Air France, KLM detail plans

Air France, KLM detail plans

Laurence Frost, Associated Press, Paris

Air France and KLM Royal Dutch Airlines announced plans Wednesday to juggle their destination networks and join up their frequent flyer programs as they merge to create the world's biggest airline group by sales.

Promising improved services for passengers and cost savings for shareholders, the carriers said each airline would boost its strongest routes. KLM will fly more often to the Philippines and Indonesia, for example, while Air France increases flights to Latin America and southern Europe.

The partners also brushed off concerns that the first major cross-border airline merger in Europe could harm competition on some routes.

The two airlines' bosses held a news conference in Paris Wednesday to explain how they plan to make the deal work, a day after announcing that Air France had acquired almost 90 percent of KLM in a share swap valuing the Dutch carrier at about 850 million euros (US$1.0 billion).

Air France chairman and CEO Jean-Cyril Spinetta, who heads the new group, said he was aiming for "minimum" synergies of 75 million euros in the first year, rising to an annual 495 million euros after five years.

"The real savings could turn out to be higher," Spinetta said.

The room for savings is limited by a pledge not to cut jobs - which Spinetta repeated on Wednesday - and the decision to keep the two airlines operating separately from their hubs in Amsterdam and Paris.

Under the deal, the two carriers will be wholly owned by Air France-KLM, a holding company, but keep their distinct brands.

By providing more of its own ground services and cutting down on the use of outside contractors, Spinetta said, the new company will absorb surplus labor created by efficiency gains elsewhere.

To win the backing of the Dutch government, Spinetta and his KLM counterpart Leo van Wijk - the new company's vice chairman - needed to tread carefully around political sensitivities over the deal, which marks the end of an era for Dutch aviation.

At a ceremony to mark the introduction of the new company's shares on the Amsterdam stock exchange on Wednesday, van Wijk said the imminent de-listing of KLM's own shares, quoted since 1959, "is something you don't look forward to."

The tie-up with Air France nevertheless ends years of uncertainty over KLM's future, after earlier attempts to merge with Alitalia and British Airways ended in failure.

The deal creates the world's biggest airline group, with revenues of 19.2 billion euros in the 2002-2003 fiscal year. The next biggest, American Airlines' parent AMR Corp., posted $17.4 billion in revenues for 2003.

KLM and its U.S. alliance partners Continental Airlines and Northwest Airlines will also join the Skyteam code-sharing group led by Air France and Delta Air Lines in mid-September.