Pierre Henri Gourgeon, the current CEO of Air France, explains the success of the functional group on three main axes: a balanced and diversified operation, in Hub, an international alliance. These axes are the basis of the strategy of Air France KLM.
In a sluggish economy, Air France- KLM attempts to play on a balanced network. Between 2004 and 2007, while most other major global companies recorded sharp declines in profitability, network connections of AF-KLM flights to Africa and the Caribbean have enabled them to balance their profits (through diversification of their destinations), and enabling them to reduce the geopolitical risks (better allocation of risks).
Following the merger with KLM in 2004, the networks of both companies have been harmonized to offer 255 destinations today. In addition, to avoid the risk of cannibalization going against the desired synergies from the merger, it was decided to remove some lines and specialize with the two other main hubs, Roissy (Paris) for Air France and Schiphol (Amsterdam) for KLM. These account for 54% of daily flights in Europe.
The aviation market is divided into several alliances, these alliances are groups of airlines. There are three main ones which are Star Alliance, Sky Team and One World.
Sky Team alliance which AirFrance-KLM owns, represents 21% of the world share and includes nine companies. Created in 2000 at the impetus of Air France, the alliance knows a good development.
The purpose of the alliance is to offer the customer a set of destinations continuously with a maximum of opportunity. Thus, the alliance provides a better exposure and a higher rate of seat occupancy.
The alliance is of major interest to small businesses competing with each other. The alliance members agree to provide, through a platform of common control the flights of other alliance partners. It is therefore essential that the companies are not direct competitors.
The development marks the successful Sky Team Air France, which is responsible for the formation of this alliance. The group gained an international reputation in the airline industry.
The strategy of specialization may be adopted either by a cost leadership or a differentiation. Given the importance of group size it is clear that operating costs are better distributed.
The search for the critical size allows the group to benefit from synergies and compared to many competitiors to more limited resources. It is clear that Air France can do a better distribution of expenditures.
Tags: Air France- KLM, Sky Team alliance, strategy
[...] Air France is divided into 3 main areas: First Air France is based in that segment of the market that provides high-end, long-haul flights to other countries. Then the regional hub with its three principal subsidiaries is City Jet, Brit Air and Regional, these are based in Nantes. They link major French and European cities. The low-cost side of Air France is represented by Transavia France. This is a new French airline whose trademark is transavia.com. The subsidiary aims to offer low-cost flights to Mediterranean Europe. [...]
[...] It is on these aspects that the strategy of the Air France-KLM stands. • Osmosis networks: In a sluggish economy, Air France-KLM was able to stay ahead of the race by playing a balanced network. Between 2004 and 2007, while most other major global companies recorded sharp declines in profitability, the network connections of AF-KLM to Africa and the Caribbean enabled them to balance their profits ( by diversifying their destinations) and allowed them to cut geopolitical risks (better risk distribution). [...]
[...] However in terms of tariffs, it seems clear that Air France does not practice the most competitive prices. Thus, Air France opts for a more differentiated positioning, it has taken up a high-end position with extensive coverage of destinations (more than 255 with KLM). Differentiation can be summed up by offering customers quality service with the highest number of possibilities (in terms of destinations, connections etc.) Conclusion: long-term strategy The specialization of the group is clear - 80% of turnover is made by transporting passengers. [...]
[...] This alliance was created in 2000 on an impulse of Air France and it has developed well. The purpose of any alliance is to offer the customer with a constant set of destinations that provide them with a wide choice. Thus, alliances provide better exposure and a higher rate of seat occupancy. The alliance has a major advantage for companies who competing with each bit. Indeed, the members of an alliance agree to provide, through a platform of common control, the flights of other alliance partners. [...]
[...] So, it is evident that the first fiscal loss for over 10 years will influence the group's strategy. Thus, new projects or even diversifying into the train mode of transport will, perhaps, avoid additional costs. Nevertheless, the Air France-KLM will continue to remain one of the major members of the airline market especially in Europe. The concentration of the European market in the medium term will strengthen the position of the main leaders that are Air France, Lufthansa and British Airways. [...]
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