Air France - KLM “how to survive the global battle” Presentation for TU-Delft International Seminar on Airport Planning ‘Airport of the Future’ Thursday,

Air France - KLM“how to survive the global battle”

Presentation for TU-Delft International Seminar on Airport Planning

‘Airport of the Future’

Thursday, 30 March 2006

Athar Husain Khan

Director Government & Industry Affairs

“Make flexible adjustment of tactics accordingto changing circumstances of the battlefield”

(Sunzi’s Art of War, around 250 BC)

3 presentation aotf 300306 ahk

Contents ...

• Brief history

• Our strategy

• Where do we stand

• External world

• Opportunities

• Challenges

• What do we need


June 1989

May 2004

1993

?

?

• June 1989 : KLM investment in NW• September 1997 : Global JV

• Begin 2002 : informal discussions• Spring 2003 : discussions intensify• September 2003 : public announcement • May 04 : entry into force• September 2004 ; Joint holding Air France - KLM

?1992

1999

2000

… quest for economies of scale and scope ...


… our strategy ...

• Committed to play a frontrunner role as a truly European airline

• Operating under a bi-national structure, from a dual-hub system

• Aiming for profitable growth / fit to compete

• Managing the transition to a global free market

• Creating favourable conditions: costs, infrastructure

• Securing Europe’s global competitiveness

• Demonstrating good citizenship: environment/social


.. market size segmentation for a dual hub ...

Number of O&D passengers

Stations

Tertiary stations KRS, PSA, TRD, VGO, ...

Secondary stations MRS, GOT, TRN, BGO ...

Primary stations MAD, BCN, FCO, ...

Super stations LHR, CDG, ...

Dual hub service

(CDG & AMS)

Dual or single

hub service

Single hub

service

(CDG or AMS)


… KLM + Air France + SkyTeam ...

645 destinations


North America

Latin America Africa

Asia

Middle East

Europe AF-KL: ~12%1st European

carrier

AF-KL: ~10%2nd European

carrier AF-KL: ~8%1st European

carrier

AF-KL: ~16%1st European

carrier

AF-KL: ~24%1st European

carrier

Capacity share on Europe-Long-haul routes

Source: OAG data week 37 (Summer 2005) – non stop operating flights

… European leader on main global markets ...

Long HaulAF-KL: 13.2%BA: 8.8%LH: 8.0%


… and the largest in turnover…in bln US$

0

5 000

10 000

15 000

20 000

25 000

30 000

AF-KL LH JL AA UA DL BA AN NW CO QF SK SQ US


… need for transfer traffic at Schiphol ...

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Local Transfer


80-ies : USA 90-ies : Europe

1980Atlanta

1986Washington

hub model USAmedium-haul – medium- haul

Atlanta, Chicago, Dallas…

hub model Europelong-haul –

medium -haulParis, Frankfurt,

Schiphol,...

hub model Orientlong-haul –

long-haulDubai

SchipholFrankfurt

1996Paris

1981Dallas

2000~ Gulf

2000-01Dubai

1992

… hub development ...


… and the external turmoil continues ...

• Iraq crisis, Bird Flu, Iran-IAEA, what more?

• Still increasing external costs: fuel, airports, Air Traffic Control

• Increasing regulatory costs: security, environment

• United States Chapter 11, bankruptcies

• Inevitable consolidation between airlines

• Ongoing liberalisation (EU-US and others)

• Low cost / no frills carriers, more differentiation and competition

• Ambitious developments in the Middle East (Dubai et al)


Rising fuel costs Air France-KLM (04/05 + 33.3% to € 2.65 bln, Q1 05/06 y-o-y + 32.2% to € 809 mln)

63.160

35

40

45

50

55

60

65

70

Daily Brent crude OilLast update: 16sep05

… somewhat lower but still high oil prices ...


… the operating charges we pay ...

16%

32%

9%

8%

6%

3%

26%

fuel

labour

depreciation andprovisions

landing fees & routecharges

commercial &distribution costs

operating leases

other charges


Oneworld hubs

SkyTeam hubs

Star alliance hubs

CPH

FRA

MUC

VIE

MXP

CDG

MAD

LHR AMS

… and the battle for Europe ...

ZRH


… in a growing European passenger market ...

