orbitmic

But AF did not act in the same way as LH and BA. I am merely repeating what I have said before, that AF's attitude towards AZ has been incoherent over time in my view. They spent a lot of money into it to not change anything and let the situation worsen, and then a few years later they put together a proposed plan which was perfectly ridiculous before disengaging themselves.

BA decided that they were not interested. That was coherent. LH did exactly the same. AF's attitude was entirely different and to me, seemed to defy rhyme or reason. They could have perfectly stayed out, or they should have only stepped in if they had a plan or if they wanted to integrate AZ into their group and take the losses and hope to sort it out from the "inside" (which of course would have also been an option).

They did none of that. They did not walk out, but they did not walk in either, they had no strategy to start with, and then claimed to have one years too late.

In other words, I'm perfectly happy for you to tell me that my judgement against AF is bias if you can explain to me in what sense AF's actions made sense and how it was mere bad luck that their clever plan did not work, but apparently saying that "there is no good solution" for AZ and "the least bad is to let go" precisely suggests to me that AF's actions made no sense in the first place and that time and money have been wasted in yet another failure indeed.

NickB

I will come back to what you said in the quote just above but let us go back to a second to the post my comment was an answer to: you did not state that, in your view, it was wrong for AF to get involved with AZ at all. Your criticism was more pointed and directed at something much more specific: you criticised AF for not being able "to propose a solution that would turn AZ into a healthier and leaner airline whilst being acceptable by the Italians" despite being "in pole position."
IMO, this would be a very sound criticism to make if somebody else than AF would have been in a position to do what you criticise AF of being unable to do. Therefore, it seems to me a fair question to ask you what exactly that solution is that AF should have proposed. Because if there is no such solution, then AF can hardly be blamed for failing to find it: a l'impossible, nul ne saurait etre tenu.

Now moving onto the wider question that you raised in your more recent post, I do not think that AF's position re AZ was incoherent. The line was fairly clear: they wanted to anchor the Italian market into the AF/KL group but did not want to do it at just any price. In particular, they did not want to have to maintain an Italian danseuse (as one might have said in the 19th century ) to do it. When it turned out that the price would be too high when a Middle-Eastern sugar daddy entered the dancefloor and seemed happy enough to have its Italian danseuse, they pulled out. That seems to me a pretty coherent position to take overall.

orbitmic

Not really - the exact quote is that: "The airline was in pole position from the start but neither read the situation accurately nor was able to propose a solution that would turn AZ into a healthier and leaner airline whilst being acceptable by the Italians." [emphasis not in the original post]

You only focus on the second point but the first one was just as important ie 1) I think that AF misread what it would take to turn AZ around and how hard it would be and 2) indeed did not find a solution that managed that whilst being acceptable to the airline in question.

So what you point out as the "broader question" really is the one I was referring to in that quote too. My personal perception is precisely not that AF merely wanted to channel Italian customers to Paris (if so, frankly, I would have hoped that they could have done without the silly charade of claiming that under the right conditions the point was to merge AZ into AF-KL) and in fact I think that AZ would have refused that from the start. I think AZ wanted to be the third partner in an AF-KL emporium transformed into an AF-KL-AZ emporium, and I personally think that this is exactly what JCS had in mind even though he was careful to point out that AZ was not ripe for it yet. My point is that with the behaviour exhibited by both parties, I do not think that it was a credible outcome that it ever would be. Maybe you are right and AF was just being cynical and just interested in stealing the market and simply lied all along about the ultimate integration prospects, but I'm not sure that I would have any more sympathy for them if that is indeed the case.

Let me return the question in any case. I've outed my perception and called AF's AZ saga a failure. Would you call it a success?

stimpy

I think in my recent posts I certainly called it a success. AF today is still bringing in Italian traffic. Yes it may end in 2017 or whenever, but as of right now it should be helping the bottom line quite a bit.

1. AF could not save AZ on their own.

2. AF could not prevent EY from coming in.

3. AF did successfully prevent EY from having a big negative effect right from the start.

We criticize these decisions the moment they are announced rather than looking back after some time has passed to see the wisdom.

FD1971

If we link all the comments we have in this discussion so far, we get a nice overview why AZ is a bucket case and nobody had any real interest anymore...

More or less all feeder slave agreements are structured to benefit the major partner offering long haul service. I was able to look at some of them in great detail, i.e. at Eurowings and Tyrolean and the chances to make money from them were more or less non-existent, even for efficient airlines like the old Tyrolean used to be. And they understood their role almost perfectly...

I fear, I really really fear that the confidence at AZ increased quite a bit, so they want to re-establish themselves as a major player and not so much a feeder slave into the KL/AF network.

They are 20 years late to the party, but show up nevertheless, so will put more and more capacity into a market, which has already too much capacity hurting the bottom line of the existing players.

There is absolutely no doubt that 'The Flying Dead' are on life support provided by Abu Dhabi and do not have a working business case. Players like AZ and AB should have long gone.

Under the bottom line, it is another issue for Air France, which is just another obstacle they have to circumvent on their way to a working business plan for the next couple of years.

What I like about your comment, you try to put things into a perspective. As you said, it is always easy to draw a conclusion years later without remembering the actual status quo back then.

stimpy

Do you remember the status quo back then? Then you must realize that AF had to do something and did the best they could. It would have been MUCH worse had they done nothing.

FD1971

To be honest with you, after dealing too much with them and after I needed too much time to understand the inner workings of such a company in France, I did not really spend a lot of time thinking about AF anymore.

But I always love talking to guys from KLM and love listening to the stories about the French trying to run an airline able to compete with the likes of BA, LH not to mention the ME3 on steriods.

