News
AF-KLM ends group management struggle; observations for Asian airlines
February 22nd 2019
The re-appointment of KLM CEO Pieter Elbers brings strong management to KLM. Others wanted a KLM more subservient to the group. Asia’s airline groups differ but have their own integration challenges. Read More »
Europe’s airline groups have been formed through mergers that maintain brands, licenses – and management. Asian airlines have transformed into groups by birthing new airlines, giving control from the start. But subsidiary-parent owner struggles exist. Some are being addressed while new contentions are emerging.
The AF-KLM board recommended re-appointing KLM CEO Pieter Elbers, ending a turbulent few weeks of uncertainty. European media expected the board to try to remove Elbers, with reports of AF-KLM CEO Ben Smith meeting Dutch officials without Elbers’ presence. In a twist on how AF-KLM usually experiences employee discord, KLM staff protested to keep Elbers.
Elbers reportedly resisted group centralisation initiatives that would see KLM lose some power to group headquarters in Paris. Elbers is well-liked and accomplished, but for staff he also represents an independent KLM; he is not a manager carrying out French orders. The underlying issue is still fear and resentment that KLM significantly out-performs Air France yet may lose power to its Parisian sister.
Airline group debates in Asian are arguably more common but less high-stakes.
Singapore Airlines is completing its integration with SilkAir, which it fully acquired in past decades but kept as a separate brand with different oversight, including in critical areas like commercial. This often saw SilkAir giving preference to high-yielding O&D flights whereas the group would have benefitted from higher trip revenue on connecting SilkAir-Singapore Airlines journeys.
SIA, and others like ANA, experienced challenges from partial LCC ownership, resolved by taking full ownership of Tigerair and Peach, respectively. JAL’s minority investment in Jetstar Japan apparently did not fulfil the strategic ambition at JAL, which will launch its own medium/long-haul LCC. Yet the start-up seems conflicted between what it thinks LCC DNA should be, and nudges from JAL to be more premium.
Cathay Pacific has largely integrated regional unit Cathay Dragon but has not made a full merger. China Eastern still has to maintain the Shanghai Airlines brand. Whereas Cathay tries to segment its brands, Shanghai Airlines flies short- and long-haul to first-tier and secondary markets.
Thai Airways this month bucked the trend of greater LCC control by not partaking in Nok Air’s capital-raising exercise, which saw Thai’s stake diluted. Yet Thai expects to have closer cooperation going forwards.
If ownership and control barriers fall and cross-border airline groups emerge in Asia, the region may face the consolidation challenges seen in Europe. It will take strong group management to address strategic questions. Yet there appears no blueprint for what the AF-KLM struggle shows is just as important: cultural integration.