0

10,000

20,000

30,000

40,000

50,000

60,000

4/1/

88

4/1/

89

4/1/

90

4/1/

91

4/1/

92

4/1/

93

4/1/

94

4/1/

95

4/1/

96

4/1/

97

4/1/

98

4/1/

99

4/1/

00

4/1/

01

4/1/

02

4/1/

03

4/1/

04

4/1/

05

4/1/

06

AEA Total Scheduled Passenger Traffic (in million RPK)

Source: AEA, incl.domestic, excl. charters

Average annual growth rate 1988-2003: 6.0 %(passenger traffic within and to/from Europe)

Expected growth rate of 4-5 % per year until 2012

3


… an opportunity : China ... - Traffic growth perspectives -

Very strong growth between China and Europe +18% p.a.Until today (last 10 years)

4,3 million passengers in 2004

Emerging Chinese middle class

Tourism and VFR traffic potential (bothinbound and outbound)

Increasing presence of foreign firms inthis huge market

Chinese firms developing their presencein the Rest of the World

Crisis of the financial system

Implosion of the single party

Potential hitches in Chinese development : corruption, violationof intellectual property, increasing social inequalities

Chinese tourism development slowed by measures to counterillegal immigration

Exposure to major epidemics (SARS …)

Opportunities

China Domestic+15% p.a.

China - Europe 12% p.a.

Risks


… the passenger market ...

Transfer potential

158 Mln.

Worldwidepassenger market

1.600 mln

European passenger market

(intra - EUR)

558 mln

Relevant marketfor Schiphol

185 mln

Rest of the world

1033 Mln.

Europe related market

554 Mln.

Rest of Europe related

373 Mln.

SPLrelevantmarket

185 Mln.

Local traffic SPL 24 mln(89% share of NL market)

Transfer at SPL 18 mln (11 % share of transfer traffic)

Traffic at Schiphol

42 mln

Local potential 27 mln

Transfer potential 158 mln


… lcc/nfc fast growth over the last 3 years ...

2002easyJet: 44 routes

1.840 flts/weekRyanair: 76 routes

2.220 flts/weekKL Eur.: 2.530 flts/week

2005easyJet: 92 routes

4.738 flts/weekRyanair: 222 routes

4.477 flts/weekKL Eur.: 3.200 flts/week


… growth of the lcc fleet ...

108 134 149 176 197

96121

147167

186

53

60

69

74

79

218

91

204

77

88

47

2004 2005 2006 2007 2008 2009 2010

Air Berlin/Niki

Ryanair

easyJet

Sources : Airclaims, press releases, OAG


UK - India

Australia - UK/Eur

Asia - Africa

USA-more Europe

… also the Middle East has ambitions ...

‘90~

‘95~

‘00~

‘05~


Sources : Airclaims, press releases, Global Insight

10 9 9 8 5 3 1 1 1 1

6 6 6 6 5 3

4 6 6 6

6 6 6 6 6 3

3 3 3 3

3 3 3 3 3 3

1

5 13 19 24 29 29 29 29

27 24 24 24 24 24

2 3 4

9 12 12 12

12 12

12 12 12 12 12

4 8 10 10

10 10 10 10 10 10

8 8 8

8 8 8 8 8 8

10 18 26 30 30 30 30 30

4 10

16 24 27 30 33

1

7

10 13

16 20

16 19

22 24

10

29 33 35

43

55

67

79 85

94

107

118 124

130 137

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

A380-800

A340-600

B777-300ER

A340-300

A340-500

B777-300

A330-200

Seats (04-10) : +15,7%Seats (95-04) : +20,5%

Emirates fleet plan… with their fleet plan ...


… what do we need on national level ...

• Capacity at Schiphol > mainport requirements- infrastructure- environment

• Low costs and high quality from our service providers > Schiphol and ATC-LVNL

• A government with a vision and integrated policy regarding the long term development of aviation in NL


… and what do we need at European level ...

• An integrated European aviation policy to enhance:

- Reduction of costs (security)

- Addressing the imbalance (airline-airport relationship)

- A level playing field both intra and outside the EU (market access, environment)

- Innovation (ETS, SESAR)


… thank you.

[email protected]

Air France - KLM “how to survive the global battle” Presentation for TU-Delft International Seminar on Airport Planning ‘Airport of the Future’ Thursday,

Documents

presentation aotf

ams slide

environmentsocial slide

bc slide

global battle presentation

ahk contents

hub development

dualhub system