Air France KLM Strategy

Connecting strategy to relationship

Air France launched, with AeroMexico, Delta AirLines and Korean Air, the third global Airlines Alliance. After StarAlliance in 1997, OneWorld in 1999, Skyteam was born on June 22, 2000. Seven years after, Skyteam is the second Airline alliance with 19% of market share.

Thank to the alliance, airlines extend the SkyTeam brand to key regions of the world, elevating the alliance's global presence and strengthening its brand recognition.

The Member Program allows SkyTeam to leverage individual member airline partnerships across the alliance, which provides for additional codeshare and cooperation opportunities.

How the member airlines benefit:

Member airlines gain access to strategic SkyTeam resources.

· Member Airlines benefit from member airline experience and expertise, including best practices.

· SkyTeam offers Member Airlines support and resources for increasing traffic and improving customer service standards.

· Member Airlines integrate into the SkyTeam infrastructure, including loyalty programs like SkyTeam FFP and the airport lounge network.

· Member Airline status in the SkyTeam alliance affords carriers opportunities for increased profitability, including:

· Possibility for developing new codeshare services with alliance members with mimimal requirement for capital investment, both financial and human resources.

How the passenger benefits:

· SkyTeam passengers benefit with expanded SkyTeam loyalty programs, allowing customers to earn and redeem miles on flights operated by additional carriers.

· SkyTeam international first or business class passengers and SkyTeam Elite Plus members enjoy increased access to airport lounges in destinations served by the Associate Airlines when flying on or connecting to/from an international flight operated by a SkyTeam carrier.

· Customers of Associate Airlines enjoy the SkyTeam standards of service, quality and safety associated with the number one customer service-oriented airline alliance.

Difficulties & Drawbacks

Although an Airline alliance offers a lot of benefits for customers and airlines, an alliance may also create drawbacks for the traveler, such as:

v Higher prices when all competition is erased on a certain route.

v Less frequent flights, for instance when two airlines fly each three times a day on a given route, the alliance might fly only four times on the same route.

v A customer buys a flight through the airline he wants (Air France for example), but the flight is actually operated by another Skyteam's airline with different services quality

For the airlines, the abilities to form an alliance are often restricted by laws and regulations or subject to approval by authorities. Antitrust laws play a large role. Sometimes political quid pro quo between governments is at hand.

Also landing rights may not be owned by the airlines themselves but by the nation in which their head office resides. If an airline loses its national identity by merging to a large extent with a foreign company, existing agreements may be declared void by a country which objects to the merger.

The first known airline alliance started in the 1930s, when Pan American Grace Airways and parent company Pan American World Airways agreed to exchange routes to Latin America. The first large alliance which is still functioning started in 1989, when Northwest and KLM Royal Dutch Airlines agreed to code sharing on a large scale. A huge step was taken in 1992 when The Netherlands signed the first open skies agreement with the United States, in spite of objections uttered by the European Union authorities. This gave both countries unrestricted landing rights on each others' soil. Normally landing rights are granted for a fixed number of flights per week to a fixed destination. Each adjustment takes a lot of negotiating, often between governments rather than between the companies involved. The United States was so pleased with the independent position that the Dutch took versus the E.U. that it granted anti-trust immunity to the alliance between Northwest and KLM. Other alliances would struggle for years to overcome transnational barriers or still do so.