MIAMI — KLM Royal Dutch Airlines has decided to refrain from resuming its summer seasonal service to Dallas/Ft. Worth, and instead will focus its attention on larger SkyTeam markets in the U.S., namely adding a link from Amsterdam to Salt Lake City, a hub for joint venture partner Delta Air Lines.
KLM had previously intended to resume its 5-weekly DFW service on May 2, 2016, but inventory was removed from GDS schedules on December 15. Several hours earlier, KLM had opened reservations for its new Salt Lake City – Amsterdam route, also slated to commence on May 5, but presumably this will operate in lieu of the DFW route resumption. The Dutch carrier has been serving North Texas since March 2008, although the route was converted from year-round to seasonal in Winter 2011 due to low demand in the off-season.
The decision to drop DFW and add Salt Lake reflects a broader strategic move between KLM, its transatlantic JV partner Delta and new code share partner, Jet Airways of India, to build market share in tactical hubs while also leveraging scale where necessary.
KLM bows out of North Texas given the surge in Middle Eastern carrier presence at DFW
KLM’s withdrawal from Dallas/Ft. Worth is a blow to an airport that has enjoyed being in “growth mode” over the past 5 years by attracting a variety of new international airline entrants. Since 2011, DFW has lured service from Qantas, Emirates, Qatar Airways, Etihad, Japan Airlines and will soon add airberlin to its roster of foreign carriers in 2016. Predominant hub carrier American Airlines has also expanded massively to Asia from DFW and to secondary destinations in Central and South America.
The challenge for KLM at DFW has been multi-fold: for one, the local market between DFW and Amsterdam is not large with roughly 25 passengers-per-day, each way (PDEW). Much of the inbound traffic into Amsterdam is dependent on the strength of the Oil and Gas (O&G) market, which is currently in a slump. As such, the DFW – Amsterdam route is built largely on connecting traffic over Amsterdam to Africa, India and the Middle East.
It was not coincidental that KLM suspended seasonal operations on its DFW route the same period during which Emirates entered Dallas/Ft. Worth – in February 2012. The route continued to operate during summers 2012, 2013, 2014 and 2015 – although the more recent summer period was the first year during which KLM had to fare against all three Gulf Coast carriers. During the prior periods, Qatar had commenced DFW service in mid-July and Etihad arrived in December 2014.
Prior to the entrance of Emirates Airline in February 2012, KLM had been one of three European carriers – along with Lufthansa and British Airways – offering nonstop service to the European continent. The bread-and-butter traffic for these routes were sixth freedom passengers traveling to onward destinations in Africa, India and the Middle East. However, today, all three major Gulf carriers offer year-round service from DFW to their respective hubs in Dubai, Abu Dhabi and Doha, and subsequently, the value of KLM through Amsterdam is muted.
By and large, the Dallas/Ft. Worth to India market is most conveniently served via the Gulf Coast carriers given the massive presence of all three in primary, secondary and tertiary markets in the subcontinent. Conversely, KLM only serves one destination in India – New Delhi – and JV partner Delta discontinued its Amsterdam – Mumbai flight in March 2015. Sister carrier Air France serves Delhi, Mumbai and Bangalore from its Paris Charles de Gaulle hub. But beyond these markets, the breadth of SkyTeam in India is fairly limited.
Per the graphic above, courtesy of CAPA, the market share breakdown for international air traffic into India, measured on seats, denotes that Emirates, Etihad and Qatar command the 3rd, 4th and 5th largest presences in India.
The impact of KLM’s withdrawal from DFW will be minimized somewhat by the arrival of airberlin in May 2016, who will offer 4 weekly round-trips to Dusseldorf on a year-round basis. DFW airport has prioritized Europe as a focus area for growth over the next several years. The advantage that airberlin offers as a Oneworld member is to allow DFW feed traffic beyond Dusseldorf to continental Europe. Although KLM may play a similar role via its Amsterdam hub, the presence of SkyTeam Alliance in DFW is not strong enough.
