Tyler Brûlé is joined by Benjamin Smith to discuss efficiency and sustainability at Air France-KLM

It's not only our customers that are proud. It's the employees. I mean you know France and service, a particular type of service. It's not for everyone but there's a level of professionalism in most industries where good service is not too close, not too far. You know, you go to the US, way too close. And then you go to some other countries, it's a little cold or it's a little mechanical. Whereas it's very natural, I find, for many of our employees to be on brand. I could use that term with a French way of offering service. I mean, we're lucky that made in France sells. This is not made in we'll mention a few countries, but not as easy, but made in France sells. And 98% of our cabin crew are French. Now, some come from regions of France where they may not be exposed to some of the cultures of the people we fly, but they quickly are able to adapt because that is where they come from, be it in a cafe or a restaurant or a department store. Good service is a level of professionalism that has disappeared from many of our competitors. So, we leverage that. I love it. We can be legitimate when it comes to gastronomy. We can be legitimate when it comes to luxury and we can be legitimate when it comes to fashion. And these are three elements that have history with the glamour of aviation. And then we have something which very few airlines don't have and that is we're legitimate as well in the fact that Air France had a very close affiliation with technology. So the three big French aviation manufacturers of the 40s, 50s, 60s, 70s had an unbelievable affiliation with Air France. So I post or I never say it right. They were one of the two companies that were behind the Concorde. Then you had the Caravelle. Then you can go back. You had the Mercure. You have a whole bunch of airplanes that were part of the Air France fleet that formed a part of the technological advance that Air France had. So if you say, okay, I have luxury, you have gastronomy, you've got fashion, you have technology, you have the destination of France, you've got all the key pieces, you got the pride of the country, you have a level of professionalism on board, you got a lot to work with.

Yes, for sure. You know, in my experience, because I haven't spent my whole career here, in most situations, global carriers have a disproportionate number of your customers that are point of sale your home country. As you said, you're more attractive to a customer base that's based in the country where the airline is based. With Air France, we have a few countries where we have the opposite. We're so attractive in some very lucrative countries that bring a lot of revenue to us because they want to start their French experience from the moment they get on board. So, we're able to take advantage of that.

It's been fantastic. It's been much better than any of our expectations. Super happy. We're going to expand the footprint by 50%. We're adding more airplanes to the aircraft that are equipped with La Premier and we keep adding to the amenities that our customers are asking for. So the basic objective when we look at Air France, we want Air France to be positioned by far as the number one airline in Europe. And that usually then carries through Africa, North America and South America. We believe we can give the Gulf carriers a good run for their money, but we view the Gulf carriers not as companies, but as countries. So can Air France compete against a country? I guess it depends what the country wants. And then in Asia, we don't have the same work rules. So there are two or three in Asia that are a bit of a challenge, but I think we went from number 26 in the world. We're now number eight. Can we make it into the top five perhaps? But we by far want to be number one in Europe in every cabin. And I think we can get there. So with the La Premier, what were we looking for? I mean, there's various types of customers: people traveling for business, people traveling for leisure, people who want a special experience, people who are switching from a private jet onto a commercial airplane either for cost reasons, for environmental reasons, for optical reasons. So, I'd say that one of the inspirations around the new product was how could we make the experience as close to a private jet feel as possible from the moment you walk in the terminal to when you get off the plane, you exit the terminal. So, it's not just on board. We have our separate check-in facility at CDG which is better than any other FBO in all of France. How private it is, the restaurant offering that we've got, the spa offering we have, the suites that we have. You know, FBOs are pretty spartan. This is a great FBO on its own. And everything else, you're totally apart from the general customer experience. You have your security, you have your police control, and then when you're on board, we don't have eight seats. We don't have 14 seats like some of our competitors. We have four.

