AF-KLM: Neither pushed nor disgruntled
25 / 03 / 2015
Was he pushed? Is he protesting at the direction that the company is taking? Erik Varwijk, who resigned as executive vice president of Air France-KLM Cargo with effect from March 1, insists that neither is the case.
“It was a personal decision,” he says. “I decided that at the age of 53 it was not too late to do something completely different with my life. I don’t know yet what it is, but I have been 25 years with KLM and I really want to do something else.”He says both he and Air France-KLM are entirely happy with the current cargo strategy. “It is what we have decided on for the next few years and it was fully endorsed by the group. That won’t change under my successor.”
He looks back on his two years at the head of cargo as a time in which he successfully steered the business onto a new course.
The strategy has included a radical cut in the freighter fleet. In 2005, before they merged, the three carriers (the third one being Martinair) had 26 freighters. In November 2013 that was down to 14 and Varwijk announced that it would be trimmed to ten by this year.
But now the carrier has announced a further halving of the fleet, with the axing of the five MD-11Fs operated by Martinair.
Two will go this month (March), one in early 2016 and the remaining two in summer 2016. The remaining two B747-400ERFs of Air France – the last of the disposals under the 2013 plan – will also leave the fleet this month.By autumn 2016 all that will remain will be the two B777Fs of Air France; the three former B747-400ERFs of KLM now operated by Martinair; and one B747-400BCF which will be used as a reserve.
Martinair’s remaining three BCFs are parked in Spain and will probably never return to service.Varwijk says this will reduce the freighter fleet to the ideal size for current market conditions. But he said the same about ten freighters a little over a year ago and is honest enough to admit that it might not be the final word.
“Who knows what will happen or how demand or capacity will develop? This is our plan for the next couple of years, but I cannot predict what will happen afterwards. We may go to zero freighters or we may place orders for more. That is something that will be looked at when the time is right.”
Martinair will continue as an operator, but it will be a shadow of its former self. As recently as November 2013 Varwijk described it as an important cargo brand in Africa and South America, but now it is reduced to a stub.
This is a sensitive area because negotiations with the unions are still going on, but Varwijk confirms that the idea is to sell the MD-11Fs, not operate them for any other carriers. Discussions are continuing with potential purchasers, but scrapping the aircraft – as with Martinair’s remaining passenger MD-11s last year – is also possible.
In that event the aircrafts’ Pratt and Whitney engines would be the most valuable part.
One other source of maindeck capacity also faces an uncertain future. KLM’s 17 B747-400 combis have always been the core of its fleet and all are still in operation, although one of them is now in full passenger configuration.
In the short term they will cushion the cargo operation from the loss of freighter capacity. An example is Dubai, which was given three combi services a week from 10 January, and Tokyo, which had two extra combi frequencies over the winter.
Varwijk praises the flexibility of the aircraft: “It is a 300-seater aircraft so you can use it on a route instead of a 777-300ER.”
Nevertheless there is only a commitment to keep them until 2020 when the last passenger 747 is due to leave the KLM fleet.
The last Air France passenger 747s are due to retire early next year.
In their place is a flood of new widebody aircraft. Air France was the launch customer for the 777-300ER in 2004 and the group now has 43 in its fleet, with eight on order.
The first of 35 787-9s arrive at the end of this year and 25 A350-900s are in the pipeline. All these aircraft are very belly-cargo friendly.
In the medium term, Varwijk says, all this belly space will replace the lost maindeck capacity. In the short term there will be a dip, but that suits Air France-KLM.
“Currently we believe there is overcapacity in air cargo worldwide and so this is the right response to market conditions.”Meanwhile, Air France-KLM Cargo is undergoing a cultural change, putting more emphasis on specialist products and less on general cargo. Currently the balance between the two is 50:50 in revenue, but Varwijk expects specialist cargo to be 70 per cent within a few years.
“There is a lot of emotion about the reduction in maindeck, but to be honest if we look at our strategic priorities – express, pharmaceuticals, secure cargo – most of it is carried in bellies. They not only do the job, they do it better, because belly cargo is faster, more frequent, more reliable.”
With less maindeck to fill there will be less emphasis on big block space deals with large forwarders and more on smaller, high quality shippers. “We may lose some market share in project cargo, but at the moment we would rather focus on margins,” says Varwijk.
And margins – profit – are what matters. Air France-KLM Cargo made a €202m loss in 2013 and €110m of that was on freighter operations. Eliminating that and putting more cargo in bellies will bring the division back to breakeven by 2017, the carrier hopes.
Varwijk also says that the way belly costs are acc-ounted for will be changed “to bring us into line with industry practices”.
He baulks at saying this means attributing less cost to cargo, but “there is always much discussion about how costs are allocated to belly cargo and which routes are flown only for passenger purposes. We are making some changes to better show the added value that cargo brings to passenger operations.”
The carrier is also investing in its specialist products. A new express facility is already in operation at Paris CDG, and in Amsterdam two sites are being evaluated for a new premium cargo facility, to open in 2017, replacing part of the existing cargo terminal that will be lost to a new passenger pier.
In the next quarter, cargo will also be rolling out the Accenture AFLS system, which will make it easier for customers to make bookings and offer sophisticated new revenue management tools.
As Varwijk leaves all this for new challenges, his parting shot to cargo is an appeal for more cooperation in the supply chain.
He thinks the old shipper-forwarder-airline chain needs to be replaced by one where all these parties, along with Customs and other players, work together.
“At the recent conference you organised at Air Cargo News, there was much talk about how this would make sense in the pharmaceuticals sector, but I think it would make sense in all sectors,” he says. “An integrated approach is essential to make air cargo more competitive. If it can grasp this, there are a lot of opportunities out there.” ■