KLM Global Efforts Endure

<B>KLM Global Efforts Endure</B>

By David Jonas

KLM Royal Dutch Airlines is ramping up its global account management efforts despite a failed merger attempt with British Airways that jeopardized its competitive position in Europe. The heightened focus on multinational corporations by the world's sixth largest passenger carrier, as measured by BTN's latest Business Travel Survey (BTN, May 29), includes newly created internal processes, continued integration with antitrust-immunized partner Northwest Airlines, electronic ticketing development and a redefinition of the travel agency role.

While KLM signed up its first global account almost two years ago, it only recently began a formalized approach. Now, seven multinational corporations--including Philips Electronics and Royal Dutch Shell--and six European travel agencies have global contracts with KLM. The Dutch flag carrier hopes to have another 60 global deals in place within six months. It already has 2,000 local corporate accounts, including several Fortune 500 companies.

"The globalization of all industries and customers is something that needs our attention, in terms of single sourcing and single supplier management," said Michiel Verhaagen, KLM director of global account management. "This summer we professionalized global account management and now are ready to build."

KLM defines a global corporate as a multinational enterprise that is attractive to both KLM and its partners. "We talk a lot with Northwest Airlines in regard to which customers are attractive to the joint venture and have the network fit and substantial volumes," Verhaagen said, noting that four of the seven existing global accounts are shared KLM-Northwest customers. "But it also is very important for the corporation to have central steering of their flying policies and a viable commercial opportunity to maintain or increase their sales volumes."

The carrier's global deals cover at least two continents and generally are net-nets, nets and gross deals based on incremental volume growth, though each is customized for specific needs.

Much of KLM's global contracting strategy meshes with efforts by Northwest on this side of the Atlantic. "For global deals, we have set up a professional pipeline management system between ourselves and Northwest to get a standard process in place and to know where global contracts start and end," Verhaagen noted.

One such joint account, DaimlerChrysler AG, began as a Northwest customer and last year transitioned to a shared global customer. "Once we merged with Daimler, we went from local deals to global deals," said Charles Braswell, director of global travel management and business services. "We had discussions with the airlines of various alliances to determine which we would be working with. Of course, Northwest has the majority of the lift in Detroit, our home market, but their service levels and our relationship with them have recently improved."

For now, buyers will have to rely on the KLM-Northwest network following KLM's inability to merge with British Airways. "Our customers are saying that they would love to have the extra network opportunities, but they know as well as we that it is very difficult to get an alliance, merger or acquisition completed in the aviation industry," Verhaagen said. "They are looking forward to new KLM partners since they are moving to more of a single sourcing strategy, and we would like to develop global travel solutions for customers beyond local deals."

Nevertheless, KLM's network--including partnerships with various foreign and intra-European regional carriers and connections within the Northwest network--reaches 500 cities in 98 countries.

Cooperation with Continental, Northwest's U.S. partner, still is in the early stages as KLM-Northwest have yet to formalize a larger alliance strategy.

The tenuous nature of alliances aside, Verhaagen said the biggest hurdle in global contracting is properly managing data. "It is crucial in corporate contracting and difficult with the larger corporations, so we have many groups working on the problem on both sides of the ocean," he said.

One partial solution is deployment of client recognition cards, primarily used by KLM customers in relation to frequent flyer accounts. The carrier hopes to expand the functionality of such cards to include customer relationship management initiatives, streamlined airport processes and even instant booking. "We don't have a complete solution for data yet, but are working on identification systems," he said, though declining comment on KLM's stance on the client ID program proposed by the International Air Transport Association (BTN, July 10).

KLM may benefit from Northwest's recent focus on internal data flow, which may include licensing from Continental's Sales Insight system (BTN, Aug. 14). Northwest, however, must determine its strategy, and vendor for a companion corporate system, before sharing with KLM. Continental uses Prism, an Albuquerque, N.M.-based consultancy, for data cleansing and transfer between clients' agents and their internal systems.

Meanwhile, KLM next summer expects to launch e-ticketing and open the door to various new distribution models and cost savings opportunities for corporate clients. It also will leverage Northwest's experience with e-booking tools to develop its own e-commerce approach. Similar to large carriers in the United States, part of that approach is a redefinition of the travel agency component.

"We see large corporations who want to go direct, so there are different kinds of remuneration that come into play: management fees, ticketing fees, etc.," Verhaagen said. "At the moment, in our home market, we are discussing with agencies how their role is changing and how we can redesign it together to add value."

Another ongoing project is wireless connectivity for travelers via cell phones, including remote checkin and eventually bookings. In Europe, British Airways, SAS and Swissair all are developing similar business traveler conveniences. Such tests are being done separately, but corporate travelers ideally would be the first to use this technology.

Corporate travelers from global accounts also can benefit from pre-ticketing, VIP treatment, lounge access and simplified airport processes, depending on certain needs. Perks are customized for each global account.

Moving forward, KLM will continue to strengthen its partnership with Northwest. Last month, it announced the relaunch of a co-branded business class, making the duo the first partners to offer a consistent premium cabin product. KLM will complete aircraft refurbishments by May.

The two carriers on April 1 also will launch daily nonstop flights between Miami and Amsterdam, marking the 23rd transatlantic route on which they offer joint service.

Despite deep integration with Northwest, the unresolved European alliance situation leaves KLM with a precarious competitive disadvantage and wary investors. After talks ended with British Airways, stocks tumbled and at press time still were trading near the 52-week low at less than half of the year's high water mark.

The extent of the financial damage will become clear later this month when it releases quarterly earnings. For the quarter ended June 30, KLM posted a net income of 43 million euros (US$40.9 million), up 23 percent from a year earlier. Operationally, KLM reported traffic gains in the past few months and extremely healthy load factors, in line with high level of demand throughout the industry. Capacity moving forward is expected to remain relatively flat.