DFW’s loss is Salt Lake City’s gain as KLM opts to deploy capacity in larger US SkyTeam hubs without Gulf Carrier presence
The Dutch carrier announced on Monday that it will be commencing year-round service to Salt Lake City on May 5, 2016, the same week that its DFW route was slated to resume. The Amsterdam – Salt Lake City flight will operate thrice weekly (initially starting at 2 frequencies per week before increasing to 3 on July 4, 2016). KLM has indicated that it will operate alongside joint venture partner Delta’s daily service to Amsterdam, which is slated to resume on March 21, 2016. Delta launched Salt Lake City – Amsterdam summer 2015 on a seasonal basis. It is unclear whether Delta will maintain a year-round presence in the SLC – Amsterdam market, but it is assumed that KLM will continue to operate its Salt Lake City route through the winter period.
Delta has been gradually adding transatlantic service from its Salt Lake City hub since 2008, when it first launched year-round service to Paris on a 767-300ER. Delta added Amsterdam in summer 2015 and will also commence seasonal service to London Heathrow in summer 2016, flown in conjunction with its joint venture agreement with Virgin Atlantic. By July 2016, Salt Lake will boast 4 peak-day flights to three European markets, or 24 weekly round trips, to London, Paris and Amsterdam.
It certainly helps that Salt Lake City is essentially Delta and SkyTeam’s gateway to the Mountain west region of the United States, and the airport provides ample connections to smaller markets in the Western region of the U.S., Canada, Mexico and Hawaii without significant backtracking through other SkyTeam bastions in Seattle and Los Angeles. Salt Lake is a popular origin and destination market based on tourism and leisure alone, and also boasts a growing financial services sector. Delta supposedly has committed to increase seat capacity at Salt Lake City by 8% over the next five years, according to CAPA.
Finally, it is also advantageous that Salt Lake City is not a capacity-restricted airport with regards to airspace, facilities or runways, an issue that has been challenging for Delta and SkyTeam partners at its other international West Coast gateways in Seattle and Los Angeles. Even at DFW, the facilities at the international Terminal D are becoming increasingly constrained during peak arrival and departure banks, which has prompted hub carrier American Airlines to move some wide-body and international flights to depart from domestic terminals and gates.
The decision to pull the plug on DFW and launch SLC coincide with the new Jet Airways partnership
The shifts in Delta and KLM’s transatlantic network reflect a broader strategic revision around their Amsterdam hub, which will be the largest beneficiary of a new partnership with India’s Jet Airways in March 2016. KLM and Delta announced the new partnership with Jet on December 14, revealing that Jet Airways will move its Brussels scissor hub operations to Amsterdam and carry KLM and Delta codes on routes to Delhi and Mumbai. Delta and KLM will also carry Jet Airways’ code on 11 transatlantic routes offered by both carriers.
Currently, Jet Airways operates a scissor hub from Brussels to four intercontinental destinations: Delhi and Mumbai in India, and Newark and Toronto in North America. Service to Newark will be dropped while the remaining three routes will be migrated to Amsterdam. Delta and KLM will place their codes on Jet Airways’ domestic routes from New Delhi and Mumbai to Hyderabad, Chennai, Ahmedabad, Kochi, Goa, Kolkata in India, as well as Dhaka, Bangladesh, Kathmandu, Nepal and Colombo, Sri Lanka.
Simultaneously, Jet Airways will place its code on Delta and KLM flights operated from Amsterdam to New York JFK, Newark, Chicago, Washington, D.C., Houston, San Francisco, Los Angeles, Vancouver, Calgary, Montreal and Edmonton.
