11 innovative airlines to keep an eye on in 2011

The Ultimate Dutch Status Symbol: House-Shaped Booze Bottles

By DANIEL MICHAELS

AMSTERDAM -- On a recent KLM Royal Dutch Airlines flight, a business-class passenger stood up and addressed the cabin: "If anyone doesn't want their house, I'll take it," recalls another traveler, Mieke de Boer.

For 56 years, KLM has handed out a coveted souvenir: small ceramic replicas of historically significant houses filled with Dutch gin and topped with a cork. Many people can't get enough of them. The rarest houses -- given only to honeymooners -- can trade for upwards of $1,000.

"It's crazy the lengths we'll go to," says Ms. de Boer, a South African who has collected some 300 houses and displays them at home in a house-shaped cabinet. On her recent trip, she asked the flight attendant to start distributing houses near her seat, in hopes of getting first dibs.

Nobel Prize-winning author Gabriel García Márquez once requested a full set of houses as partial payment for writing something for KLM's in-flight magazine, says Ken Wilkie, the magazine's longtime editor. KLM refused because it only distributes the trinkets aboard its planes on intercontinental flights, and then only in business class.

Mr. García Márquez's literary agent (herself a house collector) said the story sounded about right to her.
KLM's houses -- which portray Dutch landmarks such as Rembrandt's home, the Anne Frank Museum and a brothel in Amsterdam's infamous red-light district -- hark back to a more generous era of air travel. Once upon a time, airlines lavished passengers with logo-emblazoned playing cards, tote bags and cigarette lighters. Today, as carriers cut costs amid soaring fuel prices, KLM's gin-filled minihouses are a rare frivolity to survive.
When KLM started offering first-class passengers the crockery in 1952, industry rules capped the value of airline handouts at 75 cents. But there was no limit on booze. So KLM marketers camouflaged their presents as liquor bottles.
The three-inch-tall, edifice-shaped vessels quickly became a hit because only high-fliers got them. "The more houses a guy had, the more successful he was," says Nanette van der Laan, a Dutch TV producer, who recalls her parents' friends in Holland displaying the houses like trophies in the 1970s.

"Those houses were the ultimate status symbol of the international jet-setting lifestyle," she says.
In 1993, when KLM eliminated first class, it started handing out houses in business class instead. Despite pressure to cut costs, the houses have survived. When Air France bought KLM in 2004 to create Air France-KLM SA, some French bean counters suggested jettisoning them, company insiders say. That idea never got off the ground, and Air France executives say it was never seriously considered.

"KLM has cut down on everything from magazines to soap," says Lex Van Hessen, a Dutch sausage-casing producer who has flown KLM for 35 years and has the house collection to prove it. "But the houses they never touch."

KLM has produced almost a hundred different models since 1952, making them the industry's longest-running marketing gimmick, says John Brindley, an aviation historian. The next one, the 89th house in the series, will debut on Oct. 7, the airline's 89th birthday. The real-life building it will replicate is a secret.

The bottles are made using the same glazing process as the famous blue tiles produced in the Dutch city of Delft. Each holds about a shot's worth of genever, a Dutch style of gin distilled by Lucas Bols BV since 1575. Last year, when Bols opened a museum in Amsterdam celebrating its nearly half-millennium of existence, it devoted an entire room to KLM houses.

Delft resident Lisette Grannetia says she has built a thriving business snapping up the houses at Dutch yard sales and reselling them online. At a gift shop in central Amsterdam, tourists pay almost $40 for houses similarly sourced. Amsterdam resident Theo Kiewiet runs a Web site where he peddles a guidebook to visiting all 88 houses. Several Dutch Web sites, including KLM's, also let sellers and buyers haggle for the houses.

Only special-edition bottles trade for $1,000 or more, such as one once given to honeymooners, which is shaped like the Dutch royal palace, and another portraying the 17th century Cheese Weighing House in Gouda. When Princess Christina of the Netherlands sold her 210-house collection in 1996, it went for more than $10,000 at Sotheby's in Amsterdam.

All 88 houses remain on offer, but KLM carries only about 30 on each flight, so serious collectors jockey for first pick. "It's always great to schmooze the flight attendant, because some people don't take theirs," resulting in leftovers that other travelers can nab, says Keith Kenney, an American aerospace executive working in Amsterdam who has collected 78 houses. He figures he will have the full set by the end of summer, either by traveling or buying the ones he lacks. "I'm just anxious to complete the collection," he said.

Donald Reid, an Irishman who travels widely for work in the oil industry, admits to occasionally strong-arming fellow passengers. "If you put enough pressure on people, they'll give you theirs," says Mr. Reid, who built a display case in his kitchen for his collection and decorates his bathroom with extras.

