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Air France-KLM: Do the strategic choices of development of Air France-KLM enable the group to ensure a sustainable and competitive place to face the new difficulties of the market?

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  1. Introduction
  2. Presentation of the company
    1. Mission, vision and ?business model?
    2. History of the company
    3. Key figures
    4. Governance
  3. Today's situation of the group
    1. Internal analysis
    2. External analysis
    3. Synthesis of the analysis
  4. The group's strategy of evolution
    1. Sources of evolution
    2. Strategy and management of the group
    3. The typology of evolution
  5. Outlook and recommendations
  6. Conclusion

Organizational development strategies of a company are carried around several axes. Indeed, it is needed to take into account the external and internal sources of change, the steps through which it passes, the context, the forces involved etc. to finally determine the kind of strategic evolution needed.

The context and environment of Air France KLM is unfavorable for the group's development due to the rise of the price of fuel, the slump that has severed during the last years and the emergence of powerful airlines like in the Middle East or in Asia. The group which is the second leader behind the German airline Lufthansa in the European aviation market has known during the last financial years losses in its income and is largely indebted.

Even though the group has distinctive competencies such has a large network or brand notoriety, the group has to evolve in order to cope with today's market. The group has already started to operate some changes in its strategy when for instance both Dutch and French companies merged in 2004 which created synergies but also cultural clashes, or the different programs of cost cutting.

[...] In 2010, Air France-KLM has known an incredible loss of 1,280 million euros including a loss of 918 million of euros for the passenger unit, a loss of 436 million euros for the Cargo business, a loss of 12 million euros of the catering and leisure business. Only the maintenance business with an income of 81 million euros was positive. These incredible losses can be explained with three reasons: - 648 million euros because of operating losses due to the crisis with a turnover which has decreased by 3 billion euros - 637 million euros due to the fuel hedges which did not work as it used to because of the decrease in the price of the oil - The increase of competition in the world has had an impact on the group financial health However as we can noticed, in 2011, the group has considerately increased its operating income even though the budget allocated for the fuel has increased by 21% billion euros), the euro currency is not as strong as it used to be with the dollar (loss of 300 million of euros) and the fuel hedges (loss of 164 million of euros). [...]

[...] Thus, a strategic group is often defined as a set of firms that are similar to each other and different from firms outside the group with respect to one or more key dimensions of strategy[19]. There are three different strategic groups namely: - The traditional airlines (Air France - KLM, Lufthansa etc). - The middle cost airlines (EasyJet, Airberlin etc . ) - Low-cost airlines (Ryanair, W!Zz etc . ) Synthesis of this diagnostic After having analyzing all the influences of this market, we can say that there is a ?Banalisation of the offer? because customer's nature has changed: Economic classes are growing more and more compared to Business and First classes because customers do not take into consideration the additional services such as meals or comfort. [...]

[...] - The media, as the majority of the shareholders of Air France-KLM are floating; any negative communication is highly detrimental to the group development. b. The importance of change Since the merger of Air France and KLM, the chosen strategy is the development. Air France-KLM common actions in order to remain a world leader in air transport. This company wants to share his knowledge to develop a competitive advantage in the market. In the heart of their business, Air-France-KLM has consolidated a dual hub within SkyTeam network and provides their customers with more competitive services. [...]

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