This is what prompted them to build a project that
surprised the financial community at the beginning, but which was the only
acceptable solution in today's Europe: one group but two different airlines,
each with its own brand, products and flag. They have a sort of «control
tower» to define the guidelines for the overall strategy - the Strategic
Management Committee - but each airline is responsible for the day-to-day
running of its own business.
So what is Air France-KLM Strategy and how are they
implementing it?
The new Air France-KLM Group ranks first worldwide in
terms of revenue (with a combined turnover of 21 billion euros in the IATA year
2005/2006). It carries over 70 million passengers a year, has a combined
workforce of some 100,000 employees, and operates 558 aircraft.
In designing the merger, Leo van Wijk and Jean-Cyril
Spinetta focused on profitable growth. They would partly achieve this by
winning market share from competitors, especially from European carriers. In
the past, many mergers have failed because they have concentrated too much on
cost-cutting and downsizing and not enough on growing market share and
revenues. Right from the beginning, they decided on an offensive rather than
defensive strategy. Some industry analysts were disappointed when the Group
decided NOT to cut back on capacity and staff. They work in a service industry,
where human resources are critical to the delivery of their joint products. If
they had cut back on staff, they would have lost the cooperation and support
they needed to implement the merger. And they would not have achieved the
growth they have today.
They are implementing this strategy by constantly
working to improve their competitiveness and productivity. This will ensure
that their growth is as profitable as possible, and will enable them to adapt
to the changing business climate. The first thing they did, was to identify
synergies in every possible area.
On the cost side, for example:
v They have
increased their bargaining power. Take aircraft purchasing: KLM's medium-haul
fleet consists of Boeing aircraft and Air France's medium-haul haul fleet of
Airbus aircraft. This gives them more leverage when negotiating to buy new
aircraft from the two aircraft manufacturers.
v They have
reduced their operating costs at outstations by integrating their international
operations in each country. This is done country by country, taking into
account the specificities of each region and the relative strengths of both
airlines.
v They have
rationalized their maintenance and overhaul costs with a more costeffective
allocation of resources. This optimizes the workload at their facilities and
reduces inventory costs.
v ·Another
extremely important source of synergies is KLM systems. Air France and KLM have
already aligned processes and aim to use the same systems in five years time.
With the rise of the internet and online sales and Air France growing reliance
on automated processes, it is essential for Air France to join up KLM systems.
Merger synergies can easily be wasted through technical incompatibility. So
this issue has to be addressed right from the start. In the airline industry,
they need to align the way they package and sell their services to customers,
and the way they serve their customers.
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