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Air France and KLM, a successful alliance

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  1. Introduction
  2. External analysis
    1. Definition of the industry
    2. Analysis of economic forces affecting the industry (PESEL)
    3. Industry Analysis: Porter's Five Forces
    4. Industry segmentation
  3. Internal Analysis
    1. Defining the Enterprise
    2. Resource Analysis
    3. Skills Analysis
    4. Balanced ScoreCard analysis
    5. Analysis of Corporate Governance
  4. Final analysis
  5. Conclusion

Air France and KLM, the French and Dutch airlines agreed to a strategic alliance in 2003; this took the form of a merger by means of creating a holding company on May 5, 2004. Air France-KLM is now a European airline holding both the separate companies, Air France and KLM.

In order to make this alliance possible, Air France has been privatized. We can wonder how two companies which were traditionally governed by the public sector could participate in a successful merger. Initially, we will analyze the external environment in which the merger was completed; then we will analyze the strengths and weaknesses of the merger and explain the fusion model chosen. All this will enable us to develop strategic recommendations for the continued success of the merger.

The airline is currently undergoing a deep crisis, which experts regard as the worst since the Second World War. The current crisis stems from the conjunction of four international events: slowing economic growth emerged in early 2001 in the United States, affecting Europe at the end of 2001; significant effects of the attacks of September 11th, 2001 on changes in demand, particularly in the United States; the recent war in Iraq; the epidemic of Severe Acute Respiratory Syndrome (SARS) that hit Asia in particular in 2003.

The airline industry has experienced, globally, three years of crisis at the end of the period 2001 -2004, integrating the losses estimated by IATA (International Air Transport Association), the year 2004, losses Cumulative global airline profits exceed cumulative by Industry 1978 to 2000. The airline industry will be destroyed in three years all the value created during the two decades that followed deregulation.

In Europe, the sector has also been weakened by these different crises. Companies have disappeared or reduced their activities, encouraging a concentration of European industry. The low-cost airlines like easyJet and Ryanair have confirmed their location.

Since 2001, the four major European airlines (Air France, British Airways, KLM and Lufthansa) have strengthened their position, particularly on international winning 4.4 points of market share (source: AEA). All European companies reached 1.8 billion euros in net income in 2002 (source: Air France).

Among them, Air France has demonstrated the validity of its strategy by becoming, in terms of traffic, the first European airline with a market share of 17.6% and by presenting, for the sixth consecutive year, results of 120 million euros on March 31, 2003.

Nevertheless, a strong recovery in traffic is observed from late summer 2004. One can wonder about the nature of this rebound: Is this a phenomenon of "catching up"-travelers and travel companies have delayed awaiting better days, or restart economic growth?

Tags: Air France, KLM, Air France ? KLM merger, reasons for Air France ? KLM merger

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