They always remind me of Eastern back then and the staff wearing shirts stating something like:

'Bankrupt, but paid without making concessions until the very last day.'

I had a major discussion at an Aviation Conference a few years ago with a guy from BCG who painted a bleak picture for KLM. I told him that he was wrong and quite frankly, I think I was right until a certain point in time. Now I begin to see his arguments a bit more and one can only hope that KL/AF understood that KLM has issues, but that the issues of AF are way more significant so instead of starting to restructure KLM, they should look in the mirror and start there.

Let me ask you one question:

What is more realistic for you?

Selling KL to LH or BA and giving away a chunk of AF to an investor from the Middle East or expecting the tax payer to pay for a major restructuring again in a few years from now?

orbitmic

Then that sounds pretty worrying about the future. If AF have been the cunning and cynical selves that you describe and managed to pull a fast one on BA and LH with that hypothetical strategy of claiming to work on a partnership whilst effectively only wanting feeder traffic from Europe's fourth largest traffic base, and as a result, are still well worse off financially than the two major competitors that they supposedly strategically defeated, I fear the worst now that this fat cow period is coming to an end.

That said, if for the sake of argument we accept your narrative at face value, the slightly odd part of the demonstration is that at no point do you relate those claimed gains to the actual cost of the operation. As a reminder, for this to be a success, then presumably the benefits must have outweighed the cost, which also means that the added profit strictly related to the AZ increased traffic must have been well north of €100 million/year given the overall investment.

stimpy

I don't think either is realistic. People will talk extremes, but large institutions have a way of muddling along.

As for KLM, why would LH or BA buy them? As you say they have issues and only a severe correction will fix those issues. Labor unions have a way of preventing severe corrections.

irishguy28

LH won't be buying anything for a long time!

IAG are always looking for new investments. If KLM was put on the block, you can be sure IAG would give them the once-over.

stimpy

I'm sure IAG would like to have KLM, but there's no way they would pay the price that AF would expect.

stimpy

I was going to write, but I figured that everyone knew this, that to determine if the cost was worth the investment we'd have to have access to all the numbers.

But beyond those numbers, I'm sure you remember what was happening at the time of the Italian "crisis", right? In 2008 Lufthansa announced plans to create its first hub outside Germany and its fourth European hub at Milan–Malpensa Airport. In October 2008, Lufthansa set up its Italian division, Lufthansa Italia. Operations commenced on 2 February 2009, and ceased on 30 October 2011 as Lufthansa abandoned plans to create a hub at Malpensa. It shouldn't be too hard to draw some conclusions should it?

GUWonder

Indeed, it's relative.

AF-KL is its own basket case situation, but how much, if anything, did AZ cost AF-KL given AF-KL's limits in dealing with AZ? AF-KL could have done worse than they did with AZ, but I doubt they would have done any better without AZ than they did with AZ.

orbitmic

I remember what happened indeed.

First noteworthy date is that it is in 2003 that the AF-AZ saga started with an explicit mention (on both sides) of prospects of a future merger.

It was confirmed in 2006 that the Italian government would not be allowed to continue injecting cash into AZ and the situation deteriorated badly from there on with AZ seeking discussions with partners. Around September 2007, AZ announced that it would radically diminish its operations from MXP and effectively stop functionning as a two-hub airlines. It had finally understood that MXP is one of the most idiotic airports ever built, poorly connected to central Milan, poorly designed, and subject to sever delays whenever there is fog (and it happens very frequently in the Milan area). The Berlusconi government also explained that it thought that LH would be a much better partner for AZ than AF and tried to generate talks along those lines.

LH looked into it and decided NOT to engage in the AZ adventure which in my view was probably a good idea. I do think that they betted nobody would considering the mess it was in and indeed announced that it would launch its own Italian operations from Milan with LH Italia. I find that LH idea just as ridiculous as AF's behaviour in the AZ saga. Perhaps the Germans are so used to all of their airports being reasonably well connected to their hinterland that they just read "Milan" instead of "Malpensa", but I'm sure they lost a fair bit of cash on the way and that is just what they deserved for that idea.

There were then multiple episodes of discussion between AZ and SU, various Italian groups, and then AF. The SU lead looked serious for a while but ultimately nobody bite.

Ultimately, AZ stopped being floated on the stock market in early June 2008, and filed for bankruptcy in August. The takeover of the least-hopeless aspects of AZ by the CAI group was proposed in October and agreed in November. The "new AZ" started operating in January 2009 and started losing money immediately.

What conclusions we can draw from that of the actual cost of AF's involvement in AZ I am, however, not quite sure! I would incidentally not draw any conclusion regarding the impact of AF's choice to continue spending money on AZ on the failure of LH-Italia either.

Goldorak

I certainly don't see the AZ saga until now as a failure for AF, as :
- they established a JV on FR/IT routes which, I believe, has been at the benefit of AF (otherwise EY wouldn't break it). And those routes represent a huge traffic
- has allowed to funnel many pax through CDG instead of other hubs (particularly LH hubs)
- and thanks to the idiocy of the Italian govt and "jusqu'au boutisme" of AZ unions has led to no further investment in a dead-end story.

EY is surely a high quality airline with "endless" money coming from their owner, but will they be able to turn AZ into something viable, that!0's not sure at all. AB is still a failure, ex-Darwin (Ethihad regional) future is also very questionable, and Air Serbia...

Overall I believe this end of the AF/AZ partnership is of course a bad news for AF, even if it is likely that a simple code-share agreement will remain in place. But, at the moment, AF is the sole operator on several routes like to VCE, TRN, BLQ, NAP, FLR, GOA (IIRC, both metals are only present on LIN and FCO), and so we can guess that there will be again AZ metal on some routes like VCE, FLR and BLQ.