A joint cargo business could provide models for future integration at Air France-KLM
If airlines must remain nationally owned because of traffic rights and other constraints, can they ever create integrated cross-border strategies with other carriers? This is the question being tackled by the cargo departments of Air France-KLM, with lessons that could be applied to the passenger business.
The two carriers set up a joint cargo management committee (JCMC) in October 2005, and moved quickly to put in place single country and regional managers. Sales teams have been brought under one roof in 64 locations, representing 80% of global business.
That meant eliminating duplicated management posts, which Michael Wisbrun, chairman of the JCMC, insists was achieved without redundancies and with little individual disappointment. Most posts were filled without disagreement, he says, while only a small percentage of managers had to be found jobs elsewhere in Air France or KLM.
Every company that merges faces such challenges, of course, but aviation imposes extra hurdles. For example, even though 2,000 of the two carrier's 5,400 cargo staff are now working for the integrated business, all but the top 15 managers are still legally employed by one or the other carrier. That meant that when choosing area managers, a delicate balance had to be maintained
The same goes for co-ordinating schedules, where there has been some specialisation of maindeck lift - KLM focusing on South-East Asia, and Air France on South America, for example. Again, one carrier pulling out of one market has to be balanced in another.
"We are getting used to making such trade-offs," says Wisbrun, adding they are always carefully discussed in the JCMC to ensure that balance. One downside to this is that the speed of decision-making has suffered: "That is something that we are having to learn - how to manage complexity and still make the decisions more quickly."
Putting sales teams under one roof is not the same as merging them. Wisbrun hopes that can be achieved by the end of March - but in some countries - Germany and Spain for example - the unions will pose a formidable barrier.
Fortunately, IT has ridden to the rescue. Progress on e-booking is relatively slow for both carriers, as it is in the air cargo industry, but in October they implemented a web-based system for sales staff that shows the capacity of each airline on any route, along with customer contract details, feeding bookings to the carriers' individual systems.
These will be replaced with a new system costing $40-50 million, an investment KLM could never have afforded alone. There will be a gradual migration, with new-generation modules replacing existing legacy functions until a final legacy switch-off around 2010.
Joint purchasing
Human resources have also been harmonised, as has joint purchasing of handling, pallets and equipment. The latter area will produce €13.2 million ($17.6 million) synergies out of a predicted €49 million for the whole cargo business in 2006-7.
There are reports that joint purchasing of aircraft on the passenger side could be next. Wisbrun does not comment on this, but says: "If you see what savings there can be from joint purchasing of handling and pallets, which are little things, then you can imagine what procurements savings could be made by the airline as a whole."
He hints at other integration initiatives coming on the passenger side, saying they will be unveiled by mid-2007, and adds that there is no doubt that the cargo experience will provide some models. "In that sense, cargo integration is an experiment," he says. "It has given us enough positive signals to look at integrating more processes and organisations within the two airlines."
One area yet to be tackled is branding. Both company's logos are still used, and the cargo business does not have a new name. This is partly because of the value the passenger brands have, and partly to keep customers onside.
"Merged businesses often lose customers: we wanted to make sure one plus one at least equalled two," Wisbrun says. "Global accounts already consider us as one organisation, but the lower down you go, the longer it takes. Until we are 100% seen as one company, we will keep the separate brands."
Source: Airline Business
