Trouble continues at Air France-KLM Cargo

The most positive spin that can be put on the full-year 2014 results Air France published today, is that they aren’t completely horrible. Revenue was stable, and, absent the impact of the strike by Air France pilots, the company would have posted a €304 million profit.

But the pilots did strike, and the actual net result was a €316 million loss, and a deepening rift is developing between the French and Dutch arms of the company.

And as to AF-KLM’s cargo business, the less said, the better. At least that seemed to be the official attitude at the press conference following the annual results announcement, during which CFO Pierre-François Riolacci said: “I won’t dwell on cargo,” adding only that “despite restructuring, unit revenues were continually in decline, and it was not sufficient to reverse the trend.”

Air France-KLM, once the biggest cargo carrier in the world, has struggled in recent years as its cargo arm has lost money. The company’s first response was to say it would stop worrying about market share, and concentrate on profitability. This plan worked to the extent that AF-KLM Cargo did indeed lose market share, but the business it retained remained unprofitable. The next step was to cut its freighter fleet. When the company placed its five-unit order for 777Fs, it said it planned to have a 15-unit freighter fleet in 2010. This, combined with the planned fifteen freighters at KLM would be the largest jet freighter fleet in the world outside of the integrators.

But in 2013, the company published a new plan, with a focus on belly instead of main-deck operations, indicating that by 2015, the total would be only twelve freighters – two 777Fs at Air France, plus six MD-11Fs and four 747-400ERFs at KLM (including Martinair). A year later, the plan was revised, with the fleet to shrink to two 777Fs, three 747-400ERFs, and a small, but unspecified, number of MD-11Fs by the end of 2016.

And now? As mentioned above, the company was tight-lipped about cargo plans at the annual results press conference, but reports in the European media indicate Air France-KLM intends to retire all of the MD-11Fs by the end of 2015, leaving just the two 777Fs in Paris and three 747-400ERFs in Amsterdam. This reduction of the freighter fleet may be necessary, but it will spell the end of Martinair, and the Martinair employees – including some 150 pilots – will not let that happen without a struggle.