AIR FRANCE AND KLM S INTERNATIONAL SALES STRATEGY

Transcription

1 AIR FRANCE AND KLM S INTERNATIONAL SALES STRATEGY Roissy, 11 April 2005 INTRODUCTION 1

2 One of the main challenges for the new Group is the implementation of a sales strategy on Air France and KLM s international markets. Coordinating action plans and developing identifiable synergies are two key factors that contribute to strengthening the two airlines market positions in the face of competition, in terms of both capacity and market share. This involves capitalizing on the complementary aspects of Air France and KLM while maintaining the identity and potential of both brands so as to create more value. *** Complementary networks, combinable fares, a joint frequent flyer program and membership of a major alliance such as SkyTeam underpin the Air France-KLM sales strategy to respond to customers needs. The two airlines world networks have been combined to form a vast network centred around the Paris-Charles de Gaulle and Schiphol hubs. When planning a trip to a long-haul destination operated by Air France and KLM, passengers domiciled abroad have a choice of two different flight times on the same day, and will be able to combine a trip via Amsterdam with one via Paris. Air France and KLM have also placed the complementary nature of their medium-haul networks at the service of customers. Air France boasts a strong southern European presence, while KLM has a strong network in Northern Europe. For all customers, the vast potential of Air France-KLM combined offering enables them to plan their trips to suit their schedules, at the most attractive available fares, based on the addition of two half round-trip tickets. Members of the Air France Fréquence Plus and KLM Flying Dutchman frequent flyer programmes may accrue Miles and claim rewards on all the two airlines routes. 2

3 Both these frequent flyer programmes will be merged into one named Flying Blue, starting as of June Lastly, when KLM, Northwest and Continental became part of the SkyTeam Alliance in September 2004, benefits for passengers were further enhanced, namely more destinations, more frequencies, frequent flyer programmes, a greater choice of services on board and on the ground, etc. I. COORDINATE THE COMMERCIAL POSITIONS OF BOTH AIRLINES SO AS TO BOOST THEIR PERFORMANCE IN FOREIGN MARKETS 1) The international sales strategy of Air France and KLM is focused on providing customers with a global, streamlined product offer. The merger between Air France and KLM gave rise to a leading European player and the world s leading airline group in terms of turnover, boosting two highly complementary brands that will coexist over a long period without encroaching on each other. Over a year s experience of working together has today proved one of the fundamental premises of the merger of the two airlines: that the teams of both airlines, and particularly the sales teams, share the same vision of their profession, the same values and the same sense of customer service. It is on the basis of this premise that senior management at Air France and KLM decided to define strategic guidelines to coordinate the sales strategies of the two airlines After carrying out a complete inventory of sales practices in place with the help of the Boston Consulting Group, they were then compared with a view to coordinating strategies. Corporate policies regarding large and small firms, tour operators and general sales agents were all carefully examined. Distribution, e-business, commercial communications, frequent flyer programmes and customer care all came in for close scrutiny. 3

4 In principle brand difference has been maintained, particularly in instances where the customer may appreciate recognizing a product or an environment with which he or she is familiar (on board for example, or in airport lounges). It was, however, decided that all that was not fundamentally representative of the brand should be standardized. This would apply, for example, to networks, the frequent flyer programme, the ground product offer or B2B: corporate and travel agent contracts. It was also agreed that a coordinated marketing communications strategy would be put in place. Lastly, if in principle single management has been possible in some countries (see below), it was also decided that the teams would not be merged so that each airline could retain its commercial know-how accrued over the years. 2) This groundwork has led to the publication of a reference document ( Commercial and Stations Guidelines ), distributed in May 2004 to regional managers stationed abroad. It sets out the joint rules of the game and establishes the following major objectives: heighten customer satisfaction; increase market share; step up margins and implement identified synergies; create value while respecting each airline s know-how; strengthen the teams motivation and develop new career prospects. Air France and KLM regional managers were then assigned the task of defining and recommending joint action plans in the field that can be put into practice in the markets under their authority. These plans, drawn up according to previously defined general guidelines approved by the Strategic Management Committee of Air France-KLM chaired by Jean-Cyril Spinetta, have enabled the two sales structures to work together. 4

