Will Schiphol become Air France-KLM’s ball and chain?

One of the main advantages of Air France-KLM, its two hubs of Roissy and Schiphol can become a real weak point given the location of the Dutch hub.

For a conventional airline, success depends on the size and efficiency of its hubs, the meeting points between its short/medium and long-haul networks. Ben Smith mentioned it at the top of his list when he presented the competitive advantages of Air France KLM to its shareholders at the end of 2019: the Roissy-Schiphol duo is a strategic asset.

No powerful airline group without a powerful hub

An airline needs a well-sized and efficient hub. As this is not always enough, synergies are sought between different hubs: this can be done within an airline, within a group and within an alliance.

Within an alliance this is a well-known phenomenon which is at the very basis of the alliance concept. An airline will use its hub(s) to gain efficiency at the point of departure of the journey and use those of its partners for connections on arrival.

Example: Air France departing Paris with Delta in New York or Atlanta. Lufthansa with Frankfurt and Munich on this side of the Atlantic and United hubs on the other.

But it all starts at the airline level. Unlike the US airlines which, because of the size of their domestic territory, have several hubs on their home territory, the European airlines have neither the reasons nor the infrastructure to do the same, with two exceptions.

The first is Lufthansa with its hubs in Frankfurt and Munich, which is justified by the country’s territorial economic development. The second is SAS. While the Scandinavian airline’s three hubs have nothing in common with the largest European hubs in size, they correspond to the size of the airline and the Scandinavian market and are justified by the fact that the airline is not the national airline of one country but of three, namely Sweden, Denmark and Norway. So one hub in Stockholm, one in Copenhagen and one in Oslo.

The point? Multiply the possibilities of interconnection to bring the passenger to the departure of his long haul flight. No more seats between Paris and Frankfurt? No problem, Lufthansa will offer you a Paris-Munich-Frankfurt flight before you fly to your final destination. The same applies to SAS where XXX-Copenhagen-Oslo-XXX are frequent.

And as the area of impact of a airline is most often limited, at the level of the hubs, to its national territory, group logic comes into play. The biggest airlines, by taking over others, are not only buying additional capacity, not only get their hands on additional customers, but take a dominant position in a new hub!

This is the logic of Air France KLM. Call it a merger or a takeover, it doesn’t matter, Air France has got its hands on Amsterdam Schiphol at least as much as it got its hands on KLM. Not just additional aircraft and slots at a new airport, but the possibility to multiply the synergies between the short- and long-haul networks of the two airlines on two conditions: that each hub is efficient and that the connecting flights between the hubs are also efficient.

Air France-KLM in a weak position against its competitors

Roissy and Schiphol are therefore major assets for the Franco-Dutch group, but it is important to be prudent. While this was a big step forward in the 2000s and gave Air France-KLM a leading position, the competition has not been sleeping. It made up for lost time and even regained the lead at times.

On the Lufthansa Group side, the acquisition of Swiss, Austrian and Brussels Airlines added Zurich and, to a lesser extent, Vienna and Brussels to the group’s hubs, thus increasing synergies.

Then on the IAG side: the constitution of the International Airlines Group being none other than the marriage of British Airways and Iberia (with a Qatari blessing but that’s another subject). Aer Lingus, Vueling and Level complete the family

If we think in terms of alliances, Europe is now largely Star Alliance:

– France, Netherlands and Romania in Skyteam

– Ireland, UK, Spain, Finland in OneWorld

– Everything else in Star Alliance.

– Some regional non-aligneds.

Air France-KLM therefore had two major assets but could not rest on its laurels or it would be left behind, and in recent years two events have darkened the sky for the Franco-Dutch group.

Firstly, the takeover of Air Europa by IAG. The loss of a historical partner and member of Skyteam (which should go under the OneWorld flag) and of a foothold in the Iberian territory, which forced Air France and KLM to develop their own network to Spain.

Then the now almost inevitable takeover of ITA by Lufthansa Group. The loss of another historical partner who also contributed to the Roissy hub, of a gateway to Italy, and of a Skyteam member who should logically join Star Alliance.

If hubs are strategic assets, then Air France-KLM has seen its competitors arm themselves dangerously over the last 20 years without developing on this point itself.

Schiphol in distress

All this would be worrying if Roissy and Schiphol remained at the same level of capacity and performance but this is not the case.

If we want to see the glass as half full, Roissy is constantly improving, particularly in terms of the fluidity of connections, even if we find that others are still much more efficient. One can also regret the lack of vision that led to the abandonment of the construction of a new terminal, something that will have a cost in the more or less near future. But, as everyone recognises, Roissy is a much more efficient tool today than it was in the past.

