Air France and KLM have cemented their merger and given the first indications of how the company will be run in the future.

Air France's takeover of the Dutch flag carrier was completed in early May, with nearly 90% of KLM shareholders giving their approval to the deal. The takeover also sees the French state become a minority shareholder in the new entity, with its shareholding dropping from 54% to 44.7%.

Air France president Jean-Cyril Spinetta expects his government to further halve its stake later this year. The two carriers are now concentrating on the planned entry of KLM, Continental Airlines and Northwest Airlines into the SkyTeam alliance - which is led by Air France and Delta Air Lines - in September this year.

At a press conference in Paris convened to announce the deal, Spinetta and his deputy chairman, KLM chief executive Leo van Wijk made it clear that they will follow a two-hub strategy based around Paris Charles de Gaulle (CDG) and Amsterdam Schiphol, but stress that that they still have the flexibility to adapt to market conditions.

The merger includes guarantees granted to the Dutch government to ensure that KLM's Schiphol hub is treated on an equal basis to CDG until the end of the decade. The plan is for Air France-KLM to act as a holding company for three years from September 2004, holding 49% of the voting rights and 100% of the economic rights in KLM.

However, van Wijk makes clear that this does not mean the company will be prevented from reacting to events. "There is no inhibition to stop us implementing the integration process in a way that will allow us to survive and compete," he says. The way that the integration is managed will be "our choice", he says, adding, "if events force us to do it quicker, we will do so".

 Van Wijk stresses that "it is important to have a multi-hub system", and Spinetta also rebuffs those who question whether the dual-hub idea will work, pointing out that other major European carriers are doing exactly the same in the context of alliances.

Air France and KLM are co-ordinating their schedules from June and are offering 15 round trips a day between CDG and Schiphol. KLM flights at CDG are being moved from Terminal 1 to the much newer terminal 2F, while the two carriers will also be grouped together in Amsterdam.

Long-haul routes will be consolidated on Air France or KLM routes that offer less than daily flights or involve stopovers. This will see Air France axe its CDG-Bangkok-Manila service from the winter season, while KLM will drop its Caracas service, adding its "KL" code on flights from Paris once traffic rights have been obtained.

From the winter season, the two carriers will pool passengers travelling via Singapore to Jakarta, transferring them to a single aircraft at Singapore to avoid operating onward flights wing-to-wing.

Air France/KLM will add services from Amsterdam to Bordeaux and Marseille, replacing services axed by Basiq Air, its low-cost arm operated by subsidiary Transavia. Speaking at KLM's annual results conference in May, van Wijk said: "Transavia is an integral part of our strategy of how to defend our Amsterdam hub." Two daily flights from Rotterdam to Paris will be added from August.

Air France, meanwhile, will axe the onward Birmingham-Glasgow leg of its CDG-Birmingham service and will also cancel its CDG-Bristol route. Services from Amsterdam to Casablanca and Turin will also be axed. These routes had all been losing money.

Spinetta stresses the complimentary network strengths of the two carriers, with KLM stronger in northern Europe (particularly in the UK and Scandinavia) and Air France stronger in the south. The Air France and KLM frequent flyer programmes will be merged during 2005.

As a result of the merger, the combined group expects cost savings of €220 million ($265 million) to €260 million per year after three years and €385-495 million by year five. Spinetta insists that Air France-KLM has been "prudent and conservative in the way the figures have been determined".

Meanwhile, UK low-cost carrier easyJet is still challenging the deal in the European Court, arguing that the remedies proposed by the European Commission to alleviate competition concerns are inadequate. EasyJet has been campaigning to get more slots at the Paris airports and is also challenging the French slot co-ordinator COHOR through the French courts. Brussels cleared the merger in February this year, as did Washington.


Source: Airline Business