5 II. WORKING TOGETHER TO DEVELOP IDENTIFIED SYNERGIES 1) Three levels of Air France-KLM commercial governance have been set up: The highest, the Commercial Committee, defines the guidelines for commercial cooperation between Air France and KLM. The Commercial Committee monitors the implementation of synergies, and on a larger scale the market action plans at regional management level. It is jointly chaired by Patrick Alexandre, Executive Vice President International Division, Commercial Affairs and Ground Operations and Christian Boireau, Executive Vice President Commercial France for Air France and for KLM, by Paul Gregorowitsch, Executive Vice President Commercial Division and Frank de Reij Executive Vice President Ground Services. This committee consists of five working groups focused on sales policies, stations and procurement, human resources, finance and coordination. The task of the Area Commercial Committee () is to coordinate the actions of regional managers: defining priorities, assessment and approval of action plans, drawing up of timeframes and the implementation of synergies. For each network, the is made up of senior managers from Air France and at KLM, specialized in either the commercial side or in logistics and operations. There are six s covering France, Benelux, rest of Europe, Africa/Middle East, Asia/Pacific and an area encompassing Central Latin America, the Caribbean and the Indian Ocean. On a par with the, two Business Commercial Committees (BCC) coordinate the corporate account strategies together with distribution policies for Air France and KLM. Finally for each region, the Regional Management Committees (RMC) develop the joint Air France-KLM action plans. Regional managers from both airlines sit on these committees. 5

6 AIR FRANCE KLM COMMERCIAL ORGANIZATIONAL CHART AIR FRANCE & KLM COMMERCIAL ORGANIZATION COMMERCIAL COMMITTEE COMMERCIAL POLICIES COORDINATION TEAM FINANCES HUMAN RESOURCES COMMERCIAL COMMUNICATION STATIONS SPECIFICATIONS / PURCHASING FRANCE BENELUX EUROPE C&S AMERICA CARIBBEAN & INDIAN OCEAN AFRICA & MIDDLE EAST ASIA PACIFIC BCC GLOBAL BUSINESS BCC DISTRIBUTION & E-BUSINESS RMCs RMCs RMCs RMCs : Area Commercial Committee (including Stations) BCC : Business Commercial Committee RMC : Regional Management Committee (including Stations) 6

7 2) International markets are organized in three categories: The majority of countries where Air France and KLM operate, are covered by coordinated markets. Present structures have been maintained and teams from both airlines work together. Their main objectives are to coordinate and harmonize sales. They must also implement synergies including at the stations. Wherever possible, Air France and KLM staff share the same premises. Complementary markets refer to countries where one of the two airlines is not present but is represented by the partner. For example: Ivory Coast, Kenya, Malaysia, Morocco, Philippines or Tunisia. A single managerial structure, with only one regional manager, is therefore being set up. In 5 markets - Brazil, Andean countries, the Caribbean, Guyana and Indian Ocean, where integration is well on its way - teams from Air France and KLM will be led by a single manager. The aim is to evaluate the relevance of having a single manager for the implementation of commercial synergies to ease the decision-making process and to communicate on joint action. In addition to these three groups, there will be the France and Netherlands markets, with a specific organizational structure aimed at guaranteeing sales of both brands and better market coverage. Air France staff in the Netherlands are joining KLM. KLM staff in France will be integrated into Air France. 3) Synergies identified in markets are rapidly implemented Initial evaluations have shown that the targets set for commercial synergies for fiscal year April 2004/March 2005, totalling 8.3 million euros, will be met. This year there will be savings of 29 million euros. In four years time, synergies should show 92 million euros (within the scope of International Commercial Affairs ) 1. 1 The total amount of synergies between Air France & KLM, expected for 2004/2005, is estimated at 90 million euros, among which 40% come from revenues, 30% from cost cutting and 30% from network management (additional revenues and cost reductions). Total AF-KL synergies should reach 580 million euros in 2008/