But few collectors match Mr. Van Hessen, the sausage-casing maker. His 1,500-house collection is so big that most of it sits in boxes. "And I'm not even a drinker," Mr. Van Hessen says.
Good thing, because for a home to hold its value, it must remain full of its original Dutch gin. "If you take the cork out, there's no value at all," says Ms. Grannetia, the yard-sale scout.

Satisfying house-hunters can be tough. Former flight attendant Marisca Kensenhuis recalls an incident five years ago when a KLM airliner accidentally took off without its cargo of houses. The pilot radioed ahead to arrange for houses to be available at the landing gate in Amsterdam, where business-class passengers waited patiently to collect their booty.
"Even though they could exit first, they weren't getting off until they got their houses," Ms. Kensenhuis says.
http://online.wsj.com/article/SB121217604543933443.html

Connection, not costs, is driver behind landmark Air France-JetStar interline

 

 A deal between Air France-KLM and the Jetstar Group signed this week in Singapore is being touted as a “landmark” interline agreement.

Landmark because it’s the first for the European traditional full-service carrier to sign such an agreement with Asia-Pacific’s fastest growing low cost airline group and, for Jetstar, it’s the first signed with a full service carrier outside its parent company Qantas.

The deal brings together the old and the new on a major scale and will feed the entire Air France-KLM network from its Paris and Amsterdam hubs into Jetstar’s centre in Singapore, covering up to 60 routes across the region.

Acknowledging that “the walls are crumbling”, Marnix Fruitema, senior vice president, Asia Pacific for Air France-KLM, adds:

“We have a joint vision to connect two worlds – the world of Air France-KLM, the largest European airline group in the world, with the largest low cost operator in Asia-Pacific, Jetstar.”

That such an agreement can be signed between a full service carrier and a low cost airline group is driven by changes in customer behaviour driven by both technology and a more open airline environment, argues Chong Phit Lian, CEO of Jetstar Asia.

“Customers now have a lot of choices and they can make their bookings online. Tying up with a reputable partner in Europe makes sense for us and benefits our customers.”

Both airlines acknowledge that this agreement was more about choice, convenience and connections for their customers than it is about costs. “Increasingly, there is a growing need by passengers to connect,” says Fruitema.

For Jetstar, it represents a means to plug into the Air France KLM’s corporate travel customer base.

Fruitema sees an upside, too, in the leisure travel segment – as well as business travel – with Jetstar’s customers wanting to connect to Europe and the airline would work closely with the travel trade to maximize this interline agreement.

However the agreement, at this stage, does not cover Air France KLM’s frequent flyer programme.

Under the agreement, a customer booking on the Air France-KLM website will be able to book flights going on to Cairns or any other destination in the Jetstar network.

The same, however, will not be true on the Jetstar website at the moment – again, this is something both airlines say could be added later in the partnership.

In Singapore, close to 90% of Jetstar’s bookings come direct through its website, says head of commercial, Leslie Ng.

According to Paul Rombeek, general manager for Singapore, Indonesia, Australia and New Zealand at Air France-KLM, the airlines gets about 25% of bookings in Singapore online, “a high figure for a traditional carrier”.

The possibility of an agreement was first raised in Melbourne almost a year ago during a meeting between Air France-KLM and Qantas.

“We talked about an interline agreement and then somehow, someone said, ‘What about Jetstar?’, and our discussions grew from that. It was a organic process,” says Fruitema.

The European airline works with several partners in Asia-Pacific, including Korean Air, China Eastern. Vietnam Airlines will also be joining the SkyTeam next week.

Fruitema sadds:

“Asia Pacific is too diverse, too large, to have just one partner. Our agreement with Jetstar is to drive business out of Singapore, South-East Asia and Australia and New Zealand, where we see tremendous growth potential.”

It also operates code-share flights with Qantas to five destinations in Australia and transfers 100 passengers each way, each day on these flights, adds Rombeek.

Fruitema says he is optimistic about the outlook from Asia this year.

Last year, the Asia-Pacific market held up for Air France-KLM in terms of volume, but not yield.

However in the year to date, the region is making a strong recovery and officials are optimistic about the next 12 months.

 

 

http://www.tnooz.com/2010/06/03/news/onnection-not-costs-is-driver-behind-landmark-air-france-jetstar-interline/

The Air France - KLM Merger Story

A Case Study in Business, Management by IBS Center for Management Research (ICMR) 

Abstract:

The case discusses the merger of Air France and KLM, the two leading airlines in Europe. It describes recent trends and studies the ongoing consolidation in the European aviation industry.

The case presents in detail the need and rationale behind the decision to merge and the perceived synergies by both the companies from the merger.

