Air France Case

Introduction - The Merger

Due to the famous accident in the year 2000, which resulted in several Concorde jets getting damaged, Air France faced a reduction in the demand for its services. At the same time, the company experienced a drastic rise in fuel costs and maintenance costs. Thus, the merger with KLM was primarily a repositioning strategy that Air France was using to get itself back into the competitive airline industry. This big transaction took place on the 30th of September 2003. The transaction involved the merging of Air France and Netherlands-based KLM (Royal Dutch Airlines). The new company was subsequently known as Air France-KLM. The merger became reality on May 5, 2004 when former Air France shareholders owned 81% of the new firm (44% owned by the French government, 37% by private shareholders), while former KLM shareholders held the remaining small portion of the shares. The main reason behind this merger was that Air France wanted to rebuild its reputation and at the same time, wanted to hold a major stake in the European market in terms of control, by expanding and merging with a big and successful firm like KLM. The two companies were very satisfied with the deal as Air France was able to gain its reputation back once it extended its worldwide network as a member of the SkyTeam alliance. On the other hand, KLM's main aim of making greater profits along with strengthening its name over other competitors was also being achieved. Thus, both companies benefited from this merger, as they improved their capabilities and started to compete based on the idea of providing the best quality. However, this particular merger is interesting because, Air France and KLM operate independently from their hubs in Paris and Amsterdam, but they still have a range of combined operations.

Description- The Bidder

Air France is known for being the sixth largest cargo airline in the world that is based on a system of tonnage. This airline company is known for having a rich history on how it became the most important airline company in the country of France and on how it operates by flying to most countries in the world. This dynamic airline was founded on the 30th of August in 1933. Air France was the result of a merger amongst several companies such as Générale Aéropostale, Air Orient, Société Générale de Transport Aérien, Air Union and CIDNA. However, during and after the World War 2 Air France was slowly being taken over by the government, who at a particular point in time owned around 70 percent of the Air France Company. However, it is really in the year 2002 when Air France became a well-established company as it became a part of the well-known Skyteam Alliance. The Skyteam Alliance allowed it to be a part of a cargo joint venture with several big players such as Alitalia, Delta Air Logistics, Korean Air Cargo, Aeroméxico Cargo and CSA Czech Airlines Cargo.

Air France continues to be a leader in the airline industry.

Description- The Target

KLM (Royal Dutch Airline) is known for being one of the largest airlines in the world in terms of the number of routes it serves to. Also, it is known for being one of the oldest airline companies that has offered its customers with impeccable service in all the years that it has been operating. The company was formed on October 7th in the year 1919 by a group of investors and bankers led by Albert Plesman. In September of the year 1920 KLM had expanded its offerings by serving Copenhagen in Denmark and Hamburg in Germany. In the first 30 years of the airline's operations, the company's main aim was to maintain the reputation of being a high quality service provider. The company did this by enhancing its fleet year in and year out by adding more efficient aircrafts to it. It also constantly strived to grow globally. One way the company did this was by signing a contract with the US Douglas company in order to get faster and improved jets which would give it the opportunity to extend its offerings to other cities in France, Austria, Great Britain and so on. KLM has been rock steady in maintaining its position as one of the leading airline company's in the world.

SWOT Analysis

KLM-Royal Dutch Airline

Strengths

- KLM created- Flying Dutchman. Thus, making it the first airline in Europe to create a frequent flyer loyalty program

- KLM was involved in serving the society as well - KLM created a program called Air Cares which involved supporting worthy causes

- Was the world's 1ST airline to have the ISO 14001 certification for its Environmental Management System.

- KLM Airlines was linked through alliances with many other airlines, including the Sky Team alliance. These alliances allow them to be able to offer flight routes to almost 350 destinations in 80 countries

- After barriers were removed in 1996, KLM had access to all major European airports because it is a licensed "European Community Air Carrier" with corresponding Freedoms of the Air in Europe

Weaknesses

- The Dutch airline was extremely rigid about all its transactions within and outside the firm, making it a company that was difficult to negotiate with

- Constant losses due to fall in industry demand after 9/11 and the SARS scare

- The fuel factor- the airline had to impose the high costs of fuel on the customers by increasing surcharges on the ticket prices, this caused customers to opt to travel by other airlines

Opportunities

- Home to the important hub: Amsterdam Airport Schiphol owning important number of slots

- Enter into alliances such as SkyTeam or StarAlliance

Threats

- Airlines with low frill charges- such as those started up in parts of Asia (India, China, Dubai)

- Emergence of low cost carrier airlines such as RyanAir and EasyJet

Strengths

Strong global ranking: Ranked 3rd in international passenger transport

Diverse market: Flies to more than 200 destinations in 85 countries

and offers approximately 1,700 daily flights

Home to the powerful