Air France – KLM: Changing the Rules of the Game
Air France-KLM Case (Som 2009) provides the background for airlines industry and factors impacting companies’ positions, details about the history of air-carrier alliances and their challenges. The main focus of the Case is on two companies: Air France and KLM and their decision to merge despite predictions of failure. The period covered by the case ends in 2006. As most aviation companies worldwide were struggling and losing profits, Air France-KLM was confidently gaining market shares, improving growth and financial performance. The purpose of this report is to identify and analyze the key challenges of the aviation industry and Air France-KLM merger; evaluate options and offer recommendation on how to achieve stronger position and withstand economical pitfalls (oil prices, political pressure, and competitor’s rivalry). Information presented in the Case will be analyzed using: PESTEL Analysis (Yüksel 2012), Porter’s Five Forces Analysis (Porter 2008), organizational and financial performance, SWOT analysis (Bernroider 2002). Options and recommendations will be provided based on Hubbard’s (1996) recommendations.
Politic Sub-factors: Governments of most countries have a strong influence over air-carrier business. For example, Civil Aeronautics Board regulated airlines prices until 1977. Most of the companies were government owned or subsidized without regard to the profitability of the carrier. Countries’ air space was restricted for use by the national air-carriers and access by foreign carriers was restricted. Changes came with the trend of privatization of national carriers. Ratification of the Deregulation Act in 1978 by the US Congress had changed the airline industry market landscape. According to Spinetta (2006), the European market became a Single Market removing restriction to all carriers. Economic factors:...
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