Air France KLM take a cautious approach

As demand falls and IATAThe International Air Transport Association: IATA represents and serves the airline industry, with a membership made up of around 230 airlines. The association seeks to raise awareness of how aviation benefits the economy, fight for airline's interests and ensure industry regulations are sensible. IATA helps its members directly by offering advice on reducing costs while improving efficiency and on improving safety standards. It also provides professional support in the form of publications, training and consulting. issues dire warnings about the effect oil prices are having on aviation, SkyTeam members have launched a series of new transatlantic routes. In the current climate will they succeed?

Christine Ourmieres, the UK general manager for Air France KLMKoninklijke Luchtvaart Maatschappij (Royal Aviation Company) the flag carrier of the Netherlands and a good example of how acronyms can aid simple discourse., is cautiously optimistic.It is one of the ironies of life that as the long sought after permission for any European or US carrier to run transatlantic services out of Heathrow is finally granted, the industry is facing what could be its biggest ever challenge.Demand to fly is still rising though not as fast as last year but the real crunch is the price of oil. It hit $135 per barrel recently with aviation fuel up to $170 per barrel. If it stays around that level, IATA predicts the industry could lose $6.1bn this year.To cope with this increasing costs, airlines are imposing ever growing fuel surcharges. BA has just announced its 11th increase. If oil prices go on rising and surcharges continue to grow, there will come a point when demand will driven down by high fares. As Mr Bisignani, president and ceo of IATA, says, it's a "grim situation."It is all in stark contrast to the optimism last year that greeted the signing of the first stage of the Open Skies agreement between the US and the EU. The main point of this deal was that Heathrow would be opened up to any European or US carrier for transatlantic services. The agreement unleashed a scramble for slots with deals being done and millions of dollars changing hands. The SkyTeam alliance kept this business in-house with Delta Air Lines acquiring slots from Air France and Northwest Airlines leasing one from KLM. It led to the launch of new services, including an Air France service from Heathrow to Los Angeles and the latest which started this week, Northwest's service from Heathrow to Seattle.With the LA service reportedly going well, Christine Ourmieres, the general manager for Air France KLM in the UK, is equally sure the new Seattle service will be a success. "It is a route that is not the same as other route in that previously there was no competition to the BA service," she said. "I believe there is potential there and that there is room for a competitor on this route. Seattle is also a major hub for flights onto the Pacific region and Alaska," she said. The Washington state city is also home to a few of the world's major global companies like Microsoft, Boeing, Amazon and Starbucks which between them will have thousands of executives flying each week. "We are already working on deals with companies. But these negotiations are never easy and it could be some time before any are implemented. The corporates have given this route a very positive welcome and any customer is going to welcome competition on this route where there was none before."Already there is talk of increasing the frequency of the currently daily service and acquiring more slots. But Ms Ourmieres plays this down. “We shall have to wait and see. You will need a good business case to increase the frequency. More slots will depend on the situation. Again you will need a good case but it will also depend on the state of the industry. A lot of things are moving just now."It is here that Ms Ourmieres becomes more cautious. "I think we will see many, many changes in the industry in the next year because of the rise in fuel prices."She cited the example of American Airlines which recently announced swingeing cuts in capacity and possible redundancies and warned that there could be more airlines following this path. "It is a situation where you have to be flexible and take any opportunities that are there. It is also a question of what decision you take in the airline. "Some colleagues in the industry are facing different situations and they could be suffering more than others," she said. "You have to be very cautious because the environment can change from one day to another."She said in a situation which could change quickly, it was important to stay focused on the passenger and be sure you saw how he or she reacted to the changing situation. "We know that events will happened in the industry but we don't know what or how. I think we will see the consequences quite early, not in the summer but in the autumn and winter," Ms Ourmieres said.