It also discusses the possible threats to the merger including cultural differences and various other issues. Finally, the case ends with a debate whether the merger will be successful or not in the future.

http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/BSTR124.htm

Air France/KLM Merger: Perilous Flight Ahead

Publish Date: Nov 25, 2003

Betting that bigger is better, Air France and KLM Royal Dutch Airlines announced their intention to merge into Europe’s largest air carrier last week.

The new airline would combine Europe’s number one and number seven carriers in terms of passengers, creating an airline that would be the sixth-biggest in the world (after five U.S. carriers). But the merger is fraught with peril for both shareholders and travelers, say Wharton professors and others. If done right, it could create an efficient organization with lower costs, but without the power to charge monopoly fares. If managers or regulators slip, however, the result could be both higher fares and higher costs.

“Unless you can show me these phenomenal economies of scale, I will assume that when airlines get together they are going to use their power to benefit themselves, not consumers,” says Bruce Allen , a Wharton professor of business and public policy. “If I am a shareholder I’ll say, ‘Hey, earning monopoly fares is good stuff,’ but if I’m a consumer I worry about fewer choices – and higher fares with those fewer choices.”

Pending approval by shareholders, labor unions and regulators, the merger would take effect sometime around April 2004, according to KLM spokesman Bart Kloster.

It’s Not the Size That Counts …

Why merge? Air France/KLM, like many companies involved in big mergers, is talking out of both sides of its mouth on this one.

On one hand, says Kloster, the merger will result in massive operating efficiencies as the two carriers streamline duplicate operations and cut duplicate routes. The company promises $706.4 million (€600 million) of long-term cost savings and revenue increases, according to documents cited in an analysis by Credit Suisse First Boston. (The CSFB analysis proclaims only a 30% chance the airline will achieve that goal.)

“We are going to coordinate schedules, fares, frequent flier programs, lounge access, cargo operations and revenue management. We are adjusting networks, schedules, joint product development, joint purchasing, joint staff training – everything you can do jointly we will do jointly,” Kloster says.

On the other hand, somehow, the airlines are going to do this with “limited” redundancies and without raising air fares. “We can reduce costs by combining certain operations in one aircraft where two operate now, and those reduced costs will lead to lower fares,” Kloster says.

Consumer Beware

Naturally, consumer advocates are wary that ‘efficiencies’ mean raising fares, consolidating routes and reducing choices. “To the extent that people claim there are consumer welfares created by large airline mergers, there have never been any,” says independent airline analyst Bob Mann.

For his part, Allen isn’t so sure bigger is better. He points out that the most profitable carriers right now are all small-to-medium-sized operations like JetBlue and Frontier. Profitable Southwest, meanwhile, may be America’s largest domestic carrier, but it doesn’t deal with any international routes and doesn’t operate major hubs.

“The interesting thing right now is that the successful carriers are the little guys," he says, adding that the success of small airlines throws into doubt the benefit of economies of scale. "The low costs seem to be if you’re not that big, and if you’re not focused on a hub-and-spoke system. Is this a transitory thing? I don’t think Southwest’s low costs are transitory.”

Meanwhile, according to a report yesterday in the New York Times, the Mesa Air Group, based in Phoenix, has offered to buy Atlantic Coast Airlines for $512 million in stock. If the deal goes through, it would create the largest regional airline in the U.S. Atlantic Coast currently runs flights for United and Delta, while Mesa operates regional flights for United and America West, according to the Times.

The pressures on European airlines are slightly different than the pressures on U.S. airlines, giving the big national carriers a bit more leverage with business travelers, says James Fremantle of the Air Transport Users’ Council, a passenger watchdog in the UK. While airlines like JetBlue, Frontier and Southwest are now cutting deeply into key business routes like New York-LA and LA-San Francisco, Europe’s low fare carriers are often exiled to inconvenient secondary airports. Ryanair, Europe’s largest low-fare carrier, flies into airports that are long drives from London, Paris, Brussels and Frankfurt, greatly limiting its appeal to business travelers. That puts the new AF/KLM in a stronger position against Ryanair than American airlines are against Southwest.

“Ryanair doesn’t really compete with many other airlines,” he says.

On the other hand, European airlines also must compete with a functioning rail system – including, for instance, the Eurostar train, which recently cut its trip time from central London to central Paris to 2 hours and 40 minutes.

In any competitive environment, mergers are difficult operations to pull off, says Wharton management professor Peter Cappelli , director of the school’s Center for Human Resources. He agrees with an October 2002 BusinessWeek analysis that studied 302 major mergers between 1995 and 2001, and found that 61% of buyers destroyed their own shareholders’ wealth while overpaying shareholders of the smaller firms they were snapping up.

“The learning curve is steep in figuring out how to do mergers, so the companies that do them well are the ones that do a lot of them” rather than just expanding with one big merger, Cappelli says.

A Sweet Ride for Shareholders

Part of the puzzle of the KLM/Air France merger is the bizarre corporate structure it will create.

