Exclusive: ‘The exit from the crisis is going to be as bumpy as the entry into the crisis’
For a man whose business has been losing money at a rate of £36 per second, Pieter Elbers is remarkably optimistic.
The chief executive of KLM Royal Dutch Airlines is now working on a scenario in which international air travel could return to 2019 levels in “2024-ish”.
The “international” is key: while domestic air travel is picking up strongly worldwide, particularly in the US, Russia and China, travel restrictions mean that passenger flights between nations remain far below the levels of two summers ago.
As the Netherlands is a small country with a population significantly below that of Shanghai, domestic aviation offers no comfort to the 51-year-old CEO feeling the full economic blast from the coronavirus pandemic.
“Companies like ours, industries like ours – we have had experience with Sars, we have had experience with 9/11. But the sheer size and duration of this has has been enormous and much longer than anticipated.
“This has been a scenario which has not been in any in any script.”
Mr Elbers ascribes 13 March 2020 as the “moment of reality” that signalled an unprecedented crisis. That was the date President Trump’s ban on Europeans arriving in the US took effect.
“We’d seen the effects on our Asian network, most notably China, but the sheer size and magnitude became clear in March last year.
“When we saw some improvement throughout summer 2020, our general philosophy was, ‘it was very bad but we’re on our way to recovery’
“We proved to be very wrong – with the second wave, and the third wave and I’m not sure which wave we’re on now.
“It was not in our playbooks. It has been much longer and much more severe than anyone could have anticipated.”
His Dutch airline has been around longer than any other: it celebrated its centenary two years ago. And while British Airways also claims to have been around since 1919, only KLM has stuck with the same name.
Today, the Amsterdam-based operation is the smaller component of the Air France-KLM Group – which conveniently has €8.5bn (£7.4bn) of liquidity and credit lines at disposal. Given that the first quarter results for KLM show a loss of €337m (£292m), with a similar outcome predicted for April to June, that is a useful lifeline.
According to arch-rival Ryanair, the French-Dutch group has received €14.4bn (£12.5bn) in state aid since the coronavirus pandemic began. Michael O’Leary, chief executive of Europe’s biggest budget airline, has lambasted what he calls “subsidy doping to KLM, which will further reduce competition and consumer choice in the Dutch and French markets”.
But the Dutch airline has felt plenty of pain over the past year, with one in six staff – almost 6,000 people – departing the airline over the past year.
Mr Elbers says the carrier has demonstrated the value of its international connectivity: “Yes we do provide holidays for people, but we are also on a global level a force for good.
“We repatriated about a quarter of a million Europeans stranded all over the world last year.
“We are bringing vaccinations now to all places in the world. A KLM aircraft was welcomed a couple of weeks ago to Ecuador where the president called KLM the ‘bringer of hope’.
Like almost every other airline, his carrier is flying at a loss: keeping its planes and its crew in the air to be ready as and when the tangle of travel restrictions and anxieties loosens.
“Our philosophy was that we should keep the connectivity for for those who needed to travel. So we operate to roughly 90 per cent of our destinations, 50 per cent of our capacity and 25 per cent of our customers.”
In other words: only one in 10 of KLM destinations has currently fallen off the worldwide network; but frequencies are lower and smaller planes are being used; and empty spaces still outnumber filled seats.
Capacity is slowing increasing, towards perhaps 70 to 80 per cent of pre-pandemic levels.
“It’s what we see in the year, in the summer ahead of us.”
How much of that will benefit travellers to and from the UK is difficult to assess.
British ministers have made it clear that the government regards international aviation and tourism as a threat to domestic unlocking – which is why the laughable “green list” of quarantine-free nations has shrunk to just three tiny European components: Gibraltar, Iceland and the Faroe Islands.
This week the health secretary, Matt Hancock, said: “The biggest challenge and the reason this is so difficult is that a variant that undermines the vaccine effort would undermine the return to domestic freedom, and that must be protected at all costs.”
On Wednesday, British Airways accused the government of “seeking to punish further an industry that is already on its knees” after the Competition and Markets Authority launched an investigation into flight refunds.
While BA, along with easyJet, Jet2 and Ireland’s Ryanair are worst-hit by the tightening travel restrictions, KLM is far from immune.
“Prior to Covid, one of five customers on our network was coming from or going to the UK, so that’s enormous,” says Mr Elbers.
“The UK is an incredibly important market for us. We operate to more destinations in the UK out of Amsterdam than BA does out of London Heathrow.”
The KLM boss says that passengers’ biggest concern has switched during the pandemic from hygiene to “instability and uncertainty on government rules”.
The rapidly changing regulations comprise a headache for all European airlines: fail to enforce one of the rules and they risk being fined for carrying a traveller who does not have the right documentation; or be over-cautious, and face a claim for denial of boarding under European air passengers’ rights rules.
“What are the quarantine measures? Which countries can people travel to? What is the paperwork needed?
“The exit from the crisis is going to be as bumpy as the entry into the crisis,” says Mr Elbers, who is currently completing his third decade with KLM.
He began working on the apron at its hub, Schiphol airport in 1992, and has seen plenty of crises in that time – such as the volcanic ash cloud of 2010 which brought aviation in northern Europe to a halt for almost a week.
“We thought, ‘wow this is the biggest thing that has ever happened to us’.
“If we now look at the statistics, it was a ripple in the history of aviation.
“Of course this is much bigger, much more significant. I see it mostly as an accelerator of the underlying trends. There’s a lot of emphasis, and rightfully so, around sustainability. We’ve always tried to play a leading leading role in that.”
Even business travel, which many have predicted will be partially replaced by online meetings, will bounce back, Mr Elbers predicts.
“I’m confident that the business level will return to the ’19 point. Maybe some travel patterns will change but eventually it will come back.
“Aviation will come back for sure. It will recover. There is a future.”