KLM’s CEO, Pieter Elbers says the airline’s focus is on building back a better airline. Interview by Graham Newton
Along with other airlines the world over, the Dutch airline KLM has overcome many challenges and learned numerous lessons from the COVID-19 crisis.
What has been the impact of the pandemic on the airline?
Huge! The impact cannot be overstated. I cannot believe how, in February 2020, what seemed like a local aviation issue in China has grown to have such a global impact on our industry and airline.
For KLM, there were initially some minor adjustments to flights to China, but these adjustments soon spread to the global network. From March, the network was severely reduced and in April and May we virtually grounded all our 200 aircraft, although we worked hard to operate a number of repatriation flights.
In June, we saw the beginnings of a gradual recovery that picked up in July and August. By then, in Europe, we were flying to 95% of our destinations with about 60% capacity. Load factor was about 50%, which was slightly better than anticipated in April.
But after September the situation deteriorated again, especially in Europe, and long haul wasn’t picking up as expected. We’re now reduced to levels we saw at the start of summer.
We had to let go some 5,000 colleagues at KLM out of 33,000 which we regret but was necessary under the circumstances.
It has been an incredible and intense rollercoaster ride and the financial impact has been devastating. For the first nine months of the year, Air-France-KLM reported a loss of €3.4 billion ($3.94 billion). KLM lost €1 billion. In the third quarter alone, Air France-KLM went from a near €1 billion profit in 2019 to a €1 billion loss in 2020. That’s a €2 billion swing in a single quarter!
At the beginning of 2020, our priorities were sustainability, digitization, and diversity and inclusion in our staff.Fortunately, we have the great talent and diversity to meet those goals.
What are the main lessons learned from the crisis?
There is no doubt that this crisis has lasted longer and is deeper than anybody anticipated. When you’re faced with an unfolding crisis, you have to learn as you go along. But you must learn quickly.
Speed is of the essence. We started putting cargo in the cabin very quickly, but perhaps we could have done it even quicker. We also organized repatriation flights to places we had stopped flying to, such as Sydney.
And along with speed, you need agility. Cargo in the passenger cabin is an example of that too. You do things you would never have thought to do before. I am proud of the teams who did these things so quickly.
And of course, all health regulations and initiatives had to be implemented quickly and efficiently.
Tell us about the airline’s strategy and how you will now approach 2021 and beyond?
From the start of this crisis, our approach has been very structured. It’s important for the employees and the company because every day brings further news and people begin to feel insecure about their jobs and about the future. A clear structure provides a basis for people in uncertain times.
Crisis management was our starting point, and we implemented all the local rules of the 70 countries we fly to and also began serious cost-cutting. We did everything a company would and should do in a crisis situation.
We then had to secure a loan and guarantees on bank loans from the Dutch Government to ensure we had a sound financial basis. That is now in place.
The third pillar has been about recovery and speaking with my colleagues and especially my network team on a daily basis to work out the best way forward.
Finally, there is the 2021–2025 period. As time passes, we are more focused on this fourth pillar: restructuring. We have summed up our turnaround strategy as “From more to better.” Basically, building back a better airline.
Previously, the airline was focused on “more everything”; more passengers, more flights, more aircraft. But now we are concentrating on making things better. A better airline, a better service, extra hygiene measures, a better connection with communities and country, and so on. That’s why, on the product side, we have decided to continue with Premium Economy and to implement direct aisle access in all our Business Classes.
And of course, even more than before, there is a better, deeper commitment to sustainability.
The restructuring plan was submitted to and accepted by the Dutch Government. A commitment from the unions to make a labor contribution during the term of the loan was needed to get it finalized. This will last for the term of the loan, which is expected to be 2025. This is a big thing to ask of your employees, even in these unprecedented times, but it was one of the requirements set by the government. If you are asking for taxpayers’ money it is only right that employees contribute too.
KLM is important to the Dutch economy, which is why we receive a loan and guarantees from the government. This puts us under the public spotlight, making it even more important to keep working together internally and to focus on every contribution needed to achieve recovery.
€2billion- Air France-KLM went from a near €1 billion profit in 2019 to a €1 billion loss in 2020. That’s a €2 billion swing in a single quarter!
Are governments guilty of not supporting the industry or should airlines have been better prepared given previous crises, such as SARS and the Icelandic Volcanic ash cloud?
