Hello, welcome back to Paris Air Forum. My name is Tim Heifa from Reuters and I'm joined again this year by Ben Smith, CEO of Air France KLM. Ben, thank you very much for joining us.
Um, I think before we start, on everyone's minds today are the terrible events in India this week. I wonder if you had any thoughts on that.
Yeah. So, there was an Air India accident yesterday in India with a 787. So our hearts go out to the families, to Air India, and to Campbell Wilson who is the CEO. As of today, information is rather limited. But it is obviously a big tragedy. We still have full confidence in the airplane. We have 34 787s in the Air France KLM fleet. And the airplane's been performing for us for over a decade. It's a great airplane. But on the subject of Air India, our deepest condolences to the families.
Thank you, Ben. I'm sure everyone here shares your thoughts. We've been asked to talk today about sovereignty, a big topic at the moment. The world is more and more perhaps arranged around national interests than in recent years. Do you think there's room for concepts like sovereignty in the airline industry? Can you be both competitive and have to think about national interests?
I think for sure it already exists in many countries around the world where commercial aviation is part of a country's external policy, economic development. You can see this in Dubai, in Singapore, two of the biggest air hubs, many other cities in the Middle East where this is extremely important. And in the Netherlands, KLM was one of the first airlines in a country that really wanted to develop a strong air service, strong air links to ensure that the country, the Netherlands, was extremely well connected disproportionately to the size of the country. So yes, for sure. I mean, you represent an airline that has two government shareholders.
Um, the second government shareholder bought their stake rather to the surprise of the first government shareholder. That was the Netherlands. I mean, is it difficult to run an airline when you've got governments breathing down your neck?
No. I would say when I accepted this position in 2018, I was a little concerned, or not concerned, but I was curious as to how the relationship was going to be between Air France KLM and the French state. And I must say from the day I arrived up until now, it's been extremely positive. Now, of course, we've got not everybody in the French state or in France is a big fan of aviation, but overall the importance of a strong airline in France that carries the French flag around the world is extremely important and is supported by many. In the Netherlands, Air France KLM in 2004 created the group Air France KLM. And sometimes, a national airline, a flag carrier, can be very emotional. You can have a very special attachment to a population. And the Dutch state doesn't have a history of investing in companies like ours. But to ensure that the company or the group stayed aligned to the national interests of the Netherlands, the Dutch state thought it would be important to take a stake in Air France KLM. So to date, it's quite frustrating for us because we have a lot of challenges in the Netherlands when it comes to how the industry is treated. As you may know, there's a big pressure on us at Schiphol to reduce activities as a method to reduce noise, which we are not in favor of. We believe many other ways to do that, new aircraft obviously being the biggest one. And then a lot of taxes that are being imposed on our industry that don't get reinvested into aviation. And of course, aviation, the fastest way for us to decarbonize is by new equipment. So the less money we earn, the harder it is and the longer it takes to decarbonize.
Well, definitely. We'll come back to decarbonization. What about the sort of level playing field? I mean, you've had a lot to say about the differences in regulation affecting European airlines such as yourselves and carriers from outside Europe, Turkish, the Gulf Airlines, and so forth. Have you, what discussions have you had with the European Commission about that? Are you making any headway on that?
It's extremely frustrating for us and I think dangerous for European global carriers. You know, I think we can commend the European Union for pushing for a faster decarbonization, but obviously we are completely against this objective being done on the backs of European carriers and giving an advantage to global carriers. I don't think that's the objective, but by default and not having the responsibility to ensure that European companies, European airlines don't get impacted in a competitive way. So level playing field because of some desire. So let me give you an example. There's an ETS charge that is put on all airlines for flights departing from Europe. So you could say that is level playing field. However, 50% of our customers connect over Paris or Amsterdam. So you would have some people in Brussels that say okay, it's the same for you and for Turkish Airlines, for Emirates, for Etihad, whomever. But because we have big hubs which depend a lot on connecting traffic, if you take the example of Nice to Tokyo where there isn't any non-stop service, if you choose to fly on Air France or on KLM, you would go Nice-Paris-Tokyo and both flights would be subject to this charge. If you decide to go via Istanbul, the tax only impacts the first leg. So it's a big advantage to an airline like Turkish because they have to absorb that charge if we want to maintain a competitive position. And there is no mechanism today that Europe or Brussels have put in place to ensure that something like that does not impact us. And it's getting more and more difficult. That's just one example.
So, but when you talk about this to the commission, do you get any sort of sense of positive feedback or do their eyes just glaze over and say that's the airline industry lobbying again?
