Analysis of Air France and KLM Merger: Relational Perspectives

This report provides a detailed analysis of the Air France-KLM merger, examining the airline's history, timeline, and strategic objectives. It delves into the relational aspects of the merger, utilizing frameworks such as relational objectives, factors, and arrangements to understand the dynamics between the two airlines. The report also discusses the merger from discrete vs. embedded perspectives, analyzing events before and after the merger, including the formation of the Air France-KLM group, its strategic goals, and its subsequent performance in the airline industry. The analysis includes discussions on resource leveraging, activity integration, and aligning positions within the competitive landscape. The report concludes with an assessment of the merger's success and its impact on the airline industry, providing a comprehensive overview of the strategic and operational aspects of the Air France-KLM merger.

Strategy Assignment

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Timeline......................................................................................................................................1
Analyse the relationship between Air-France and KLM using the relational objectives............3
Using the relational factors framework.......................................................................................4
Using the relational arrangements framework............................................................................4
Discuss the case using the discrete vs embedded perspective....................................................5
Events after the case....................................................................................................................5
CONCLUSION ...............................................................................................................................6
REFRENCES ..................................................................................................................................7

INTRODUCTION
Airline industry is playing is important role in the development as well as upliftment of
the economy. In other words, it can be said that companies come under the airline industry
provide air transport services for travelling passengers and freight. Airlines utilize aircraft to
supply these services and may form partnerships or alliances with other airlines for code share
agreements. This assignment is based on, Air-France and KLM which is an airline organisation
as well after some time these both get merge and named as Air-France KLM. Relationship
between these two company is described below on the basis of relational objectives, factors,
arrangements and discrete vs embedded perspective.
MAIN BODY
Timeline
Timeline is an useful document for any kind of development which help in easy
understanding of history as well assisting viewers in identifying past and ongoing trends. This
tool is mainly useful for management tasks and through timeline it will be easy to create
differences on the basis of their past and present activity.
Air-France is the airline company founded in 1933 on 7th October. Slogan of the
respective company is “France is in the air” and its headquarter is in Roissypole, Charles de
Gaulle airport, Tremblay- en -France, France. They are covering 201 destination and approx.
84,602 employees are working with them. Timeline of the Air-France is mention below :-
1933 Company formed by the merger of Air Orient,
Air Union, Compagnie Generale Aeropostale,
Compangine Internationale de navigation
aerienne and Societe Generale des Transports
aeriens.
In 1936 They added French-built twin engine Potez 62
aircraft which have have two compartment
cabin that accommodate 14 to 16 passengers. It
remained in the service until the second world
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war as well one utilised by the free French Air
Force.
June 26 to 29 December 1945 France's air transport companies get
nationalised on 26th June. After this, on 29th
December, degree of government granted
management of the entire air transport to
respective administration.
In 1952 Before shifting its engineering and operations
to new Paris Only Airport South terminal, it
was covering network of about 250,000 km.
In 1983 On completing 50 years, its workforce
increased to more than 34,000, and its 100 jet
air crafts were expanded on about a network of
634,400 km covering 150 destinations in 73
countries. And also it started passenger flights
to South Korea .
KLM Royal Dutch Airlines (Koninklijke Luchtvaart Maatschappij) founded in 1919, is
the oldest airline company of Netherlands in the world with its original name. Headquarters of
KLM is in Amstelveen provides passenger and cargo services to about 145 destinations.
Timeline of KLM is as:
In 1919 Eight businessmen founded KLM as one of the
oldest commercial airline on 7 October 1919,
businessmen included Frits Fentener van
Vlissingen and Plesman who became first
administrator and director of KLM. Its first
flight was from Netherlands to London on 17
May 1920.
In 1945 Director of KLM started to re-build its way to
Batavia after the end of Second World War in
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August 1995. Its domestic and European
flights restarted in September 1995.
On 31 December 1953 Albert Plesman, founder and president of KLM
died
From 1959 to 1961 KLM introduced its four-engine turboprop in
September 1959 to its few European and
Middle Eastern routes, and in 1961 losses were
reported for the first time.
In 1993 KLM and Northwest Airlines came into
partnership, operated flights between United
States and Europe for the first time as joint
venture.
Analyse the relationship between Air-France and KLM using the relational objectives
There are two relational objectives:
Resource base (stock of assets)
 Leveraging resources – In this resources including these 2 sources they are as follows -
1. Learning - Air France and KLM airlines are exchange their knowledge with each other and
improve skills.
2. Lending – If Air France not using his own resources so it can be attracting to KLM airline.
Activity system (value chain)
 Integrating activities – For this activities including two activities like as -
