Air France-KLM announced is financial results for 2014 this morning and on the face of it, it looked fairly neutral: passenger numbers up, revenues up, capacity up but not as much as revenue, EBITA down, losses lessened. But it's far from a steady ship at the carrier.
Its profits were down (losses were lessened only because of the effects of proceeds of Amadeus's sale of its stake and changes in Dutch pension rules). Any help that the drop in fuel prices might have given the balance sheet was counterbalanced by wobbles in the euro. Labour stoppages, such as the Air France pilots' strike, and competition from low-costs on domestic and long-haul routes and the Gulf airlines on long-haul are also causing damage.
It's not a great place for any business to be and Air France management is making the noises that markets like to hear about cost reductions.
But there could be a deeper issue and there are more options for airlines under the kind of pressure that Air France-KLM finds itself.
Readers who will never again look forward to a 30
th birthday party may remember how difficult times were for airlines post 9/11. Many went perilously close to bankruptcy and found new solutions for their economic woes.
In this climate Air France and KLM merged in 2004.
Merger can't happen in all markets between any airlines because of regulations (for example, no foreign carrier can have a greater than 25% share in a US airline). In the EU the situation is different and so airlines, notably AF-KLM, found a different response — umbrella mergers. This means one overall holding company to enable lower back-end costs and leverage procurement but leaving the two companies with their existing unique ownership and brands so that they can continue to operate in the same way. In this model any regulatory issues are avoided and two large independent companies continue to operate, err, somewhat independently.
The company's recent financial performance has not been good. As well as the previously mentioned increase in competition, AF-KLM struggles with high fixed costs, notably around its labour force, which are affected by France's notoriously high employer insurance contributions and contracts negotiated in more halcyon days.
So rumours circulate. In January it issued an official denial that it was looking at redundancies only to tell its French employees later that month that it was looking to cut 800 jobs from cabin crew and ground staff.
In the past week the talk has been about the business changing to a more centralised structure, one which would see management concentrated in France. A Dutch newspaper this week reported that Air France planned to completely incorporate KLM which would result in the loss of thousands of jobs in the Netherlands.
There has been no official confirmation — or denial — but grassroots Dutch are protesting vigorously about what they would view as the loss of one of the world's oldest carriers, KLM.
The bilateral partnership between KLM and Northwest Airlines was the prototype of today's air alliances Northwest was subsequently merged into Delta but the bilateral relationship between the Dutch and US carrier laid the foundations for today's SkyTeam alliance.
Is KLM now about to pioneer another chapter in the air consolidation story?