Sunday, November 26, 2017

The CEO of the oldest airline in the world explains the major mistake the industry made 20 years ago

KLM CEO Pieter Elbers.
(REUTERS: Charles Platiau)

In continuous operation since 1919, KLM Royal Dutch is the oldest airline in the world. It's a venerable brand known for its service and iconic blue planes.

Since 2014, Pieter Elbers has been the man tasked with leading the Dutch national airline into the future. Elbers joined KLM in 1992 as an aircraft loading supervisor before moving up the company's management ladder. Today, the charismatic 47-year-old leads an airline with 33,000 employees and $12 billion in annual revenue.

Recently, Elbers sat down with Business Insider at our headquarters in New York. Our conversation touched upon several topics including the Air France-KLM union, competition in the marketplace, and travel tips.

The state of Air France-KLM

In 2004, KLM merged with Air France to form one of Europe's largest and most powerful aviation conglomerates with a fleet of more than 530 planes that carry more than 93 million passengers annually.

Due to labor issues and the hyper-competitive nature of the Europe's commercial aviation industry, things have not always been easy for Air France-KLM. However, the company has recovered nicely, reporting a $1.2 billion through the first three quarters of this year.

"What I share with my staff is that we aren't following the book on consolidation, we are writing the book on consolidation," Elbers said. "And sure sometimes we have to make changes or reverse some earlier decisions, it's nice to play a role in it."

According to Elbers, the interplay between the two airlines is constructive.

"In the past, we were probably very much that we should centralize a lot of activities in service to these two airlines," the KLM CEO told us. "In today's reality, for instance, in the field of digitalization, we prefer to do it in both Amsterdam and Paris."

"And then to make sure people challenge each other, help each other, share best practices, and share ideas," Elbers said. "We see a great momentum there in terms of if something is being done on the Air France side, the KLM guys know they can learn from that and try the same thing or even work to improve it."

Competition in Europe and from abroad

The most disruptive force to hit commercial aviation over the past few decades is low-cost airlines. However, major legacy carriers underestimated the effect power of these airlines until it was too late.

"My personal view is that for especially the first decade of their existence, network carriers like ourselves sort of underestimated, ignored — almost arrogantly ignored — the rise of low-cost carriers," Elbers said. "With that, we can see that their share in the European landscape has steadily increased and is now anywhere between 42% and 45% of all flights in Europe are with low-cost carriers. And a percentage which is significantly larger than in the US where it’s about a third."

In response, KLM made drastic changes to the way it conducts business.

"With that, we have embarked on a program in KLM a few years ago whereby we sort of said, we’re going to defend our European network and we're going to make sure that we do the right thing for our customers on the European network," he said.

"So we have lowered our cost, we have increased our fleet utilization, we have changed our commercial offers on probably 60% of all our European destinations, which are about 80 destinations. We do have levels which are matching the low-cost carriers. So this combination of cost-cutting on the one-hand side, investing in our product and our service."

However, low-cost carriers aren't the only competitive threats to major legacy airlines. In countries such as China and Japan, high-speed rail has been taken a toll on domestic air travel. But that hasn't been a major issue for KLM.

"High-speed rail internationally in Europe is a very, very small number. Domestically in countries like France, it is relevant, between various countries it's hardly relevant because of all of the different systems. It's not really taking traffic," Elbers said.

Things are different when it comes to the three Persian-Gulf mega-carriers; Emirates, Etihad, and Qatar Airways. This has been a major topic of contention for US and European carriers that claim the ME3 have been propped up by more than $50 billion in government subsidies.

"The fact that we have new competition is not an issue, but what the aviation community has been rather vocal about is to ensure that we have a level playing field and that we all play by the same rules," Elbers said. "I think it's very important also as a commitment to our staff. If we ask them to make sacrifices and to contribute to the change and the well-being of the company we should be able to do that while fighting on an even playing field."
Tips for frequent flyers

Elbers is a true frequent flyer. The KLM CEO is on a plane several times a month. As a result, he's worked out a few tricks to make air travel easier. For instance, Elbers stresses the importance of organization when it comes to packing.

"Everything is in a fixed place. Everything is packed in the same way. I’m boarding an aircraft about every other week, so I want to make sure I don't forget anything," he said. "I need everything to be done in the very same way. I know where everything is packed, I know the sequence of packing it. So yes, I do it in the same very structured way."

"What I do is I have a special bag for sort of my running stuff and some of the non-business related items. And then I have a small carry-on luggage for business shirts, ties, and so-on," Elbers added.

And then there's jet lag. For Elbers, it's all about exercise to start the day.

"Beating jet lag for me is an early morning run," he said. "So, wherever I go, I wake up early, I do my run, and that's, for me, the way to beat the jet lag."

(Benjamin Zhang - Business Insider)

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