No, we don't have three and a half. We have four like we've had in the past. So, the ratio of cabin crew to customers is extremely high. The ratio of toilets to customers is extremely high. And the food offering is the best. We think that with our brand and all those elements that I mentioned, you talked about boxing in. We wanted it to be a soft feel but private. We introduced the first generation of curtains around that point 10 years ago. The feedback from our customers was fantastic. So the only challenge we had around the curtains was can you make the curtains more soundproof. So we've done that. You know, it's a little bit more of a cocoon type feel, but it's very soft and we've elongated the seat so you've got about 17% more space than the previous generation. And this is customer-driven. Yes, we have great ideas, but it's the customer that needs to pay. A customer that needs to enjoy it. So all the improvements and evolution are coming from customer suggestions, things the customers didn't like from the past and I think we're exceeding what the customers are looking for and of course we want new customers and our number one way of attracting new customers is word of mouth with this product.

Well, it's not an easy product to put out. It is very expensive both on the ground in the air, the amount of real estate it takes up. When I arrived here at Air France-KLM in 2018, we were losing a ton of money with La Premier. And there were a lot of people that wanted to pull it. And one of the reasons is business class was getting so much better. So it was more difficult for our customers to justify paying a premium when what business class was offering was excellent. If you look, the US carriers have had a really tough time maintaining the level of service that customers expect. So now all of them have pulled it. So we have no competition by US carriers across the Atlantic in terms of first class. And we said, okay, if we're going to continue this, we've got to modernize this. We have to keep moving forward, but if we're going to do it, it has to be a wow. And what is a wow? And this is, you know, some of the elements that I just mentioned, which takes a long time to get certified, to design in our business. So, it was a 5-year project, customer-driven. Obviously, the innovations came from inside and profit, you know, profit was an absolute must. We're not going to invest this massive amount to have a halo effect on our brand. And talking to our customers, talking to sales, talking to marketing, we had a pretty comfortable sense that we can turn this thing around and be profitable. And this, I mean as you say like what are our expectations feeling? This is far exceeded anything we could ever imagine. And the return business that we're getting, the repeat business we're getting. It's very difficult for a customer to choose to experience that to say, you know, yes, it was expensive, but I'm going to sit in business. I mean, you're one of those customers.

Well, prior to our decision to expand the fleet that is equipped with La Premier, the La Premier cabin, the US was our number one market. So, we had how many destinations? New York, JFK, Washington, Miami, San Francisco, and Los Angeles. So, we've just announced over the last few days that we're going to add Boston, and Houston in the US, as well as Atlanta. And Atlanta is the home base of our joint venture partner, Delta. Now, Atlanta itself is not a big La Premier market. However, we have a lot of customers from other cities within the US that don't have non-stops to Europe. So, it's, you know, we'll have La Premier customers connecting over Atlanta. And this, when we look at the business case, I think this will be a winner route. And we're very strong to Israel. So, we've added a flight to Tel Aviv with a 787 with Premier. We're going to add more service to Asia. We're deciding which ones we're going to go.

It's on the list. And we're going to do some more in the US and perhaps we'll see how Tel Aviv goes. Maybe one or two more in the Middle East. But I mean, if you look at the major GDP cities of our longhaul network, you can pick the next five or 10. It's not going to be any surprise in the ones we're going to announce.

I don't see any consolidation on the horizon in the Gulf. If anything, I see some additional carriers coming up. We see Riyadh Air has big expansion plans. We've got Saudia because everyone wants to fly on a dry airline. I said it, not you. But anyway, so I don't see consolidation there. But what is great is, you know, having those powerful Gulf carriers or state-supported carriers in the middle of the airways between Europe and Southeast Asia has been really tough for us. So I find aircraft the size of the Airbus A350 or 787s with La Premier are really unique offerings for us that we can overfly the Middle East. So, if your option is Paris, Dubai to Bangkok, if you've got a non-stop Paris to Bangkok, most customers would prefer to fly non-stop. So, can we charge a premium in order to entice enough people to come on the non-stop? And we're finding to the big cities that we can. Bangkok was not profitable in 2018. It is profitable now. So, we can find a way on the biggest most important routes, but there are many. We can't fly to 20 destinations on the Indian subcontinent, but we can fly to three or four or five.

