Air France-KLM Merger and Firm Rivalry

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Table of Contents

External environment and industry environment
Critical success factors
Company analysis
SWOT analysis
List of References

External environment and industry environment

Air France and KLM before their merger were two company players whose corporate identity and culture were strong. This gave them an edge in comparison with the other airlines. In addition, their merger enhanced their industry image, attracting more clients because of the initial successful services offered by individual firms. In addition, rivalry is very low in the airline industry.

This is because of the tight entry requirements postulated in the statute. Bargaining by customers is very low. The people who use these airlines are people of a high status (Wnittington 2001).

This uniqueness decreases firm rivalry. With competitors like Star airline being successful after their merger, it was clear that cooperating firms could have the muscle to compete in this industry. However, increase of fuel costs is a huge external problem as it is eating on the revenue generated.

Critical success factors

Transparency

Management decisions and policies are industry driven. The management always deliberates on the market issues before coming up with a decision.

Reliability

The decisions made by the airline are client driving. The public trust the airline to provide quality customer service while it is in the course of business.

Rational

The rationality of decisions is based on the application of cost/benefit analysis. Policy makers weigh a designated decision on costs and benefits before their adoption. When the costs outweigh benefits, the decision is abandoned.

Accountability and good ethical behavior

The airline stands by the decision made and takes responsibility to that effect. The responsibility in this line entails the ability to own, report and explain happenings upon occurrence.

Company analysis

Air France-KLM came into existence after the merger of air France and KLM Royal Dutch airlines in September 2003. Increase in competition of Europe airlines and the harsh financial position of the KLM airline led to this merger.

The merger led to the dilution of government stake; this ultimately led to transfer of the airline to a public-owned from a state-owned company. The autonomy has solely avoided the government intrusion in daily operations of the airline. The company has a well-designed decision mechanism that addresses day-to-day running operations.

Air France-KLM consolidated their revenue through the merger. The company is able to optimize on management as it has a large network. Due to the acquired position of dominance in the industry and bargaining power during the merger, the purchase of new airlines is imminent.

The Company also has a variety of services. Passenger, freight and maintenance services are the three major areas of service. This has enhanced customer satisfaction and fostered confidence (Hough 2006). Air France- KLM has huge operating revenue that is attributable to this wide range of products.

SWOT analysis

Strengths

The transfer of ownership from a state- to a public-owned airline has improved the firms operations and effectiveness
Huge consolidated operation revenue is one of the strengths of this airline. This has helped the firm cover its expenses with ease.
The diversification of its services gives the airline a competitive advantage over the other airlines. The services provided by Air France-KLM are, passenger, freight and maintenance services.

Weaknesses

Different cultures are a corporate weakness of this merger. This has led to inconsistency in the decision making process.
The firm’s autonomy discourages state intervention in terms of funding to cover its operation costs that may be acute i.e. the ever-rising fuel costs

Opportunities

With the opening up of the world market and increase of tourism, the firm has an opportunity to grow its revenue base.

Threats

Rising operation costs. The acute prices of oil drives firms cost high, this decrease the airline profits in the end.
The increased airline mergers in the European zone have hiked competition in both the European and global markets.

List of References

Hough, J. R. 2006, ‘Business segment performance redux: a multilevel approach’, Strategic Management Journal, Vol. 27 No. 1, pp. 45-61.

Wnittington, R. 2001, What is strategy – and does it matter? 2^nd edn, Cengage Learning, London

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