19 Years Ago Today: The Merger Of Air France & KLM

Nearly two decades ago in 2004, two of Europe's oldest airlines came together to create one of the most significant mergers in aviation history and one of Europe's biggest airline groups. But given how both flag carriers still operate primarily under individual brands, one might wonder why the Air France-KLM Group was even created if so.

KLM's attempts leading up to the merger

Diving into the reasons why the merger happened would seem evident at first, as airlines wish to expand beyond their horizons but also seek to survive financially and reduce overcapacity. While these are the exact reasons for the merger of Air France and KLM, other factors were also involved that brought them together - specifically from KLM's point of view.

Abandoning the 'Air Union' alliance

Throwing it back to around 1958, KLM and Air France were already deep in discussions to form a European alliance for expansion purposes, including Alitalia and Lufthansa. The airlines' initial plan was to create a corporate entity known as 'Air Union,' aimed at helping all involved to fill the bigger jets like the Boeing 707 and the Douglas DC-8.

Discussions for 'Air Union' would only last until the following year as KLM left for reasons unknown, leaving the remaining three airlines to try lifting the project off the ground. The Dutch flag carrier attempted to rejoin in 1962 alongside Luxair, but political and financial constraints saw the whole idea going up in smoke and completely abandoned by all parties shortly after.

Photo: Tim Rees via Wikimedia Commons

A failed attempt at creating 'Alcazar'

With 'Air Union' dusted, KLM tried again to create another alliance in 1994, alongside Finnair, Austrian Airlines, Swissair, and SAS. The idea was to create a union bigger than just a simple alliance, which would have seen all the involved airlines merging as a singular entity. The projected entity was gifted the name 'Alcazar.'

If it came through, it would have birthed the second-largest airline at the time, following closely behind British Airways. Unfortunately, the airlines began slowly hinting at their disinterest by dropping out of discussions, leaving only Lufthansa and SAS behind. These two airlines would continue working together, eventually creating the Star Alliance.

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An expensive breakup with Alitatia

At this point during the mid to late 1990s, KLM was only in one successful alliance with Northwest Airlines, known as the 'Wings' alliance. However, one was enough for the airline, and it wished to expand further. And so in November 1999, KLM formed a partnership with Alitalia to create what would be Europe's biggest airline.

But less than a year later in April 2000, KLM had quite an expensive breakup with Alitalia. Besides having to pay approximately €175 million ($193.4 million) as a settlement payment, KLM ended up losing the needed opportunity to expand, bringing the airline back to square one of insufficient growth.

Boeing_747-206B_PH-BUE_KLM_-_Royal_Dutch_Airlines,_New_York_-_John_F._Kennedy_International,_July_1984._(5529775281)

Photo: Andrew Thomas via Wikimedia Commons

KLM was sinking fast

If multiple failed attempts at engaging another alliance weren't bad enough for KLM, the aftermath of the horrific 9/11 terror attacks left the airline in tremendous amounts of debt. Even two years after the tragedy in 2003, the airline posted a combined net loss of approximately €572 million ($631.1 million).

Other global events, such as the financial crisis and the Iraq war, also contributed to the shattering of KLM's already unsteady financials. With other European carriers like British Airways, Lufthansa, and Air France comfortably growing and building their strides, KLM was quickly sinking, even with its supposedly beneficial 'Wings' alliance with Northwest Airlines.

Desperate for another attempt at gaining a new ally, KLM considered joining forces with oneworld - but seeing that British Airways was already a member, joining this particular alliance was out of the question for KLM. The next best option for the Dutch carrier was to consider merging with British Airways. However, political indifference in the early 2000s made obtaining traffic rights for both airlines tedious and nearly impossible.

KLM reunites with Air France

This left KLM with the Star Alliance with Lufthansa or SkyTeam with Air France and Delta Air Lines. Seeing as how the bridge with the German flag carrier might have been slightly burned after dropping out from the initial 'Alcazar' discussions years ago, KLM felt more confident in aligning itself with the remaining airline alliance and two of its founders instead.

Photo: Air France

More specifically, KLM was keen to rekindle with Air France and talks between the two European carriers soon began in 2003. During these talks, both airlines agreed that joining and establishing a partnership within the SkyTeam alliance wasn't beneficial enough for either carrier, so the idea of merging them sprouted.

If Air France and KLM merged, both airlines would save significant expenditures over the unification of station handling, airport lounges, catering, routes, and many more. More importantly, merging together would allow the two airlines to have a better competitive edge against the Lufthansa Group and the International Consolidated Airlines Group (IAG).

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And Air France-KLM was born

Satisfied with what they've discussed, Air France and KLM shook the global aviation industry in late 2003 as they announced an incredibly unexpected deal in the form of a merger - except their branding and company would be kept separate while still operating under a singular umbrella, which was something the industry did not see coming.

Although skepticism arose that the European Commission would approve such an idea, all doubts were slashed once the approval came in February of the following year. And a few months later on May 5th, 2004, the Air France-KLM Group was officially founded in a €800 million ($882 million) deal and became the world's biggest airline regarding turnover.

Since it's a union between the two flag carriers, the airline group is owned by shareholders. As of December 31st, 2022, the shareholding structure is as such:

French State - 28.6%
Dutch State - 9.3%
CMA CGM - 9%
China Eastern Airlines - 4.7%
Delta Air Lines - 2.9%
Company employees - 1.2%
Treasury Stock - 0.05%
Other registered and bearer shares - 44.25%

Photo: Antonio Salaverry | Shutterstock

Albeit KLM was sinking before the merger, the birth of the Air France-KLM Group saw the Dutch carrier, alongside Air France, soaring with profits after the two airlines further shared their routes and connections for enhanced passenger convenience and overall expansion opportunities. And as the years went by, the merger brought other significant changes for both airlines to enjoy.

These included the use of the same loyalty program and the flexibility to share or interchange aircraft orders for enhanced fleet optimization and savings. And while there were highs, the airline group certainly experienced some years of lows where they faced some financial struggles but still managed to fly through the storm eventually.

Nearly two decades later...

As of May 5th, 2023, almost two decades after the Air France-KLM Group was born, the merged entity has grown to become a leader in international air transport departing from Europe - significantly with three critical areas of expertise in air passenger transport, cargo transport, and aircraft maintenance.

Besides having over 70,000 employees, the group also has a fleet of over 530 aircraft divided between Air France, KLM, and Transavia, and all these provide flight and air cargo services to approximately 300 destinations across 117 countries, primarily from the central hubs in Paris-Charles de Gaulle and Amsterdam Schiphol Airport.

Photo: Flying Blue

But despite seeing strong demand across its network and more than €1.5 billion ($1.65 billion) in ticket sales over this year's first quarter to allow gained revenue of approximately €6.33 billion ($6.96 billion), the group still reported an operating loss estimated at around €306 million ($336.75 million) due to ongoing operational challenges like the French strikes and staffing issues at Schiphol Airport.

The Air France-KLM Group's first quarter capacity was around 92% of pre-pandemic levels, and the overall capacity for this year is estimated to be about 95% after considering operational challenges and delays on new aircraft deliveries. Nonetheless, the group is confident its 19th year in operation will have more highs than lows.