Air France KLM: Dancing to a new beat

27 / 06 / 2017

Air France KLM Martinair (AF-KLMP) Cargo has finished its freighter diet and is now ready to “rock ‘n’ roll” after investing in IT systems and terminals.

Marcel de Nooijer was appointed executive vice president of the Franco-Dutch airline’s cargo arm in December 2016. He is a personable Dutchman who wants to erase the pejorative “European legacy carrier” label.

“We are in a transformation and so are doing stuff in a different way. We are zooming in on where we can create additional value. We are focused heavily on digitisation, on upgrading our facilities and on making sure that we can tap into e-commerce.”

AF-KLMP Cargo now has two Boeing 777 and four Boeing 747 freighters in its fleet, plus 10 elderly B747 combis – each capable of carrying 40 tonnes – which will be phased out by the summer of 2020.

Freighter slimdown

In 2005, the then trio of individual carriers had a total of 26 freighters. In November 2013 that was down to 14 and then came the axing of the five MD-11Fs operated by Martinair.

But those were very different times, before the arrival of widebody passenger aircraft with big cargo bellyholds. 

For example, the phased-out combis will be replaced by passenger B777–300s and Dreamliner B787s.

“Yes, we have been resizing our freighter footprint which was a tough thing for a cargo company, but we did it in a timely manner. We have got our costs completely under control and are positioned perfectly to benefit from what is happening right now in the industry.”

De Nooijer adds: “We are not going to fly our metal to anywhere in the world, because that would be silly from a cost and income perspective. 

“But we are a big player and will remain so, focused on partnerships and on the right investment in what really matters.”

He adds: “Whether we like it or not, there will continue to be an influx of more cargo-friendly passenger aircraft and that will create overcapacity.

“So you have to be very disciplined in your organisational cost structure model – that has not changed – but we also want to emphasise that certain segments require specific attention and we are committed to sticking to that game.

“I do not plan to be a commoditised entity selling only general cargo; that is not why we are here. We have a tremendous track record in perishables which, just like pharmaceuticals, require specialist cool handling, in which we have many, many moons of experience.”

De Nooijer makes the point that “a lot of new things have happened alongside the reduction of the freighter footprint”.

Fast lane

One of those initiatives is the European Green Fast Lane, which the carrier launched in September last year at its Schiphol hub in a consortium driven by funding from the Dutch government as part of a multimodal logistics project.

The neutral logistics information platform, intended to promote supply chain data usage, concentrated on a key freight lane for AF-KLMP out of Frankfurt airport.

“We are working with the other stakeholders, be it a handler, forwarder, Customs and the community platform provider Cargonaut, to reassess the business process set-up and to ensure that we have a very clear acceptance process and redefined time slots for trucks.”

The Cloud-based solution means that when a shipment enters the supply chain: “We can immediately check that all the data records are correct in terms of compliance,” says de Nooijer.

The compliance checker, built together with Cargonaut, assesses all the data records required not only by Dutch Customs but also by the Customs authority at destination.

The system also checks the shipment size, weight and commodity type so that mistakes are filtered out to provide a “clean sheet”. 

Data reliability in terms of quality and performance has increased by 20% and the success of the test phase will see the concept rolled out next at 10 large AF-KLMP stations in Europe, among them the Paris Charles de Gaulle (CDG) hub, Brussels, Madrid and Zurich.

“Overall, we operate 127 trucking network points, so this will be a process for the coming 18 months. 

“We will introduce the system in clusters of 10 [stations] and I’m pretty sure that this will steeply improve the performance.”

There is a growing need for such systems, says de Nooijer: “The industry in general still has quite an issue with data re-keying and, as a result, with transmission and translation errors.

“In fact, nearly 85% of the air waybills (AWBs) need to be re-entered and corrected. That is a tremendous inefficiency which we have to get rid of because it is pure waste.”

He observes: “It still happens that trucks can arrive at Schiphol and instead of 10 tons there is suddenly only three tons when you open the doors. That causes not only mishaps in optimising precious aircraft assets but also in manpower planning.”

Rather than pinpoint those responsible for the errors, de Nooijer prefers “a more positive perspective”, adding: “Imagine if we can get rid of unfortunate mishaps in the supply chain and then how much more value we can bring to the shipper. I am quite gung-ho about that.”