8 Since 1 April 2005, teams from Air France and KLM in charge of commercial relations with corporate accounts have been grouped together to cater to the specific expectations of these firms which are avid consumers of business travel. This new team will particularly provide corporate accounts with the consistency expected from a Group such as Air France-KLM in terms of fares and sales. Joint contracts for these firms and tour operators can be offered and implemented by sales people from both airlines. Air France and KLM have rationalized their international sales expenses through the joint rental of offices and ticket offices wherever possible, and through the renegotiation of station handling services. Joint contracts for common customers (corporates and travel agents) can be proposed and implemented by sales staff from both airlines. Consequently: Offices of 16 local and regional managements have been grouped together so far, namely Copenhagen, Dhahran, Dubai, Frankfurt, Geneva, Kuala Lumpur, Malabo, Manila, Osaka, Taipei, Teheran, Singapore, Tel Aviv, Tokyo, Vienna and Zurich. Customers are greeted at joint Air France-KLM ticket counters in 12 airports: Amsterdam, Bologna, Düsseldorf, Johannesburg, Lyon, Marseille, Milan Linate, Milan Malpensa, Nice, Paris- CDG, Toulouse and Vienna. In 24 stations joint contracts for the procurement of airport handling have been signed: Barcelona, Bologna, Budapest, Caracas, Casablanca, Jakarta, Manila, Lagos, Mexico City, Hong Kong, Lagos, Madrid, Milan-Linate, Milan-Malpensa, Montreal, Munich, Oslo, Rome, Saint- Martin, Singapore, Toronto, Turin, Warsaw, Vienna. Catering contracts (supplies of meals and services on board aircraft) have been renegotiated in Atlanta, Chicago, Damascus, Los Angeles, Montreal and Manila. Similarly, contracts for crew accommodation have been reviewed with hoteliers in Amsterdam, Madrid, Mexico City, Osaka, Paris-CDG, Singapore, Stockholm, Toronto and Warsaw. 8

9 Airport lounges are now shared in Amman, Amsterdam, Bangkok, Barcelona, Berlin, Damascus, Düsseldorf, Lisbon, Lyon, Manchester, Marseille, Milan-Linate, Milan-Malpensa, Munich, Nice, Paris-CDG, Rome, Stuttgart, Teheran, Toulouse and Zurich. For fiscal 2005/06, notably regional management offices, 12 ticket counters and 5 lounges will be shared. Furthermore, in addition 18 other airport handling contracts will be renegotiated. Each Air France and KLM Regional Manager will have their joint action plans incorporated into their budgets, for both their commercial activities and ground operations. Lastly, wherever possible, reciprocal sales representation agreements will replace the agreements previously signed with general sales agents (GSAs). For example, KLM represents Air France in the Netherlands, Malaysia, New Zealand, the Philippines and Taiwan. Air France represents KLM in Bolivia, Colombia, New Caledonia and Venezuela. Similar types of agreements are planned for other markets in the following months. IN CONCLUSION Naturally it is in the field that the new sales structures of Air France KLM will take shape. Air France and KLM firmly believe they can conduct their business more effectively together. Their aim is to provide a service to companies, to contribute to the global economy and to satisfy our contemporaries need for travel, discovery and encounters. The 7,510-strong workforce of Air France and KLM abroad, share the same view of their profession, the same values and the same sense of customer service. Founded on a straightforward concept of one group, two airlines which respects corporate identities, brand and corporate cultures, the merger between Air France and KLM was welcomed by the sales staff at both companies. The pride and pleasure of working together is nowadays shared by agents in 225 stations operating around the globe and is a key factor in the Group s success. 9

10 AIR FRANCE-KLM IN FIGURES Air France-KLM (in ): Leading airline group by turnover (18.2 billion euros) 66.3 million passengers 390+ airport lounges (including those of SkyTeam members) 556 aircraft in operation 90 millions euros synergies* from April 2004 to March millions euros synergies* from April 2008 to March 2009 (*estimate) 10 million members in the new Frequent Flyer Program Flying Blue (June 2005) Air France-KLM International Operations: 58% of total* passenger sales (*11.37 billion euros from April 2004 to December 2005) 7,510 employees abroad (5,600 for AF and 1,910 for KL), 371 of whom are expatriates (290 for AF and 81for KL) 40 Air France and 24 KLM regional managements around the world 225 destinations including 107 long-haul and 118 medium-haul 8.3 millions euros synergies* from April 2004 to March millions euros synergies* from April 2005 to March millions euros synergies* from April 2008 to March 2009 (*estimate, within the scope of International Commercial Affairs ) KEY DATES IN THE AIR FRANCE-KLM MERGER 30 September 2003: Air France and KLM officially announce their merger through a recommended Public Exchange Offer by Air France for KLM. 11 February 2004: European and U.S Competition Authorities give their approval. 5 April 2004: Launch of the Public Exchange Offer for KLM shares. 5 May 2004: New Group listed on the stock exchanges in Paris, Amsterdam and New York. 1 June 2004: launch of the first customer benefits 26 January 2005: Air France-KLM named Airline of the Year by the magazine «Air Transport World». 27 January 2005: Air France-KLM, world leader in air cargo transport, sets up the "Cargo European House" 23 mars 2005: Air France-KLM unveils the name of its new frequent flyer program, Flying Blue 10