Five Years of Air France - KLM

Publication Number: 2009-46
Authors: R. Lieshout, J. Veldhuis, J. Zuidberg
Commissioned by: DGLM
Published by: SEO Economic Research
ISBN: 978 90 6733 512 6

Evaluation of Five Years of Air France-KLM
At the time of the merger of Air France and KLM in 2004, so-called State Assurances were enforced by the Dutch government. These assurances stated that the merged company should (1) continue operations from Schiphol to a list of key intercontinental destinations and (2) develop its networks from Schiphol and Paris Charles the Gaulle in a balanced way. The assurances with respect to the key destinations were valid until 2009, the assurances regarding the balanced development of both hubs in Air France-KLM’s network remained valid until 2012.

The study showed that Air France-KLM broadly kept to the terms of the State Assurances in the period 2004-2009. The majority of the key destinations remained in service. Some small destinations were discontinued due to a lack of demand, which was acceptable within the scope of the State Assurances. Furthermore, there was never an imbalance in the development of both hubs. Over the period the Air France-KLM network at Schiphol actually grew slightly faster than at Paris CDG.

In addition, the study identified future risks for Schiphol, especially for the period after 2012 when the State Assurances would no longer apply. When the assurances would no longer apply, network erosion at Schiphol in favour of Paris would become more likely, especially in an industry which becomes more and more liberalised. The study identified which policy measures could be taken to (at least partly) mitigate these risks. These measures included amongst others: (1) strengthening the local market by increasing the Schiphol’s accessibility and promoting the Netherlands as an attractive destination for visitors, (2) limiting the visit costs at Schiphol for airlines, (3) offering enough peak hour capacity and (4) introducing local rules with respect to slot allocation.

SEO emphasizes that the study was carried out in 2009 and covered the 2004-2009 period and therefore needs to be understood in that light. Since then major changes in the aviation market and economic conditions have taken place. In 2010 the State Assurances with respect to the balanced development of both hubs was extended for an indefinite period.

Monitor Network Quality and State Assurances
Since 2006 SEO Economic Research annually monitors the network developments at Schiphol and its main competitors for the Dutch Ministry of Infrastructure and the Environment. In particular, it identifies whether Air France-KLM develops its networks from Schiphol and Paris Charles de Gaulle according to the State Assurances. These assurances were enforced by the Dutch government at the time of the merger in 2004. In 2010 the assurances were renewed and from then on stated that the merged company should develop its networks from Schiphol and Paris in a balanced way. The most recent developments in the network quality of Schiphol and Paris Charles de Gaulle show that Schiphol is (still) developing better in terms of direct connectivity and hub connectivity than Paris Charles de Gaulle.

For more information contact Rogier Lieshout on +31 20 525 1672.

Category: 2015, Rogier Lieshout, Joost Zuidberg, 2009, SEO Aviation Economics