The treaties that allow airlines to fly between countries are currently negotiated on a nation-by-nation basis. So if Air France bought KLM outright, the airlines would have to choose whether to fly the routes guaranteed to the French or to the Dutch. Meanwhile, prickly politicians in both nations are more than a little concerned about “foreign control” of a national flagship carrier.

So KLM and Air France will be operated as separate units by a new holding company, which will be 81% owned by Air France shareholders and 19% by KLM shareholders. The new company will maintain Air France’s stock exchange listing, and AF shares will transfer over to the new company on a 1-for-1 basis. KLM will join the Skyteam airline alliance, allowing the two separately-run subsidiaries to coordinate schedules and share ticketing.

Skyteam is one of the three major airline alliances. Airline alliances agree to some level of cooperation between their members when it comes to organizing schedules, ticketing and frequent flier programs. The two biggest are Star Alliance, led by United and Lufthansa, and OneWorld, led by American Airlines and British Airways. Skyteam, with Delta and Air France, has up until now been the third player. KLM, Northwest and Continental are all outside the three alliances, but now it looks like all three will join Skyteam, making it a much more powerful force.

KLM shareholders, meanwhile, will get a pretty sweet deal: 11 shares in the new company for 10 of their existing KLM shares, plus warrants to buy six and two-thirds more shares at a strike price of $23.5 (€20) any time during the next three and a half years. They’ll essentially receive a 40% premium on their KLM stock, and the deal promises an injection of $706.4 million (€600 million) of new capital into the firm.

But now things get weird. For three years, an additional class of voting, but noneconomic stock will be created and split between the Dutch government and two Dutch foundations, which together will have 51% of the voting rights over the KLM subsidiary (but not Air France or the holding company.)

Why does this expire in three years? The EU is already starting to negotiate air travel treaties that would cover the entire 15-nation union rather than work on a country-by-country basis. New treaties would make the need for partial Dutch control obsolete.

For five years, the new company offers KLM stockholders “assurances” that the two brands will remain separate and intact. And for eight years, the company guarantees to the Dutch government that the Paris and Amsterdam air hubs will be treated as a dual-hub system in a “fair” manner.

The merger wouldn’t affect KLM’s existing joint venture with Northwest Airlines for selling transatlantic flights, nor would it affect Air France’s cooperation with Delta. In fact, the two operating units would compete on transatlantic flights, according to Kloster. That’s certainly possible, Wharton professors say, though of course the merged company would make more money if the units cooperated rather than competed. Northwest hasn’t been asked to join Skyteam, though they would certainly be open to an invitation, according to Northwest spokesman Bill Mellon.

Only Air France and KLM executives know whether this chimeric corporate structure is a legal ruse or a potential operational pitfall. The difference is key to the success of this merger, says Wharton management professor Robert E. Mittelstaedt.

“The real issue is whether the complexity will be played out operationally or whether it is simply an organizational structuring issue from a legal standpoint,” he says. “If it becomes more complex operationally they are going to have difficulty achieving what they want to out of the merger, which is operational efficiency and increased marketing clout.”

To achieve competitive advantage, the company “has to simplify structures, not make them more complex,” he says.

The First of Many

A flurry of announcements has followed the AF/KLM merger. First, Alitalia executives said they wanted to join the AF/KLM system, which would turn the chimera into a hydra. Alitalia,Italy’s national carrier, which has shaky finances but owns 2% of Air France, has already joined a cargo shipping joint venture with Air France, Delta and Korean Air.

Then British Airways admitted it has been looking hungrily at Iberia, Spain’s national carrier. Swiss International Airlines, the financially pained Swiss national carrier, aligned itself with American Airlines and BA’s OneWorld partnership as rumors swirled that Lufthansa was interested in snapping it up.

The consolidation of Europe’s airlines is inevitable, Wharton professors suggest. The consolidation of the national flight treaties into EU-wide treaties eliminates the major barrier to cross-border mergers, and struggling airlines are looking at economies of scale as a way to survive.

“The number of airlines and the structure of airlines in Europe only exists the way it does because of government regulation,” Cappelli says. “In the future, you might see a couple of big ones and more small ones. You wouldn’t see the distribution you have now – a dozen midsized carriers.”

Mittelstaedt agrees. In a tough economic environment, markets will consolidate until something stops them. “In both Europe and the U.S.,” he notes, “you are going to see mergers until the regulators get nervous about the minimum number of airlines you can have and still maintain some aspect of competitive markets.”

http://www.wharton.universia.net/index.cfm?fa=viewArticle&id=673&language=english

Jetstar teams up with Air France KLM

http://blogs.crikey.com.au/planetalking/2010/06/02/jetstar-teams-up-with-air-france-klm/