AZ to end AF/KL partnership from january 2017

Old May 21, 15, 10:23 am
  #31  
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I am a bit surprised that we claim success or failure of this AF saga in AZ without backing it by any financial figures. Personal intuition without facts seems insufficient to me.

All seem to agree that the potential success of the current agreement is to feed Italian pax to AFKL longhaul network. As was mentioned above, AF already flies to many Italian destinations, so the "scientific" question about the contribution of the AZ partnership is what would be the financials with and without the partnership. Certainly, Lufthansa decided that it did not need LH Italia to feed Italian pax into its longhaul network. It can well be that AF will lose few Italian pax if the partnership is fully ended (no codeshare) and save some money. or maybe AF will suffer gravely.

In the same vein, it appears that many of us feel that EY is pursuing a money-losing strategy. My guess is that EY does not mind much to show losses at AB (and sonn AZ), as long as AB feeds profitable traffic to EY network. After all, this is also a matter of internal pricing. To some extent this was AFKL initial strategy and it could be that its 300+ investment loss in AZ was compensated by the gains of the partnership with AZ as feeder airline. It seems that EK and QR are very aggressive in getting European pax. EY has a tough time competing with them and intuition is not enough to demonstrate that EY strategy of getting those European pax via investments in AB or AZ is not a viable one.
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Old May 21, 15, 10:34 am
  #32  
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The agreement lies in tatters and AF no longer has any claim on these passengers formerly provided by AZ with Alitalia free to pursue their own strategies and new relationships with other alliance members or with their fellow Etihad Partners affiliates; AFKL poured hundreds of millions of Euro into AZ in the hope of one day finding themselves in the driving seat, but instead saw their shareholding diluted down to almost nothing (when they decided not to partake in the share issue about 4 years ago) - they went from 25% to 7% - presumably Etihad's entry onto the share register has further diluted the AFKL holding; I'm finding it hard to see how AFKL's Italian adventure can be portrayed as anything other than an abject failure!
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Old May 21, 15, 10:34 am
  #33  
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Originally Posted by Goldorak View Post
so we can guess that there will be again AZ metal on some routes like VCE, FLR and BLQ.
I'd actually be very surprised to see AZ open CDG-FLR or CDG-BLQ. Just like AF, they tend to be predominantly into hub traffic. VCE is a slight exception as they have their own equivalent of the bases province there (and another at CTA).

There is a separate question regarding whether AF would be able to sustain routes like GOA without a code-share agreement.

On the broader issue, the fact that the current codesharing agreement benefits AF is not in and by itself proof that the operation has been a success. You could just equally have a narrative where the AZ operation has been a failure and money losing operation but where the pay back for AF has indeed been that feeder traffic and codeshare opener, except that this is now being curtailed as AZ is not getting anything out of it!

In other words, it is back to what I was answering stimpy and which irishguy28 is in my view rightly pointing out in his post above: we know AF directly poured hundreds of millions into AZ over the years (I'm not counting any indirect costs and there were some). The whole question becomes whether the advantages that you describe match those costs in terms of additional profit or not. I understand that you and stimpy think that this is indeed the case, but I'll admit to still being very sceptical. In fact, I don't remember anyone at AF suggesting to me that they believe that AF has indeed benefitted from the AZ saga overall.

I'm also a bit puzzled about saying that the JV is good for AF. The whole point of a JV is to mutualise both costs and income on a given route. The mood on this and other fora is to keep shaming AZ for inefficient costs, so is it not paradoxical to suggest that mutualising costs and income with a devastatingly unprofitable partner would be beneficial? Isn't a JV supposed to be mostly beneficial to the airline which can balance its operations out with another airlines with lower costs?

Last edited by orbitmic; May 21, 15 at 10:40 am
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Old May 21, 15, 5:28 pm
  #34  
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Originally Posted by irishguy28 View Post
I'm finding it hard to see how AFKL's Italian adventure can be portrayed as anything other than an abject failure!
Really? Did you not see the numbers from the AF meeting today?
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Old May 22, 15, 5:40 am
  #35  
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Originally Posted by stimpy View Post
Really? Did you not see the numbers from the AF meeting today?
What meeting and what numbers?

