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CASE STUDY:
Air France – KLM: Changing the Rules of the Game
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Introduction
Air France-KLM Case (Som 2009) provides the background for airlines industry and factors impacting companies’ positions, details about the history of air-carrier alliances and their challenges. The main focus of the Case is on two companies: Air France and KLM and their decision to merge despite predictions of failure. The period covered by the case ends in 2006. As most aviation companies worldwide were struggling and losing profits, Air France-KLM was confidently gaining market shares, improving growth and financial performance.
The purpose of this report is to identify and analyze the key challenges of the aviation industry and Air
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BUSM3922 Case Study:
Air France – KLM: Changing the Rules of the Game
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Porter’s Five Forces Analysis
Buyer Power: Frequent flyers programs decrease buyer’s power. Ups and downs of the economy influence household income available for leisure travel. Low-cost companies regulate the cost.
Supplier Power: Boeing and Airbus are the two main companies that supply global aviation companies. The fleet is usually renewed once a decade and every aircraft is very expensive.
In 2006 Air France-KLM had 565 aircrafts in operation with 225 destinations.
New Entrants: The barrier for new entrants is high due to high competition, government regulations, high fixed and start-up costs; complicated exit strategy due to unionized work force. Substitutes: A number of large and discounted airlines are available for passengers to choose. Other transport options are available; however, airlines provide the fastest way of long and medium distance travel. They are usually substituted by the alternatives for short distances. Cargo services, warehouses, training and maintenance programs are also core businesses for airlines in addition to carrying passengers.
Industry Rivalry: in 2007, 249 airlines were registered globally, with 100 airlines spread between 30 European countries. This creates a high rivalry between the airlines.
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