"I am confident that KLM is healthy and fit for the next 100 years"
The year 2018 was one of sustainable change, in which KLM confidently continued to execute its strategy and a more mature organisation emerged that is healthy and fit for growth in the years ahead. Here, the Board of Managing Directors reflects on the past year.
Having just completed the fourth year of the five-year Perform 2020 strategy, CEO Pieter Elbers underlines what can be clearly felt and seen in every fibre of KLM. “Our winning spirit has returned to KLM. Our financial performance is strong, our operation is stable and robust once more, and our ongoing investments in people, IT, equipment and innovation is creating an upward spiral of improvements. We strengthened our sustainability plans and laid the foundations for future growth,” Elbers reflects.
Chief Financial Officer Erik Swelheim agrees, saying that increased efficiency, digitisation, and investments have again resulted in good financial results. “In 2018, KLM achieved revenues of close to EUR 11.0 billion, an operating margin of 9.8 per cent and operating income of EUR 1,073 million. This allowed us to invest EUR 1.3 billion in people and equipment, which is essential to remain competitive,” Swelheim says. KLM reduced debt levels by EUR 455 million and saw an external spend project achieve savings of EUR 24 million.
These positive results echo all across KLM’s businesses. Both the KLM Cargo and Passenger activities performed well, while Engineering & Maintenance and Transavia had solid years, showing healthy financial and growth figures in line with expectations. “The High Performance Organisation we envisaged a few years ago is now materialising and across all parts of KLM we see sustained levels of energy, growth and innovation. It’s all coming together,” Swelheim adds.
The 2018 results are even more impressive knowing that room for growth was limited this year. While the maximum number of flight movements permissible to and from Schiphol Airport was reached by April, KLM did manage to expand its network with four new destinations and welcomed 1.5 million more passengers on board. Over the last four years, KLM welcomed 6.4 million more passengers on board and added almost 30 destinations to its network. AIR FRANCE KLM also paved the way for an expanded transatlantic joint venture with Delta Air Lines and Virgin Atlantic, intensified the partnership with GOL for extra flights in Brazil, and a code sharing with Qantas on flights from Singapore to Australia.
Stable, robust and sustainable
One key contributor to the success of 2018 was a more stable and robust operation. Where the unexpected growth spurt in 2017 had increased pressure on KLM’s people and processes, KLM now stabilised its operation. “A more integrated approach facilitates the ability to handle disruptions smoothly and quickly turn around aircraft on a congested Schiphol Airport. Our safety organisation became stronger as well, which is again recognised by the IOSA approval,” says René de Groot, Chief Operating Officer.
At the heart of this integral approach is the alignment of processes across KLM, the search for ongoing improvements and heavy investments in innovation. Examples of such innovation are the introduction of artificial intelligence powered tools in the field of disruption prediction.
In addition to strengthening its operations, KLM boosted its sustainability efforts and revamped its own sustainability strategy. Together with an alliance of 20 organisations the ‘Smart and Sustainable plan’ for sustainable growth of the aviation industry in the Netherlands was launched. “We strongly believe in the value of biofuels to reduce our environmental footprint, in addition to continuous fleet renewal, electrification of our ground equipment and carbon compensation. The number two position of AIR FRANCE KLM in the Dow Jones Sustainability Index recognises the impact of our actions,” argues Elbers.
The customer journey
The steady rise of NPS, which essentially indicates customer satisfaction, to 42 at the end of 2018, is another indicator that KLM’s renaissance is sustained. “Customers are clearly noticing the ongoing improvements to KLM’s product across the entire customer journey”, De Groot says. The NPS shot up an impressive seven points from 35 to 42 the last four years.
The fleet upgrade program is one key to this. KLM took delivery of three Boeing 787-9 aircraft and seven Embraer 190/175 for KLM Cityhopper’s network. Furthermore, Transavia took delivery of two Boeing 737-800 aircraft. KLM began preparing for the arrival in 2019 of the new Boeing 787-10 and together with Transavia, a further six Boeing 737-800 are on order. In addition, KLM added full flat seats on all its Airbus A330 World Business Class and began adding Wi-Fi to all A330 and Boeing 777 aircraft. Newer aircraft and cabin improvements not only attract and retain more customers, but also reduce noise levels and CO2 emissions.
Customers enjoyed a better product in other ways as well. “This year we have managed to engage more directly and personally with customers, during the sales process, on digital media, when disruptions cause discomfort and in the air when we give customers memorable experiences,” Elbers says. KLM, for example, completed the installation of flat seats on the long-haul fleet, extended the successful “Anytime for You” meal concept on World Business Class, and launched a new economy class meal on intercontinental flights.
Another customer highlight was the opening of the first phase of the new Crown Lounge, a stunning three-storey, house-shaped lounge that has become an architectural icon of Schiphol Airport. “Digitisation and highly engaged staff are at the centre of a truly unique, customer-centric experience that will make a real difference to our World Business Class customers. The lounge also celebrates Dutch culture, which is part of our DNA as well,” Elbers proudly says.
People and innovation
De Groot emphasises that KLM’s people have been part of the organisation’s transformation. “To secure a healthy and fit future, we want our people to work in a safe, inspiring and empowering environment. In 2018, we made progress on all these fronts. We achieved a drop in absenteeism, introduced the Employee Promotor Score to improve the dialogue with our employees and further implemented our Winning Way of Working concept by renovating workplaces. KLM hired some 1,200 new employees, continued to bring the KLM Compass alive through training and leadership development and boosted our efforts to promote diversity and inclusiveness,” summarises De Groot.
In an aviation industry transformed by fierce competition and more demanding customers, KLM continued to embrace innovation. “In 2018, we saw exciting developments in step change innovation that leads to incremental improvements and more radical innovation that create new opportunities for future growth. Also the X-way of Working has been further implemented,” says Swelheim.
Healthy and fit future
As KLM begins to celebrate its centenary, the Board believes in the company’s future. “KLM was built on the shoulders of the tens of thousands of staff that worked here before us. Today, 35,500 men and women are building the KLM of the future. Over the past four years, we have fixed the leaky roof and further strengthened our foundations. In light of our ambitions for 2019 and beyond, I am confident that KLM is healthy and fit for the next 100 years,” Elbers concludes.