I use exactly the word that we use constantly in Brussels and also in Paris and my counterpart in Frankfurt does the same thing with Germany. Level playing field, not only overflight rights, but also with taxes, with mandates for fuels like SAF and for ETS charges. So, we are advocating for European-based carriers to have a total level playing field. But when it comes to not being able to fly over Russia, yes, you know, we have customers that we've lost because of our inability to do that. But for the most part, our best customers are staying with us. They're happy with our service. One way you actually lose maybe 30 minutes, but the other, yes, you lose some time. But the flights are overnight both directions, so it doesn't seem to be that impactful. What is impactful is the cost of operating. So the fuel and the extra air crew cost because they're flying more. That's what the big impact is on us.

Yeah, they're listening, but it's not an easy thing to solve. It's not just aviation that involves where you don't have a level playing field. So to solve this, you know, as a one-off industry, not easy at all. You know, you have Mr. Trump who has his own ways of doing things, but you know, you have a Brussels that wants to do things from a very straightforward diplomatic perspective. So, no, we're not expecting any solution to a level playing field on overflight rights in the near future.

Well, travel is still very much in demand all over the world, which is great for our industry. In particular, in Asia, especially Southeast Asia, booming in India, it's booming in China, US showing a healthy demand and even growth. Europe in some regions, we're also seeing growth. Amsterdam is more so around noise. You've got Schiphol airport, which is quite central and there's a big pressure by residents who live around Schiphol for noise reduction. Now, new aircraft, latest technology aircraft emit 50% less sound or less noise than previous generations. So, our objective is to re-fleet as quickly as possible. Politicians have a hard time, you know, managing that message to their constituents, but we are getting somewhere with the local politicians in Amsterdam where I think we can find something that is balanced. But it's not easy. These people have to get elected. They have to make promises. They're not always that easy to meet. And we still have to run a business. But in the Netherlands and in Amsterdam, it's probably the most difficult jurisdiction right now to operate a commercial airline.

Tyler, I mean, you've been following our industry for many years. It's Amsterdam, it's Schiphol, it's KLM, it's the Dutch state that realized 50 years ago the benefits and the importance of a global hub and aviation. And that for a country and a city the size of Amsterdam, if it wanted to be competitive globally, it needed airlines. So, it needed a transportation infrastructure that was superior to any country around it. And KLM and Schiphol developed a hub which was number three or number four in Europe where Amsterdam in terms of size probably number 10 or 12 and with this, Amsterdam's been able to maintain connections to destinations throughout the world, 200 destinations. And the whole international hub structure was designed and thought through in Amsterdam. So this is where it started. Then you saw many other cities and countries around the world that say look in order for us to develop and to have something that helps attract businesses to be based here, high net worth or very well-skilled employees, visitors, tourists, we need to have links and without that it's expected that it's going to be more difficult to compete. So you see in Singapore which totally liberalized their bilateral agreements and then you saw Dubai who said look we'd like to develop a city in the middle of the Gulf region, a financial center, tourist center. And there were a lot of things they needed, you know, they had to become a little more friendly to western ways of doing things, they had to relax their financial rules and at the same time they had to make sure that the city was accessible from anywhere in the world. And because Dubai at the time in 1985 when Emirates was founded had limited air links, where did they look for inspiration? Amsterdam. And they've done exactly that. However, the region around Dubai, the catchment area is enormous. You have over a billion inhabitants on the Indian subcontinent. And you had no airlines that were of quality around there. So Emirates has become the de facto national carrier for about seven countries. So in Europe, I think many countries in Europe take for granted the value of a global airline that is connected to all the major cities and are not aware of the competition we're up against. On the other side of the Atlantic, we have the US, which has an enormous domestic market, which we do not have here in Europe. So European-based longhaul legacy carriers are really in a difficult spot when we have Gulf carriers who are supported by their states. We have the US carriers, long haul carriers which have a huge domestic market and our intra-Europe market is dominated by low-cost carriers which is what the market demands. So it's very difficult for carriers like ourselves to compete on a level playing field and then the things you just mentioned we've got taxes, we've got charges, we have restrictions on where we can fly that add on top of it. So our job here it's a real challenge but we have a great base in terms of size. We are number six or seven in the world over 200 airlines. So we have a great base to start from but we have a lot of work to do.