It's no, no, it's as I said, I think it's dangerous. It moves jobs out of Europe in terms of impact on the environment. It doesn't, it's just shifting the control of that elsewhere, but it does not change what happens in Europe. So as far as we're concerned, it does nothing for Europe, it does nothing for the environment net net. And the way some of these charges and taxes are imposed are dangerous for European airlines. And I think it's really wrong, and we can't get decision makers in Brussels, the European Union, the European Commission, to take this seriously or move to find some mechanisms to level the playing field. So someone has to take leadership and take responsibility, otherwise European companies will be significantly weakened because of policies like that.
And the growth of the Gulf carriers does predate this quite a lot. I mean Emirates is going to be 40 years old this year. How do you keep European airlines relevant in the face of the growth of the Gulf carriers?
Well, if you look, I'll take our group. Operating a company in Paris, in France, an airline in France obviously has a different environment, a lot of challenges. We've got different social charges, different laws around employment, the control and the relationship that we have with our main hub at CDG. It needs to be, we need to have partners and all of this to be on a competitive level playing field as Dubai in the UAE. In the UAE, you have the minister of transport, the airport owner, and the airline, they're basically the same person. So they're 100% aligned and also with a government policy to grow the airline and to ensure that the airline is aligned with building Dubai into a global city. And you can see it's been a huge success. Dubai over the last 40 years has become, every time we go there it's a big wow. And the airline is a big success. Dubai Airport and Emirates, one of the largest airlines and one of the biggest airports, busiest airports now in the world. Now we have huge advantages here. In Paris, it's the largest inbound market. We don't have to create a market, it's already here. We have a fantastic brand, the France brand is almost 100 years old. We have a strong history with technology. So there are a lot of advantages that we have which give us tools to compete. But we need full alignment with all those that can help support airlines in France, in Europe. We want to have a global champion or global champions in Europe to combat airlines like Emirates or like Turkish because they keep growing. We now have a new airline in Saudi Arabia that is going to start, Riyadh Air. We have Emirates, Etihad, Turkish Airlines, Qatar. These carriers are extremely well-run, they've got great advantages, and they are fully supported and aligned around the policies and objectives of each country. So that's tough for us. If you look, I'll just keep going on this because it's so key. We in Europe, in particular now France, we've lost 2% of market share into France every year for the last 20 years. So we've grown slightly in 20 years, 10 to 15% our international ASKs, but we have not participated in the massive growth that has taken place in global aviation. So that is a big hit on us. Our ability to buy airplanes, we don't have the same scale as a European or as a Middle East carrier or some of the other carriers that are going quickly. So it's a concern.
I want to come on to the small issue of tariffs. But before we go there, there's another issue to do with the level playing field as you see it, which is I know is important to you, which is the overflights of Russia. Now, you can't use Russia to go to North Asia and other parts of Asia. You have complained quite loudly about the fact that Chinese carriers, for example, can and you see that as unfair competition, I think. Why do you think that Chinese carriers should not be able to fly over Russia if you can't issue with the speaker here?
Um, no, but the uh the um.
Turned into dark speaker, okay or? There have been one or two audio glitches. I suggest we power on. We might need to. All right, we'll do that. Raise our voices. Maybe we'll hold it here.
Uh no. So, um, when it comes to Russian overflight, since the Russian Ukraine war started, Europe, the European Union made a decision to ban Russian airlines flying into Europe and by consequence Russia banned European airlines flying over Russian airspace. So that has, and it's now been quite a bit of time, had a big impact on our flights to northern Asia, in particular Japan, South Korea, Hong Kong, and China itself. Whereas Chinese carriers and other carriers in different countries don't have that same restriction. And what Europe has not done, Europe has not put in some type of level playing field, let's call it, adjustment mechanism to ensure that that doesn't happen. We've said this in the past, one or two ideas could be: if you're overflying Russia, you can't land in Europe; if you're overflying Russia, there's a safety charge, whatever it might be, to help level the playing field. Because today, if we're going to Japan as an example, or even just Beijing, if we're going Beijing to Paris on Air France, or if we're going Beijing to Paris on Air China, it takes us about 2 hours longer. So all the costs involved with that, and for us to stay competitive, it's very difficult for us to put rates or prices on the market that cover those type of charges. And you can see one of our competitors here in Europe has just outright stopped their service to Beijing from their main hub. So Lufthansa has stopped their service from Frankfurt. The pressure on us for our flight from Paris to Beijing is extremely strong. So it's not good for any European carrier.
Um, have you talked to the European Commission about that issue? Do you see, are you going to get any help on this or are you just on your own? I mean, this is a foreign policy issue, it's not a trade barrier, is it? Why should they help you out?
It's, we make a lot of noise on this, but obviously with the foreign policy, trade policy, there are a lot of other issues that Europe is managing with Russia and with China, and this unfortunately doesn't take front and center stage.
Um, let's move on to tariffs if we could. That's obviously a very important topic for the whole industry. First of all, are you paying tariffs on parts or engines or whatever it may be?
