Most network carriers around the globe are dealing with similar issues. While demand is strong, costs have increased considerably following the pandemic, and on top of that, margins are down a bit, as more airlines have restored capacity.
In response to market conditions, KLM Royal Dutch Airlines has announced measures to structurally improve the company’s operational and financial performance, and it will have implications for both passengers and employees.
In this post:
KLM outlines cost cutting measures to improve finances
KLM intends to improve its financial performance by increasing productivity, simplifying the organization, cutting costs, and deferring or postponing investments. Despite revenue growth, the airline believes these interventions are necessary due to the rising cost of equipment, staff, and airport fees.
This is also being done so that KLM can invest a billion dollars in fleet renewal, which the airline views as essential, in order to meet its climate goals.
The aim is for these measures to improve operating results by €450m in the short term. The hope is that in line with Air France-KLM’s group ambitions, this should lead to a structural profit margin above 8% by 2026-2028. Of course I wouldn’t put too much weight on that, since there are so many outside factors that impact airline performance.
KLM CEO Marjan Rintel describes these changes as “painful,” and here’s what she had to say:
We want to maintain KLM’s 105-year pioneering role in aviation and continue to connect the Netherlands with the rest of the world. However, just as many other airlines, KLM is suffering from high costs and shortages of staff and equipment. Our aircraft are full, but our capacity is still not back to pre-corona levels. We want to remain at the forefront of customer and employee satisfaction as well as sustainability. To continue doing this effectively, we must make clear and decisive choices now. This is painful for every KLM colleague, but it is necessary, and it has to be done now.
So, what does KLM’s cost cutting entail? The company has already engaged its unions to inform them of measures and objectives, which include the following:
- Increasing labor productivity by at least 5% by 2025, including through automation, mechanization, and reducing absenteeism
- Measures to resolve the impact of the pilot shortage and ensure the airline can operate all flights with its current pilots, with a better balance between intercontinental and European flights
- Due to the shortage of technicians and ongoing supply problems of parts, KLM can operate fewer flights, so measures are being taken at Engineering & Maintenance to reduce the number of cancellations; if this doesn’t yield sufficient results, the airline will consider partly outsourcing maintenance
- All investments (except those in occupational safety and compliance) will be reconsidered and postponed, such as the new headquarters and Engineering & Maintenance buildings
- Improvement of existing, and introduction of new products onboard; trials are underway with an expanded catering offer and optimization of aircraft layout, aimed at increasing revenues by at least €100 million per year
- Measures to simplify the organization, achieve more synergy, get rid of overlap and overhead
- KLM will explore options for outsourcing, divesting or discontinuing activities that do not directly contribute to flight operations
My take on KLM’s plans to cut costs, boost revenue
I find it interesting how KLM outlines its planned changes. The airline provides lots of bullet points about what will be changing, while still being rather vague. It seems this cost cutting will impact both employees and customers.
KLM is obviously looking for more productivity from employees, ranging from flight attendants, to pilots, to maintenance. It’s very possible that these are changes that should be made and that are totally logical, though I imagine there will be some pushback from labor groups.
Then there’s the point that impacts customers, about the goal of increasing revenue by €100 million per year by introducing new products onboard, and optimizing the layout of aircraft. We know that KLM plans to trial buy on board service in economy on flights within Europe, so I imagine that’s part of this plan.
Furthermore, it sounds like KLM might be looking to densify its cabins. I can’t imagine that KLM can densify its cabins much more than it has done with its new 227-seat Airbus A321neos, but perhaps a similar concept will be applied to other aircraft as well. I certainly can’t blame KLM for trying to increase revenue, but this rarely ends up being good for consumers.
It’s interesting to see how these cost cutting measures are specific to KLM, and I think it reflects the overall strategy of the Air France-KLM group, which makes sense. The company is increasingly trying to position Air France as the premium brand, and I’d say that’s logical, when you consider the type of demand that exists to France.
For that matter, KLM is facing more structural issues than Air France is, when you consider that the government of the Netherlands is determined to reduce flying at Amsterdam Schiphol Airport (AMS), which is KLM’s only hub.
Bottom line
KLM has announced measures to strengthen its operational and financial position. With this, the airline plans to postpone any investments other than fleet modernization, find more synergies when it comes to labor, and increase revenue onboard aircraft.
This probably isn’t great news for consumers, so we’ll have to stay tuned to see how this plays out.
What do you make of KLM’s efforts to improve its finances?
Once you see the word “synergy” in a press release, you know it’s gonna be a mess.
Wouldn’t be surprised to see them move to BOB drinks and snacks in short-haul economy. The sandwiches they’ve been offering are more generous than other EU mainline carriers.
If they cut long-haul business class catering or wine quality any further, they might as well just serve the same thing as economy. Meals have been terrible the last couple years and there isn’t a single wine that’s more than €10 a bottle. Short haul business class...
Wouldn’t be surprised to see them move to BOB drinks and snacks in short-haul economy. The sandwiches they’ve been offering are more generous than other EU mainline carriers.
If they cut long-haul business class catering or wine quality any further, they might as well just serve the same thing as economy. Meals have been terrible the last couple years and there isn’t a single wine that’s more than €10 a bottle. Short haul business class is already just cold boxes for a few years now.
I’ve been getting more and more disappointed with KLM’s service over the last few years… hope this isn’t the final nail in the coffin.
As all the airlines suffer from same symptoms, why they stopped the on board duty-free sale? This might bring back additional revenue or I am wrong?
I've found that KLM tickets in Business are often more expensive than Air France. Especially their European business class. I've also noticed that KLM business tends to not sell out all their business class seats while Air France does. Air France definitely seems premium when you look at the quality of food served. While KLM, especially within Europe, is among the worst. The taste of their lounge food is not great either.
