Air France Case

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  • Topic: Air France, Airline, Flag carrier
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  • Published : May 7, 2013
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1. What is your assessment of today’s airline industry? Answer 2. Given your results, what are the main factors enhancing globalization in that industry and why? Answer

Porter’s 5 Force Analysis – Airline Industry
Bargaining power of Suppliers Bargaining power of Buyers Potential Entrants Threat of substitute services Competitive rivalry among airlines Easy access to finance has made it very easy for potential entrants to entre the airline market. In addition, airline industry still enjoys high class status in society, therefore entrance of big corporate houses in this domain is very much probable. Airline industry is mostly dominated by two suppliers Boeing and Airbus. Therefore, airline industry need to rely on these two suppliers for necessary supply. At the same time, on a positive note, there isn’t cutthroat competition among suppliers. The bargaining power of the customers in airline industry is not very high since willingness to purchase the airline ticket does not vary much with reasonably increased priced ticket. Therefore buyer does not put pressure on the airline or the prices of tickets. Airline industry is very competitive industry. This competitiveness in combination with rising fuel costs substantially affects profit margin for the airlines.

Threat of substitution by other transportation services (such as Train, Road services etc.) sector is very high in domestic region than international. In addition, consideration of time, cost, availability of medium also plays a very important role and creates threat to the domestic carriers.

PEST analysis – Airline Industry
• International strategic  alliances  • Bigger markets, reach to  larger  population • Demographics, population  growth rate • Higher purchasing power of  consumer • Higher living standard • Increased aviation based   consumers  and their flying  frequencies

Economic

Political

• Improving internal  political positions  • Steps towards making  aviation  sector  competitive and better • Steps towards creating  easy access to high  class aviation facilities

• Visibility on international  platform

Technological

• Government policies  to  raise employment level • Initiation of privatization • Marketing opening for  international investment 

Social

• Steps towards creating  good International  political relationships

• New inventions and  development in technology • Reduction in Energy costs

What were the changing roles of the state during the evolution of the  worldwide aviation industry?

1909

1945

1960s

1970s

1980s

Founder  Shareholder

Air Boundary Remover Strategy Setter Nation Pride  Guarder

Funding Provider

Technical  Innovation  Supporter

Conservative  Protector Policy and Regulation Maker

Conclusion: State has played a dominant role in establishing, boosting and  controlling the evolution of the worldwide aviation industry

Question 5 Before searching a buyer for Alitalia, the Italian government engaged itself  to  neutrality in the Alitalia case and not to hinder or perturb any negotiation.  Please comment on this promise.

privatization or not
keep the government operation Political •Need more state aid or loan ‐Couldn’t additional offers ‐Economic stagnation of the nation •No profit Social •Strong Labor Union •Still domestic •Keep the pride of national aviation •Labor flexibility •Cross‐border  market expansion •(Risk of National Flag Carrier loss) Privatization •No Need to aid  •Could sell stocks •Become a taxpayer

Conclusion Given the success of the Air‐France and KLM case, the government considered that to obey  the market principle would bring more benefit than to keep the government operation.

Why can it somehow be considered as paradox from today’s point of view? Traditional State Roles Major Shareholder Today’s Point of Views Diminish state shares to make  the airline companies more  commercialized Airline company should be ...
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