Digital development

There is also myCargo, a digital platform that allows customers to check the status of their shipment, check schedules, make bookings and receive quotes. De Nooijer describes it as a “beautiful web data platform”.

He adds: “It is a very interactive way of making a booking because it offers advice if you have a booking for a specific date.

“It will come back with a quote but it will also offer additional options, where you can choose a different date with a rate to the advantage of the customer. It is very intuitive and easy to use and from what our customers are saying, quite a front runner in the industry.”

IT and supply solutions aside, AF-KLMP Cargo continues to invest in new or upgraded terminal capacity at its key hubs.

In May 2015, it opened its €22m Hub Express at CDG to handle higher yield e-commerce parcels from Asia.

Schiphol is to have its equivalent facility, due to open this summer, in response to the e-commerce parcels boom. It will also serve the pharma segment with its temperature-controlled specialist ULDs.

“Our new sort facility at the Schiphol hub will be fully automated and capable of dealing with packaging and bellyhold carts but also with active containers.

“We will double our capabilities but also ensure that the quality and performance will increase too.”

Forwarder friends

Turning to the forwarder community, KLM got into hot water in the 1990s – before de Nooijer’s time − when it tried to address shippers directly, without forwarders being in the same room. A backlash followed and KLM retreated.

Today, in more enlightened times, airlines speak openly of tripartite talks, with shippers, forwarders and airlines sitting around the same table to discuss supply chain issues. 

“We have contact with shippers, to get a better understanding of their respective logistical needs. So for us it doesn’t feel like something new. It is something you’re supposed to be doing, together with forwarders.

“It is good for certain products that you have a clear understanding about the shipper’s needs and requirements, their issues and their worries. A tripartite set-up makes a lot of sense if it starts at the request of the shipper, and we have always been willing to engage in such encounters.”

De Nooijer continues: “And so, for certain shippers, the tripartite approach is ideal because the forwarders, being our main customers, add a lot of value in orchestrating the supply chain and I do not see that easily moving to a different business model. 

“What is important is the discussion around data, and that we know each other’s value in the supply chain and that there is trust in terms of data exchange. That is important because there’s a lot of value to be gained if you can have the right information from the start.”

New reporting

In February this year, AF-KLMP announced that the cargo division would no longer report its results separately from the passenger business, from the first quarter of 2017.

The cargo division recorded another operating loss in full-year 2016. Cargo revenues for the year declined by 14.7% year on year to €2.1bn as a result of “structural industry overcapacity”, and a 6.3% decline in traffic to 8.4bn revenue tonne km (RTK). Its full-freighter operating loss for the year was €28m, compared with a €42m loss in 2015.

Asked whether this financial report change was a case of burying the bad news, de Nooijer responds: “I think sometimes that there is a misunderstanding about the value of cargo in a carrier which consists of both cargo revenue and passenger network revenue.

“The contribution of cargo is essential to uphold the strength of our current network and we have a contribution in 2016 of well over €800m, and if you take a look at our operational margin of slightly over €1bn, then 80% is carrying that operating margin.

“If you look at it from that perspective, you see the true value of cargo and the need to upgrade facilities and to invest in your products, your capabilities and your staff. It is clear that AF-KLMP Cargo is an essential part of running our overall operation.”

He says that the reduced freighter footprint makes his business a “belly- dominant cargo company”, and that the contribution it provides towards the overall network means that the combined passenger and cargo revenues “fit like a hand in a glove”.

De Nooijer adds: “In the past we were the only carrier which had a cost allocation model led by what we call the transfer price, where the cargo division had to carry an allocated cost model attached to all the flights we were operating, even if these were cargo-light destinations.

“AF-KLMP Cargo then has the burden of unsellable capacity, and hence you get current operating income results which are very negative but also very artificial.”

Space sharing

When de Nooijer was interviewed, Emirates SkyCargo and all-cargo airline Cargolux had just announced a space sharing deal. He raised an eyebrow.

“We have already set up a strategic partnership with China Southern which allows us to provide maindeck capability into China. So once again, and not always noted, we are playing a front runner role. Perhaps we should be a little bit more vocal about that.”

De Nooijer, who always wears a smile, describes himself as an optimist.

“We have been in transformation, so it is about destruction but also construction, and that has been the theme of the last two years.”

He concludes: “I can assure you that we are in a good, cost-effective state. We are absolutely ready to rock ‘n’ roll.”