I guess you missed a government change in The Netherlands. Right now it's the populists in charge and they didn't exactly put cutting flights at Schiphol on top of their agenda.
What's actually a real issue in The Netherlands right now, is a severe shortage of skilled labor in those segments KLM is looking for. That has impact on wages, sick leave, efficiency - basically all the things mentioned in the bullet points. That,...
I guess you missed a government change in The Netherlands. Right now it's the populists in charge and they didn't exactly put cutting flights at Schiphol on top of their agenda.
What's actually a real issue in The Netherlands right now, is a severe shortage of skilled labor in those segments KLM is looking for. That has impact on wages, sick leave, efficiency - basically all the things mentioned in the bullet points. That, plus the cost structure of Schiphol, which is one of the most expensive airports of Europe in terms of passenger costs.
I'm sure KLM will make it through this round, somehow. I'm just not sure if Rintel and her team thought some of the measures through. If they make the seat configuration denser, people will stay away after having had an awful flight experience, for example. We'll see.
Only real perks are the dutch houses & a decent international connection network
KLM is almost the low cost division of the group. France has a significantly higher population and is investing in a premium product. The new Lounge opened at CDG 2F not so long ago, there’s the concierge service, upgraded premium cabin as well as a new La Premiere coming shortly.
In addition they invest a lot in their catering as you would expect from
a french company.
KLMs food is generally awful. Who goes the Netherlands for their cuisine?
I agree. KLM has been operating as a low-cost carrier with a legacy intra-Europe business-class that it has to operate to handle connecting international passengers. Even its international business-class is mediocre at best.
The lounges at Amsterdam are awful. The food is school or hospital cafeteria food.
Its so interesting watching klm becoming almost a budget airline while air France becomes a more premium airlines.
Wow, how would Delta allow this with their 2.8% majority stake?!
"Certainly DL's influence in AF's boardroom played a part;
you do realize that AF/KL is about 10% owned by DL as well?
The fact that you seriously don't think that DL has an oversized level of influence with its partners - and AF/KL/DL/VS IS the world's largest joint venture is the real surprise.
You are beyond ignorant if you think that what DL is doing didn't influence AF.
If you don't...
"Certainly DL's influence in AF's boardroom played a part;
you do realize that AF/KL is about 10% owned by DL as well?
The fact that you seriously don't think that DL has an oversized level of influence with its partners - and AF/KL/DL/VS IS the world's largest joint venture is the real surprise.
You are beyond ignorant if you think that what DL is doing didn't influence AF.
If you don't think that DL doesn't have influence in the companies in which it has equity - and often a board seat - you simply don't want to admit that DL did something "
The Dunnster fire's own words. Per Tim, Delta is responsible for everything mentioned in this article.
But alas, Delta doesn't have a 10% stake in AF/KL nor does their minor stake (lower than China Eastern) mean much despite Timmy's biggest hopes and dreams.
He constantly reminds everyone why Delta fired him.
KLM already relies upon cheaper immigrant staff at its AMS airport in lounges, etc. Whether they're KLM employees or contractors, I don't know. To reduce overhead in terms of employees, it could:
1) Further reduce staff at gates and go to fully automatic boarding
2) Further reduce staff at lounges and go to fully automatic checkpoints for lounge access like SAS
3) Further reduce staff at airport check-in desks and have automatic...
KLM already relies upon cheaper immigrant staff at its AMS airport in lounges, etc. Whether they're KLM employees or contractors, I don't know. To reduce overhead in terms of employees, it could:
1) Further reduce staff at gates and go to fully automatic boarding
2) Further reduce staff at lounges and go to fully automatic checkpoints for lounge access like SAS
3) Further reduce staff at airport check-in desks and have automatic check-in kiosks
4) Hire non-EU flight attendants
Simply wrong.
Industry contracts set the wages. Not immigration status.
SAS has staff at the entry of all of its Scandinavian lounges
For rebooking issues, etc. The SAS lounges I’ve used had automatic checkpoints. Amsterdam has a similar model but they still could cut staff. When I was at AMS in June, the EU lounge for KLM had at least 7 agents at the entrance and service desks.
I guess you've never visited Schiphol, right?
1. This is an airport investment, not a KLM investment. Besides, this was already in place at a lot, if not all, gates pre-covid.
2. SAS has staff at the entrance their lounges. They didn't always have it at SAS Cafe back in the days, but they have it at all lounges. Always at least 2 lounge dragons at CPH, OSL and ARN.
3. KLM was...
I guess you've never visited Schiphol, right?
1. This is an airport investment, not a KLM investment. Besides, this was already in place at a lot, if not all, gates pre-covid.
2. SAS has staff at the entrance their lounges. They didn't always have it at SAS Cafe back in the days, but they have it at all lounges. Always at least 2 lounge dragons at CPH, OSL and ARN.
3. KLM was one of the first airlines in the world to have both self service check in for passengers and luggage at Schiphol. They have staff around in case people need some help with checking in or with their luggage, but all has been automated there for years. The exception, of course, is flights where manual checks are mandatory.
4. KLM already has a lot of staff from all over the world. It doesn't really matter, as wages are mostly set via collective agreements. Cutting salaries in The Netherlands simply because people were born somewhere else would lead to scandals and court cases.
Ah, the classic "we're losing money, let's remove incentives for high-yield pax to pay extra to fly with us" approach. I'm sure it's gonna be a roaring success, just like over at LH Group.
There's also the old chestnut of "we have issues with maintaining our planes, let's cut the new buildings that the department responsible for this require!"