1. Linking – In this activity described of relationship of both airlines products and services that
are exchanged by both airlines.
2. Lumping – for this activity both airlines come together and bring similar activities for growing
on economic scale.
Product offering (value proposition)
 Aligning positions
1. Leaning – In this Air Finance and KLM comes together for for improving their bargaining
positions as well as other industry actors.
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2. Lobbying – For the lobbying Air France cooperate with KLM for gain stronger position vis a
vis contextual actors.
Using the relational factors framework
 On the basis of legitimacy - Air France and KLM relations are highly compact by to
deemed to be legitimate. Both airlines agenda is chosen and interaction to accept the rules
of engagement by the taken that place which are already decided.
 On the basis of urgency - Air France and KLM relations are also shaped by the factors of
timing. Under the time pressure of achieving to result both airlines develop his different
relations according to his urgency.
 On the basis of frequency - Air France and KLM relations are also depended on the
frequency and their relation are involved in the expectations of future intersections and
frequency of intersection.
 On the basis of power - Power has the ability to influence to others, Air France and
KLM both are merge so they are coming on big level and they have many sources of
power such as resource dependency.
Using the relational arrangements framework
To arrange relation framework on the basis of Multilateral arrangements and bilateral
arrangements. They are divided in three parts and they are follow as -
Arrangements Non contractual Contractual Equity based
Multilateral In this arrangements
are between different
countries and that is
not necessary that is
illegal may be it will
be legal but some parts
are not that so both
airlines are not
satisfied with lobbying
and able to control
Air France and KLM
merger of international
marketing and this
contact will be legal.
Both airlines agreed
with contract and
giving his services
together.
Air France and KLM
based on joint
reservation system.
And both airlines
shared payment
system.
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worlds air traffic
Bilateral In this arrangement
exchange of cross
selling deal in
increasing bargaining
power,
That merger will be
co- branding Alliance
between both airlines
and taking licensing
agreement.
This arrangement base
on cross border joint
venture because Air
France from France
and KLM from
Netherlander.
(Multilateral trade agreement, 2017)
Discuss the case using the discrete vs embedded perspective
CEO of Air France KLM , Jean-Cyril Spinetta was CEO of Air France before the
announcement of merger in 2003 which was completed on 5 May, 2004. Analysts of companies
were considering this merger as a challenge, adventure and a non-sense but Air France KLM
proved them all wrong. This merger was approved by US Securities and Exchange Commission
(SEC). This merger was based on tender offer from Air France to KLM. Air France offered 11
AF shares + 10 stock options for every two shares of KLM shareholders. CEO Spinetta aimed to
make first European Airline Group for more profitability. This group focussed on improving its
passenger, cargo, maintenance activities and expansion of its base by providing its services to
about 226 destinations, increase its fleet to 540 planes, and 106000 employees. Alliance of Air
France KLM would resulted in dilution of equity and change of Air France from state owned
company to publicly owned company and also subsequent rise in revenues. Merger of Air-France
and KLM does not lead to change in their name but they continued to be part of SkyTeam
alliance. This merger was then considered as World's largest airline group and outcome of it was
cost savings of around €400 million to €500 million.
Events after the case
After merger of Air France KLM, on 22 February 2005 Air Transport World Magazine
awarded it with Airline of the year. In year 2006, its revenue increased to €21.04 billion in
revenues which is approx 10% higher than previous year, its market share was highest among all
European airlines, it was world's largest airline group in terms of freight transported. Air-France
KLM was having around 102,000 employees, 70 million passengers, 565 aircrafts covering 225
destinations.
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CONCLUSION
This report summarises various phases related to Air-France KLM merger starting from
their timeline. Then analysing their relationship using relational objectives, relational factors
framework and relational arrangements framework. After that brief insights about the merger
event of Air France KLM and lastly major events occur after merger. Opinion about this merger
is that it is very successful in economic and social terms. This merger lead Air France in new
dimension as it exceed British Airways.
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REFRENCES
Books and Journal
Dobruszkes, F., 2013. The geography of European low-cost airline networks: a contemporary
analysis. Journal of Transport Geography.28. pp.75-88.
Bilotkach, V. and Hüschelrath, K., 2011. Antitrust immunity for airline alliances. Journal of
Competition Law and Economics.7(2). pp.335-380.
Dobruszkes, F., 2013. The geography of European low-cost airline networks: a contemporary
analysis. Journal of Transport Geography.28. pp.75-88.
Yang, H. and Zhang, A., 2012. Effects of high-speed rail and air transport competition on prices,
profits and welfare. Transportation Research Part B: Methodological.46(10). pp.1322-
1333.
Starkie, D., 2012. European airports and airlines: Evolving relationships and the regulatory
implications. Journal of Air Transport Management.21. pp.40-49.
De Haes, S. and et. al., 2011. KLM's enterprise governance of IT journey: From managing IT
costs to managing business value. MIS Quarterly Executive.10(3).
Grančay, M., 2014. Airline Facebook pages–a content analysis. European Transport Research
Review.6(3). pp.213-223.
Online
Multilateral trade agreement, 2017. [online]. Available through:<https://bizfluent.com/about-
6605999-definition-multilateral-trade-agreement.html>.
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