Joint interview: Frédéric Gagey and Pieter Elbers

Interview of Frederic Gagey, Chairman and Chief Executive Officer of Air France and Pieter Elbers, President and Chief Executive Officer of KLM

The Perform 2020 plan is targeting more growth and competitivess for the Group. How is this reflected within each company?

Frédéric Gagey: Our previous plan, Transform 2015, achieved its objectives with a reduction of more than 1 billion euros in Air France-KLM’s annual costs in three years. We are now embarking on a new phase with Perform 2020. Air France must pursue its transformation
to regain profitability while becoming its customers’ carrier of choice. Over the next three years, we are targeting 650 million euros of cost savings, or the equivalent of a 1.5% average annual reduction in our unit costs. In parallel, each entity is mobilized around multiple cross-cutting projects. Firstly, in the low-cost segment, with its strong growth in France, Transavia is set to become the number one low-cost operator out of Paris-Orly in Summer 2015 with flights to approaching 50 destinations. But also in short-haul with the regrouping
of the Hop! Air France operations, to gain agility on this network where we need to win back market share.

Pieter Elbers: The air transport environment is evolving very rapidly. KLM must learn to adapt more quickly if it is to maintain its position in this highly-competitive industry. Perform 2020 is
a growth plan, designed to cut our costs but also to enable investment. Like at Air France, our unit costs must be reduced by an average 1.5% a year at KLM, i.e. around 390 million euros over the next three years. To continue to increase our profitability and work more efficiently, KLM must also invest in its operating processes. Cost reduction notably implies significant productivity efforts where we are targeting at least 4% per year. A more horizontal organizational structure is also required.

Coming back to your strategy of a move up-market. Where do we stand in 2015?

Frédéric Gagey: The move up-market for all
our products and services is on-going, and we are already reaping the benefits. At Air France, we are progressively installing new cabins in
our Boeing 777s. At the end of the Summer 2015 season, 21 aircraft will have been equipped.
The latest customer surveys show that they welcome these renovated cabins, with a doubling in the comfort scores compared with the previous seats. This is really rewarding for all the employees who have been mobilized around this exciting project. In medium-haul on departure from Paris-Charles de Gaulle, we have also comprehensively revised our offering.
Starting in April 2015, our Airbus A319 and A320 fleet is being gradually equipped with new leather seats. Our customers also benefit from
 a new commercial proposition in terms of both fares and in-flight services. Our revolution
is pursuing its course with one long-term goal:
 to rank in all areas alongside the airline industry best-in-class.

Pieter Elbers: KLM has launched Flight Plan 2015. We will continue to focus our efforts on service quality and optimizing on-board comfort. KLM has already renovated the World Business Class cabins on its Boeing 747s. We have also started fitting new cabins on the B777-200s, which will all be equipped in 2016.
It will then be the B777-300’s turn to benefit from renovated interiors. The new Economy class seats offer passengers more legroom. Specially designed seat cushions and sustainable high-density materials will enable a higher standard of passenger comfort.
The fact that the new seats are the lightest
in their category also constitutes an improvement. A weight reduction generates fuel savings, which will in turn lead to lower CO2 emissions. The new cabin interior also boasts a new in-flight entertainment system, offering wider screens, interactive 3D maps and an opportunity to communicate with fellow passengers seated elsewhere in the plane using the “Seat Chat” application.

The revolution under way across 
the Group also involves digital.
 How are you investing in this area?

Pieter Elbers: KLM has just celebrated its 95th anniversary. This longevity is due to innovation, customer focus and the flexibility of our offer. Since 2009, KLM has been a pioneer in service provision via the social media. We offer a unique 24/7, one-stop shop in 14 languages on six platforms, enabling us to establish a real dialogue with individual customers. We believe that, through this pro-active engagement, we can learn, innovate and make a difference in the eyes of passengers. Our frontline staff are already amongst the best in Europe but we strive to constantly surpass ourselves in terms of customer service.

Frédéric Gagey: In digital technologies,
our ambition is to accompany our passengers before, during and after their flights with us. Currently, Air France sells a ticket every five seconds via its digital channels, i.e.
the equivalent of 35 Airbus A380s every day. Digital also enables us to offer an increasingly seamless and fluid travel experience, particularly
in terms of passenger transit channels in airports. This also contributes to the attractiveness of our hubs and to that of the regional airports we serve. This is a cornerstone of our strategy targeting the best international standards.

You are a leader in sustainable development. How do you plan to maintain this position?

Pieter Elbers: Perform 2020 also includes a Corporate Social Responsibility dimension.
As the leader in the Dow Jones Sustainability Index, we have set ourselves targets for reducing waste, continuing to introduce responsible catering products and saving energy.
KLM, followed by Air France, is also working on numerous initiatives to promote the development of the sustainable bio-fuels industry. Within
the framework of this policy, at KLM our goal is a CO2 reduction of 20% by 2020 both on
the ground and in the air. This will also involve fleet renewal, by introducing the Boeing 787-9 and replacing our Fokker 70s with Embraer 175+s and 190s.

Frédéric Gagey: Within the framework of the Lab’line For the Future operation, we continue
to operate a weekly flight between Toulouse and Paris-Orly powered by bio-fuel. This is our trial route to develop and promote this industry
of the future. The Group’s fleet is also progressively integrating next-generation aircraft: the Boeing 787-9 as Pieter mentioned but also the Airbus A350. These new aircraft will contribute to achieving our ambitious goals
in terms of reducing CO2 and noise emissions.