If you want to see the glass as half empty, Schiphol is sending out all the more worrying signs as it seems to be on the trajectory of a continuous and inevitable decline.

It all started with COVID, or rather its end. In a summer that has been chaotic at almost every airport in the world, Schiphol has not been at its best. The reason for this is simple: while both Air France and its partner Aéroports de Paris kept most of their employees due to short-time working, their Dutch counterparts treated the sector’s staff with much less consideration. If the recovery was not without its setbacks on the French side (mainly due to the situation with the contractors), this is nothing compared to the nightmare experienced in the Netherlands.

At the beginning, labour problems were added to a limitation of the airport’s capacity by the authorities, supposedly for ecological reasons, but above all to hide the prevailing mismanagement for which they were responsible. The proof: these limitations were eased when the labour force returned, even if in insufficient numbers.

But the damage was done: in the winter of 2022 alone not only KLM lost 70 million euros in ticket sales but the group had to compensate its customers to the tune of 60 million euros over and above the compensation usually paid at this time of year (thanks to theEU261!) during the summer. In addition, there was an 11% limitation on the airport’s capacity until March 2023.

This was enough for the group’s CEO, Benjamin Smith, to point the finger at Schiphol and highlight a very worrying situation at the time.

And since then, it cannot be said that things are getting better

It was thought that things would return to normal when, in an effort to avoid the chaos of last year, Amsterdam announced a plan for hiring and salary increases.

But last week there was a new thunderclap. The Royal Schiphol Group, which manages Amsterdam airport, has announced a series of measures to protect the environment.

  • Curfew on take-offs between 0:00 and 6:00
  • Curfew on landings between 0:00 and 5:00
  • Ban on private jets
  • Ban on the noisiest aircrafts

The impact of the curfew represents 10,000 fewer flights per year. Today the airport’s capacity is already limited to 460,000 annual flights for a capacity of 500,000.

Is this a genuine concern for the environment or a desire to hide behind a smokescreen, as in the past, that the Royal Schiphol Group no longer knows how to run its airport? We leave it to you to make up your own mind.

But the airlines were quick to react, with KLM Group, Delta Air Lines, Corendon, easyJet and TUI taking legal action against the decision. The courts were quick to respond and ruled in favour of the airlines.

The court’s reasoning? Procedures were not followed, stakeholders were not heard.

Is it a case of taking a step back to take a step forward? One might think so, but perhaps the thousands of people who live directly and indirectly from the airport’s activity will also be heard.

But in any case, Schiphol is on a slippery slope and this is a danger for Air France-KLM, a bit like the captain of a twin-engine plane realizing that one of the engines is going to produce less and less thrust as time goes by.

The battle of Portugal, decisive for Air France-KLM?

It is further south, in Portugal, that Air France KLM will probably find its lifeline. Before COVID Ben Smith had displayed ambitions that we related in the article mentioned above. These included taking part in the consolidation of the sector.

Since the end of COVID, only one opportunity has emerged, and that was ITA. A case in which Air France-KLM could not really defend its chances by positioning itself as a strategic and industrial partner because it had not reimbursed its COVID aid, unlike Lufthansa. A burden it has now been relieved of.

The next battle will be played out in 2023 or 2024, further south in Portugal with the future privatisation of TAP. A case that illustrates our point very well. Yes, TAP is an interesting prey even if it needs to be professionalized on many subjects, yes its South American network is very interesting but TAP also comes with its Lisbon hub. All the more so when one can legitimately think that the project, buried to everyone’s surprise last year, of enlarging the airport and building a second platform made inevitable by the saturation of the first one, will end up reappearing one day.

If Air France-KLM misses the TAP opportunity it will have others in the future but not as interesting in airline terms and certainly anecdotal in airport terms. But it will find Lufthansa Group and certainly IAG in its way, a sign that the Portuguese sleeping beauty is seen as a great opportunity by everyone.

Bottom line

If Schiphol seems doomed to a programmed decline, Air France-KLM must develop its hub capacities to face the competition.

A logical and credible option will certainly be the takeover of TAP, an issue on which the competition will be fierce. But as much as missing TAP would not be a tragedy for Lufthansa, it would mean long-term sclerosis for the Franco-Dutch group.

Image :Schiphol Airport by VanderWolf Images via Shutterstock

Bertrand Duperrin
Bertrand Duperrinhttp://www.duperrin.com
Compulsive traveler, present in the French #avgeek community since the late 2000s and passionate about (long) travel since his youth, Bertrand Duperrin co-founded Travel Guys with Olivier Delestre in March 2015.
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