Notably, Delta and KLM flights from Amsterdam to Delta’s primary SkyTeam hubs – including Atlanta, Detroit, Minneapolis/St. Paul, Seattle and Salt Lake City – have been excluded from the partnership agreement in the interim period. It is possible that the codeshare may be extended in the future to include these routes. However, the logic behind this exclusion could be that the Gulf Coast carriers are notably absent from the aforementioned cities, with the exception of Atlanta (Qatar Airways) and Seattle (Emirates). From a loyalty and revenue perspective, it therefore isn’t as critical to offer reciprocal benefits on these routes since the threat of competition against the Gulf carriers is minimal on these routes.
Of course, there still exists an Elephant in the room: Jet Airways’ current partnership with Etihad Airways. Delta and KLM have adopted a resistant stance against the growth of the Middle Eastern carriers in the U.S. and Europe, claiming that such airlines are subsidized by their respective governments to operate loss-making routes and steal market share from privately owned carriers. The viability (or lack thereof) of Delta and Air France – KLM’s services to India alone has been a case study of accusations that SkyTeam has alleged against the Gulf carriers for unfair competitive practices.
Yet, Jet Airways has boldly been partnered with the alleged “enemy” for several years since Etihad Airways acquired a 24% stake in Jet in 2013, valued at $379M USD. The two carriers received regulatory approval from both the UAE and India to substantially increase in seat capabity between the two countries, alongside change of aircraft gauge for Indian and Emirati carriers flying between Abu Dhabi and India. Even while Indian carriers were placed under Category 2 restrictions from flying to the U.S. in 2014, Jet was able to circumvent this by wet-leasing its 777-300ERs to be flown from Abu Dhabi to San Francisco and New York, operated by Etihad crews.
Purportedly, Jet’s decision to close its Brussels hub has been in the works for several years, but earlier indications appeared to suggest that the carrier would consolidate its major long-haul operations out of Abu Dhabi and withdraw hub operations out of Europe altogether. As such, the decision to move to Amsterdam is a major game-changer in terms of strategy, but also appears to suggest that Jet sees major value in coordinating with KLM and Delta to boost its off-line presence in the U.S. and Canada. Etihad is incapable of expanding in Canadian cities due to the bilateral restrictions in place between the U.A.E. and Canada, and Etihad has slowed its expansion into the U.S. in recent years compared to rivals Emirates and Qatar.
Furthermore, the local market between Amsterdam and the North America is far larger than from Abu Dhabi. Based on seat capacity alone, data from CAPA and OAG show that weekly seat offerings between Abu Dhabi and North America will stand at roughly 16,000 seats during Summer 2016, whereas the number is 80,000 between Amsterdam and North America during the same period. Of those 80,000 seats, roughly 70,000, or 87.5%, are operated by Delta and KLM. Even though not all of those seats will be included in the Jet Airways partnership, the impact will be substantially larger for Jet to tie up with Delta and KLM rather than go at it alone with Etihad.
Jet Airways walks away as the biggest winner: can the relationships stay balanced?
The game-changing strategy for Delta and KLM to partner with a friend of the enemy is merely the latest step in a global saga over the purported “threat” of the Middle Eastern carriers. Ultimately, however, Delta and KLM gain more access to India via Amsterdam, although the value of offering passengers itineraries that involve double connections over Amsterdam and Delhi or Mumbai is somewhat questionable. Meanwhile, Jet Airways increases its off-line presence in the United States and Canada via Delta and KLM, whose presence in both countries is not only stronger, but more welcomed. Finally, KLM and Delta will focus growth in markets unaffected (or yet to be affected) by the Gulf carriers to protect transit traffic over SkyTeam hubs in Europe, hence moving the KLM service from DFW to SLC.
Jet Airways will walk away as the largest benefactor from these movements, but will also need to maintain a careful balance of its relationships between two foes. Put simply, SkyTeam carriers do not like the Gulf airlines, period. Indian carriers, moreover, tend to be more fluid when it comes to evolving commercial strategy, and this is not generally perceived as a positive in the global aviation realm. The fact that Jet has managed to pull two opponent airline groups into each arm is a major feat: insuring that it walks abreast without stumbling with one, the other or both will be another task altogether.