Air France-KLM's cautious approach to integration appears to be paying off, with the cost benefits from the group's international sales efforts producing results faster than forecast

The two carriers, which merged in spring last year, say that their international sales strategy will see savings of €29 million ($36 million) in the 2005/06 financial year, ahead of a predicted €26 million figure. In four years time, the group expects this figure to rise to €92 million – a fair chunk of the group-wide €580 million of cost savings that Air France-KLM is anticipating. "We are clearly going beyond our financial objectives," says Patrick Alexandre, executive vice-president of international commercial affairs and operations at Air France. International sales synergies for the financial year to March were on target at €8.3 million.

This is despite a cautious approach to obtaining merger synergies. "We are not doing this by cost cutting. We are doing this by doing the job more efficiently," says Paul Gregorowitsch, executive vice-president commercial at KLM. "We are concentrating on growth."

Synergies gained so far include the grouping together of 16 local and regional management teams, joint Air France-KLM ticket counters at 12 airports, and 24 joint airport handling contracts. Catering contracts have been renegotiated in six airports, and crew hotel deals in nine destinations. There are now 21 shared airport lounges.

Air France and KLM are jointly managing contacts with corporate accounts and tour firms, although in most markets there will still be two separate sales teams. In markets where one of the two carriers does not have a sales presence but is represented by the partner airline, a single management structure with one regional manager is being set up. In five markets, Brazil, the Andean countries in South America, the Caribbean, Guyana and the Indian Ocean, there will be a single manager covering the two sales teams.

In the domestic markets, the two carriers have put in place a structure that is designed to guarantee sales of both brands and better market coverage. Air France staff in the Netherlands will be joining KLM and, pending KLM works council approval, KLM staff in France will be joining Air France.

Gregorowitsch and Alexandre have been leading a careful approach towards developing the post-merger sales relationship. "We could destroy value if people are no longer concerned about customers, but are concerned about themselves," warns Alexandre. "When you suddenly ask 7,500 people to work together, it is not easy," adds Gregorowitsch.

The desire to avoid staff cuts has seen Air France accept what Alexandre calls "a degree of over-staffing" at its Manila office. "It is more important to retain intellectual capital than have forced redundancies," says Alexandre.

Managers at both carriers have always said that the potentially tricky merger process has been made easier by the fact that both airlines share a common philosophy on network strategy, pricing policy and yield management. "We are speaking the same language," says Alexandre.

Air France-KLM managers play down speculation that the group could participate in a recapitalisation of SkyTeam partner Alitalia. They also warn that closer sales co-operation with the troubled Italian carrier would be difficult as Alitalia's current tendency to price for market share does not sit easily with Air France-KLM's focus on maximising revenue.

Air France-KLM denies claims that the group is funnelling low-yielding passengers through Amsterdam and high yielding ones through Paris. "We do not have segmentation," says Gregorowitsch, adding that Air France has always had a higher proportion of business travellers than KLM.


Source: Airline Business