All I know is that the French state is trying to consolidate its say in the running of AF - which can only mean that even darker days lie ahead!
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Old May 22, 15, 6:14 am
  #36  
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Originally Posted by stimpy View Post
Really? Did you not see the numbers from the AF meeting today?
Originally Posted by irishguy28 View Post
What meeting and what numbers?

All I know is that the French state is trying to consolidate its say in the running of AF - which can only mean that even darker days lie ahead!
+1 on irishguy28's comment. Could you possibly be a little bit less precise just to avoid the odd risk that we might actually be stumbling by chance on the actual figure that you had in mind

Reminds me a bit of one of my former colleagues who would randomly barge in a panicked state into someone's office and ask "have you seen the file?"
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Old May 22, 15, 6:47 am
  #37  
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Originally Posted by orbitmic View Post
+1 on irishguy28's comment. Could you possibly be a little bit less precise just to avoid the odd risk that we might actually be stumbling by chance on the actual figure that you had in mind
I thought you guys followed this company? The AF/KL General Assembly was yesterday. Maybe try Google if you weren't aware.
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Old May 22, 15, 7:00 am
  #38  
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Originally Posted by stimpy View Post
I thought you guys followed this company? The AF/KL General Assembly was yesterday. Maybe try Google if you weren't aware.
Google doesn't seem to be aware of it, either. Or maybe it's just that the English-language press didn't report on what was already known several weeks ago. The only reports are about the older news that the French Government was looking to change the voting rules - there is no news about yesterday's General Assembly. But I assume the French Government got its way.
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Old May 22, 15, 7:08 am
  #39  
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Originally Posted by stimpy View Post
I thought you guys followed this company? The AF/KL General Assembly was yesterday. Maybe try Google if you weren't aware.
The question was what figure did you have in mind that shows what the AZ partnership contributed to AFKL's bottom line. Clearly, you have seen something that you believe is relevant so why not just say what it is instead of telling people that the Encyclopaedia Universalis has the relevant information without committing to what article you believe is indeed proving your point?

Or do you mean the vague statement that AF is talking to AZ to see whether the partnership should be renewed? Again, I just do not see the relevance.

Sorry but you cannot expect us to be in your mind and double guess what figures you feel are relevant when none seems obvious from what has transpired from the meeting (I'm afraid that I am not a shareholder and was not there so all I read was from the press which was more about the double votes by the State, the renewal of AdJ, and the fact that the financial problems are continuing.)
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Old May 22, 15, 11:39 am
  #40  
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Originally Posted by irishguy28 View Post
Google doesn't seem to be aware of it, either. Or maybe it's just that the English-language press didn't report on what was already known several weeks ago. The only reports are about the older news that the French Government was looking to change the voting rules - there is no news about yesterday's General Assembly. But I assume the French Government got its way.
Yes it's true I saw it in French. But AF was tweeting most of the details both in French and English.

Also of note, the lounge in Terminal 2G will get redone in the style of S4!!!! That part I read in Les Echos http://bourse.lesechos.fr/infos-cons...ac-973895.php#