Many governments implemented local measures to keep national economies, and airlines, going. That was a positive step for aviation, but the other side of the coin is that governments all took different measures. And they even had different ideas about safe travel destinations. Even slot waivers, which were adequately addressed by the European Union, took quite a bit of time.
And because everything has been so national in nature, there is a lack of coordination at the global level. Should masks be mandatory, what about keeping the middle seats free, and so forth?
As an industry, we strongly plead for harmonization but perhaps we didn’t say what was needed quickly enough, resulting in governments coming up with their own rules.
Take quarantines. They are extremely negative for passengers. People are not afraid to fly, they’re insecure about being at a destination when the rules are suddenly changed. Speed testing is obviously a helpful solution to these insecurities. It will restore passengers’ and authorities’ confidence in travel and so I’m definitely in favor. Testing will be an essential part of the overall toolkit for safe travel.
Has the crisis affected your views on airline partnerships and joint ventures?
In the depth of this crisis, all carriers had to focus mostly on themselves. We were all dealing with repatriation, with cash flow issues, the balance sheet, and taking care of our customers.
If we assume that the recovery will take years, it is the thinner, long-haul routes that will be last to come back. And they wouldn’t come back at all without strong partnerships at big hubs. Look at our Air France-KLM partnership with Virgin and Delta, for example. This was a transatlantic powerhouse before the pandemic. And it is flights such as Amsterdam to Atlanta that will lead us to recovery and the ability to serve longer, thinner routes. The same is true for Delta heading into Europe.
These developments are crucial to traffic recovery, which benefits the consumer and the global economy.
250,000- At KLM, we repatriated 250,000 Dutch and other Europeans. We brought in an enormous amount of medical equipment for European hospitals.
Do you feel the aviation value chain has worked together well or could more be done to promote a unified message?
I think we have been singing from the same hymn sheet. After all, OEMs and many other suppliers are in serious difficulty too. It is all about reinstating the confidence of travelers and everybody has a vested interest in that.
KLM worked even closer with Schiphol on hygiene measures, for example, to make sure travelers feel comfortable. This crisis has shown the interdependency of the value chain. Recovery will be characterized by cooperation.
How important has the cargo revenue stream been and will you put more emphasis on cargo?
Cargo has always been a crucial part of our business. We were recently recognized as cargo airline of the year 2020 at the World Air Cargo Awards. Unlike the losses seen in the passenger business, cargo revenue in the first nine months of 2020 increased by an impressive €168 million compared with the same period last year.
KLM operates from a small home base to a worldwide network, so cargo is vital. There have been many new cargo initiatives over the last few years, such as our express cargo and pharmaceutical services, both of which started in 2015. These have been important and helped enormously to make us agile.
When the crisis started, we started an air bridge to China to transport medical equipment and other relief goods. Actually, I did one of the flights myself just to see how we got 1.3 million masks plus other essential personal protection equipment on an aircraft. In total, we brought 50 tons of medical supplies to the Netherlands from Shanghai on this particular flight.
Also, we have converted some Boeing 777s to operate cargo-only flights and that is working very well to destinations that we can’t fly to with passengers due to travel restrictions. The point is you don’t need a huge, dedicated cargo fleet to be in a good position for cargo. It is about agility.
In the Netherlands, we have committed to reducing CO2 as part of the loan package from the government.
Have broader aviation issues, such as diversity and sustainability, been lost in the fight for survival?
At the beginning of 2020, our priorities were sustainability, digitization, and diversity and inclusion in our staff. KLM is the second largest employer in the Netherlands, and it needs to reflect our society and it needs to reflect our customers. Fortunately, we have the great talent and diversity to meet those goals.
As for sustainability, it is an essential part of the industry recovery. In the Netherlands, we have committed to reducing CO2 as part of the loan package from the government. I know it is the same for many other carriers.
The silver lining in this crisis is that we have an opportunity to show aviation is a force for good, as former IATA DG Tony Tyler used to say. Personally, I really do support and believe that!
We can point to what the industry achieved when the crisis spread globally. At KLM, we repatriated 250,000 Dutch and other Europeans. We brought in an enormous amount of medical equipment for European hospitals.
We have truly demonstrated the benefits of aviation.