AIR FRANCE – KLM: RULING THE SKIES
Discuss the nature and strategic relevance of the Air France-KLM merger.
Should Air France-KLM create new partnerships or acquisitions?

On 5 May 2004, despite great opposition of industry experts the French airline Société Air France (Air France) and the Dutch Koninklijke Luchtvaart Maatschappij N.V. (KLM) created the world’s largest airline group by turnover named Air France-KLM. The merger represented the first consolidation of two national flag carriers in the aviation history, where alliances were a traditional way of co-operating. This essay will concentrate on discussing the nature and strategic relevance of Air France-KLM merger by analysing the relevant relational actors in their industry …show more content…

Even though the airlines were given a go-ahead some restrictions were also applied – e.g. the pair had to surrender 47 take-off and landing slots at Amsterdam and Paris.
Johnson, Scholes and Whittington (2008: 366) recognize ‘Suitability is concerned with whether a strategy addresses the key issues that have been identified in understanding the strategic position of the organisation. It is therefore concerned with the overall rationale of a strategy’. They identify how by looking at core competencies we should identify industry threshold standards and bases of competitive advantage; and how the suitable strategies must eliminate the weaknesses in these and exploit strengths.
When looking at the airline industry then some of the key characteristics are high fixed costs such as fuel, aircraft leasing and labour costs. The merger of Air France – KLM provided an opportunity to tackle these challenges through economies of scale and in particular through optimizing occupancy rates through synergy in IT systems as well as the optimization of unprofitable routes. Another important advantage that was gained through the merger was dilution of equity of Air France which transformed it from a state owned company to publicly owned company. This meant less direct political influence and enabled the organisation for the first time to truly focus solely on the