So first thing we have which is unique is Paris France is the number one inbound tourism market in the world. So you know I was surprised when I arrived here in 2018, I just assumed it the US the number one. Over 100 million inbound tourists or visitors. So we have a great base you know and then you've also it's one of the top economies in the world as well. So you have a business base, you have a tourism base and Air France did not have a majority position here. Now some of the flows we cannot be competitive on because of our cost structure but many of the flows we can be. So we've started to, we made a lot of headway in repositioning the carrier to go after the flows where we can be competitive.

So the requirement and the benefit of having connection traffic like a hub is not as important in Paris when you have a local market. If you're, as an example, our other big brand within the group, KLM, because the market is small, the only way we can justify, let's say, a flight to Santiago, we may only be able to support one or two flights a week with the local traffic, but with all the connections we offer, we can put a daily flight in year round. Whereas in Paris, that could probably support itself without any connections. Now, is it a type of traffic that'll, you know, pay enough to support the flight? Is there enough business customers, enough first class customers, enough economy? That mix of customer, you know, having a hub in Paris helps with that. So I mean you mentioned the setup of the terminal structures at CDG. So Amsterdam was built as I said Schiphol, you know, 60 years ago it's okay we want a hub. One terminal, much easier to connect through, was designed for connections where CDG was not designed as a hub. So we've got seven different buildings at CDG all with different numbers that don't make sense. Something. You can come into terminal 2 and it's 2E, concourse K, gate 37. So very confusing and if you're making a connection, not easy. A lot of buses go between different buildings and the original master plan for CDG was not for a hub. Then in the mid-90s, the decision was made by some of my predecessors to create a hub. And so when you're trying to create a hub with an infrastructure that is not designed for that, big challenge. So we have this makeshift structure of terminals which is not ideal for connections. So Air France carries about 45 to 50% of its customers on connection bases whereas as an example Qatar would be at 85-90. So this is not the bulk of our business. So we are working with the local airport authority ADP to improve the ability to make connections at CDG but simultaneously we want by far Air France to be the number one choice for business class, for La Premier first class customers starting or ending their trip in Paris. This is very profitable business for us. Now I'll just go back to the one point that you mentioned with your question. In most cases, a local customer is more valuable and more profitable than a connection customer. Not always, but a connection customer, you got two takeoffs, two landings, you have the infrastructure that you have to deal with in between. For a local customer, the costs that are associated with that trip are lower. So, if you can fill the airplane with local, in most cases, nine times out of 10, you want that local customer.

Yes, I think there's a natural closeness to many national flag carriers. People are very patriotic in most countries and when you have a national flag carrier you have a tendency to have, I say a certain preference. In the United States, unfortunately, the two flag carriers that existed, Pan American and Trans World Airlines, they've disappeared. So, the airlines that are left that fly internationally, they're basically, you know, mass transit, big domestic markets, and the brand importance is more focused on a loyalty program as opposed to the brand of flying internationally. A lot of people are more comfortable on a US carrier where you're guaranteed the service to be in English, but you know, someone's going to Italy or to Japan or to France, they don't have that same aversion or fear of flying on a carrier where the main language might be different. Whereas in France, there is an unbelievable support and level of pride for Air France that I've never seen with an airline. And I've been in this business 35 years. I have never seen this. So, we have something here you can't buy. You've got a level of pride not just only with our customer base but also with our employees. So, how do we bring the value of that out in our brand and every touch point that we have? And if you've been following us and the customers that we have, we're building more and more loyalty to our brand with that pride that is already there. You know, people go out and advertise and you know, be proud of Air France. They already are and we've already got a good support. So I would say we have more loyalty to our brand because of the closeness and affinity of the, as you said, the tricolor, the French flag on the tail of the airplane. So it's a huge asset for us.

No, I think we're good with the aircraft we need, but there are some that would enhance our fleet. I would love to see an Airbus A220 stretch. We'd love to see a 777X flying and certified.