KLM is now in the major league of global alliances. But the carrier still needs to select an Asian partner while noise restrictions at its hub threaten its development. Leo van Wijk, president and chief executive officer, talks to Lois Jones about the challenges facing KLM.At 10.30 am precisely the door swings open; the interview with Airline Business is due to commence. In exactly an hour's time, a secretary will enter, hand Leo van Wijk a briefcase and usher him on his way to catch his flight. Meanwhile, van Wijk taps his fingers on the desk while he waits a few minutes for coffee to arrive.

Van Wijk doesn't like to mess around. Since becoming president and CEO on 6 August, 1997, he has got straight on with the job, known his objectives and aimed to achieve them. Even if that means sacrificing a good night's sleep. A telephone call woke van Wijk in the middle of the night before the interview, confirming that KLM's US partner Northwest Airlines was to acquire a controlling interest in Continental Airlines for US$519 million in cash and newly issued Northwest stock, forming an alliance network that will stitch together the fourth and fifth largest carriers in the US.

The CEO must have replaced the receiver and slipped back into pleasant dreams. Not only will the alliance greatly expand the geographical reach of KLM's USalliance network, it will secure KLM membership of a leading global alliance, able to compete with the Star Alliance and British Airways' proposed tie-up with American Airlines.

When fully implemented, the alliance will result in cooperation between Continental and KLM, while the networks of Continental and Northwest will be linked. There will also be codesharing and frequent flyer programme reciprocity.

The deal seems to signal an end to KLM's strained USequity relationships. KLM is set to be freed from ownership ties and board-room quarrelling with Northwest by May this year, after Northwest accelerated the repurchase of 18.2 million of the company's common shares from its Dutch partner. In 1997, the two airlines restructured their alliance from a stake-holding arrangement into a 10-year contractual deal. This was after KLMfiled a lawsuit against Northwest when the UScarrier moved to limit increases in KLM's stake.

It's all happy families really. KLM is also in bed with Continental partner Alitalia, after signing a memorandum of understanding for a broad-based alliance with the Italian carrier on 18 December. This leaves KLM with just one partnership gap to fill - in Asia - to complete its global alliance picture and, as van Wijk points out, he's already working on that.

For KLM, the deal with Alitalia is a crucial building block in creating critical mass in Europe to feed its longhaul network. More importantly, the deal opens up vital capacity for KLM, whose development at its hub in Amsterdam/Schiphol is set to be severely fettered by proposed noise restrictions.

The main suggestions of the Schiphol Airport Utilisation Plan for 1998 include a ban between 18h00 and 08h00 on Chapter II aircraft with engines having a bypass ratio of 2 or less, and restricted runway use between 21h00 and 07h00. What's more, Schiphol is set to become a slot-restricted airport from 1 April, 1998.

KLMhas been temporarily appeased by amendments made to the plan in January 1998. The maximum number of aircraft movements permitted in 1998 is now set at 400,000 - higher than the 360,000 originally proposed, but still below the 460,000 movements requested by the airlines.

The plan will allow KLM to increase frequencies to meet market demand for 1998. Fundamental changes will have to be made for 1999 and future years, however, to allow KLM to grow. Unless significant changes are made, Schiphol restrictions could be the sword to pierce KLM's armour. Somehow, you get the feeling that van Wijk won't let it come to that. For the moment, however, he's got a plane to catch.

Airline Business: Are stringent noise restrictions introduced by Schiphol's Airport Utilisation Plan set to scupper KLM's hubbing system and arrest the carrier's growth?

For the moment, in any case, we are refining our growth, with conservative growth of just 3 per cent for the next fiscal year, starting 1 April, 1998 and targeted annual growth of 3-5 per cent for the next two to three years.

Government decisions have to be made in the next couple of years, by the turn of the century at the latest, then we'll have a better idea of what the longer term plan is.

There's still quite a number of Asian carriers to choose from. What's clear is that KLM would have to select more than one Asian partner, as the region is so vast and the politics, economy and geography are quite different. Also, as in Europe, if two partners are based quite close together, then you create more problems than you solve.

Our next step will be to integrate our sales forces in both Europe and North America. We're also looking at integrating both partners' information technology so that both airlines' systems can speak to each other and communicate, which will offer significant economies of scale.

Source: Airline Business