the strict point of view of purchasing behavior, the trend is towards “unbundling”: the customer prefers to buy each element of his service independently rather than in packages.
Synergies are much more evident in the data sharing field. It is clear that a joint exploitation of customer data would make sense. But again, beware. Let’s wait to see the impact of the GDPR on the matter that tourism actors will really have at their disposal and that they will be allowed to co-exploit with their partners. Et de toute manière rien ne justifie d’acquérir 14,3% de la cAnd in any case, there is no justification for acquiring 14.3% of the airline to achieve this. A good marketing cooperation is enough.
What is an airline doing in a hospitality business?
Let’s take a step back. Let’s go beyond the various initiatives and look at things from a more macro perspective.
We have already seen airlines create hotel chains. Intercontinental was created by the now defunct Pan Am, Le Meridien by Air France, Swissôtel by SwissAir and Golden Tulip was owned by KLM. None of these duos have survived the restructuring of the industry and it is difficult to see what would change if it were the hotelier who took over an airline.
It also makes no economic sense for AccorHotels. The airline, under the leadership of Sébastien Bazin, has clearly set its sights on an “Asset Lights” strategy, which is becoming the norm in the sector: the group is positioning itself as a hotel operator and is disengaging from the real estate part. The latter was transferred to its subsidiary AccorInvest, of which it sold 55% earlier this year. AccorHotels’ business is to operate hotels, not to own heavy assets. For shareholders, taking shares in an airline (even if it leases more and more planes than it owns) simply makes no economic sense. When you have a strategy, you stick to it and mixing genres rarely succeeds. Moreover, the reaction of the stock market showed that nobody understood the logic of such an operation.
But at AccorHotels, they are perhaps just a little confused about strategy. When you go to the website page presenting the group’s activities (AccorServices and AccorInvest) and click on “learn more”, the page called “our ambition” leads to…a 404 error page.
Let’s skip the irony of the anecdote: it just doesn’t make sense.
Two lame people have never made a valid
So yes, AccorHotels and AirFrance would have everything to gain by developing strong partnerships, particularly around the loyalty program, with, for example, cross-reward points or mutual status recognition. This could also be the basis for the beginning of co-data-marketing. But as I said above, there is no need for an equity investment for this.
And still they would have to have something to bring to each other. Before doing things together, you have to do things well yourself. And unless you show blind bad faith,Flying Blue, even reformed, is far from being the best airline loyalty program in the world, while Le Club AccorHotels is certainly the worst program of the major hotel players. Not sure if either one has anything to teach the other.
If AccorHotels is looking to invest in a player that is consistent with its business, and that has a certain growth potential thanks to digital, they might as well look at Edenred… Oh too bad, they parted ways in 2010. Here we can talk about a mistake.
Air France-KLM still hostage to state strategies?
Unless it is simply a way for the state to stay with Air France without being there. “I exchange Air France shares for AccorHotels shares”, the State enters the capital of AccorHotels which enters the capital of Air France and the trick is done. And the operation helps AccorHotels to secure its shareholding with regard to Jin Jiang, its cumbersome competitor and shareholder. One wonders if anyone is thinking of Air France’s interest in the operation.
So yes, the state must get out of Air France-KLM and not come back in a roundabout way. So yes, the state must get out of Air France-KLM and not come back in a sneaky way. At TravelGuys we still think that Delta would be the best option…but if business came first in such decisions we would know it.
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