Sorry I can't do more for you now. Gotta run.
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Old May 22, 15, 12:08 pm
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Originally Posted by orbitmic View Post
I'm afraid that I am not a shareholder and was not there
The whole world was invited to attend via live stream. And if you go to the corporate website under finance you can read the report.
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Old May 22, 15, 1:50 pm
  #42  
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Originally Posted by stimpy View Post
The whole world was invited to attend via live stream. And if you go to the corporate website under finance you can read the report.
Err... some of us are at work at that time though! I saw the report, it says absolutely nothing about an estimated income and/or profit related to the AZ partnership, nor does the article that you link or the other ones that I have seen. The only confirmation we get is that AF certainly does not see a return to profit as imminent.
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Old May 22, 15, 6:12 pm
  #43  
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Originally Posted by stimpy View Post
Also of note, the lounge in Terminal 2G will get redone in the style of S4!!!! That part I read in Les Echos
Definitely an excellent news ^
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Old May 23, 15, 11:27 am
  #44  
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Originally Posted by orbitmic View Post
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.
I would have thought that showing that either limb constitutes an unwarranted criticism would suffice to show that the overall criticism is unwarranted but, in any event, even the first limb is just as questionable, and this on two grounds:
- I am not sure on what you base your assertion that 'Air France misread what it would take to turn AZ around and how hard it would be' but, in any event, this is beside the point: let us not forget that AF did not take control of AZ: it was not an AFKL subsidiary and AF was not the majority shareholder. Indeed, AF was rather frustrated at moves taken by other shareholders and it precisely because it felt that there was no clear viable plan put forward that it refused to contribute to the last injection of capital in the pre-Etihad era. Whether AF correctly evaluated what it would take to turn AZ around and how hard it would be is neither here not there: even if they did, they were not in a position to implement it anyway.
- Going back to 2008, who exactly is that clairvoyant that could see that Berlusconi would block the AF acquisition and that he would manage to twist enough hands to mount the C.A.I. solution? Who knew exactly what the Alitalia would be under C.A.I. and what room there would be for AF to shape it or not? Who is that truly gifted individual that would have foreseen that EY would successfully acquire a quasi-controlling stake in AZ?

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.
What I said is that AF wanted to anchor the Italian market into the AFKL group. This is not the same thing as channelling Italian customers to Paris. As long as AZ remained alive, this meant integrating AZ into the AFKL group and this was very clearly AF's ambition. I do not share your view that this always was going to be a non-starter. Going back to 2008-09, It was very clear that Berlusconi was against it but it was far from clear at the time that a non-AF/KL alternative could and would be worked out.
Was it a strategic error at the time for AF to take a 25% stake in the new CAI/AZ in order to keep a foothold in AZ? I do not think so. It seems to me that there was still a realistic prospect medium term of AZ joining the AFKL group and, from that perspective, the participation of AFKL made sense. The question was always going to be: at what cost? And when it looked like the cost was in danger of spiralling out of control, AF refused to go any further and refused to take part in the capital increase.
In other words, AFKL took a calculated risk in participating in AZ back in 2009 and, when the risk increased to unacceptable levels, they refused to go further.
Further, it was anything but clear that the EY bid would succeed. It seems to me that AF's approach to AZ has, on the whole, been pragmatic and sensible throughout. Sure, what they expected out of it did not materialise, But this does not mean that it should be regarded as a "failure" if what is meant by that is evidence of wrong decision-making.

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?
The success/failure is just a touch too manichean for me. I would call it neither a success nor a failure. A calculated risk was taken which did not pay out its full potential. There is nothing fundamentally wrong with that. This is within the realm of "win some; lose some."
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Old May 23, 15, 4:58 pm
  #45  
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Originally Posted by NickB View Post
- I am not sure on what you base your assertion that 'Air France misread what it would take to turn AZ around and how hard it would be'
On multiple declarations by JCS and PHG such as the press conference of JCS in November 2006 and his interview in the Corriere della Sera in December 2006 where he explained the prospect of integration and that the dual hub was viable, on declaration by the AZ leaders to il Sole 24 Ore where they said that AF was considering that to be profitable AZ restructuring would require a reduction of the number of pilots by 200 and of 300 crew out of 5000 while we know that the truth was much worse, the fact that JCS then proposed a plan in December 2007 that focused on staff reduction of 1700 which would have still not been nearly enough although by that time he had finally realised that the MXP hub needed to be reduced (although I'd argue it needed to be closed altogether as a hub), and of reports in the French media by people close to JCS that he was satisfied with the direction the airline was taking and of his influence on the AZ board of directors and the fact that he stayed on, approved everything, and the airline was falling ever deeper. i'm also not sure about your point that what AF evaluated was irrelevant because it was not in a position to implement it. In 2006, Prodi was open to giving AF far more power if they wanted to, but they did not. So yes, sure, they got to do business with Berlusconi instead, good luck with that

Originally Posted by NickB View Post
It seems to me that AF's approach to AZ has, on the whole, been pragmatic and sensible throughout.
I disagree.
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