Air France and KLM Merger

 Air France and KLM Merger
1
Case Study: Exploring Strategic Alliances, Mergers & Acquisitions – examples from Air-France
and KLM in De Wit and Meyer (2010:823-836)
Name of student:
Admission:
Course:
Institution:
Instructor:
Date of Submission:
Air France and KLM Merger
2
Executive Summary
The airline industry plays a critical role in the economic development of both developed and
developing nations. However, the airline industry is a volatile due to a number of systematic risk
factors like war, terrorism, advancements in telecommunication, and economic fluctuations that
adversely affect passenger numbers. In the last decade, a number of airlines have been rendered
bankruptcy due to declining passenger numbers. In order to survive this kind of environment,
most airlines have resulted to forming strategic alliances, mergers and acquisitions in order to
remain afloat and profitable. This study examines the strategic alliances that have been formed
and particular the merger between Air France and Dutch airlines KLM. The study examines the
benefits and challenges that accrued to the newly formed airline. In addition, the study examines
how mergers, strategic alliances, and acquisitions are used to gain competitive advantage in the
airline industry. The findings of the study reveal that the two airlines merged as a result of
financial constraint. However, the merger has brought core competence and dynamic capabilities
to Air France-KLM. This has in turn enabled the airline to gain competitive advantage over
competing airlines. The study further notes that corporate social responsibility is an avenue that
institutions can use in order to enhance the performance of an airline or any corporation for that
matter. 
Air France and KLM Merger
3
Table of Contents
Executive Summary......................................................................................................................................2
Introduction...................................................................................................................................................4
Question One: Core Competence, Dynamic Capability and Competitive Advantage..............................5
Meanings and definitions......................................................................................................................5
Air France-KLM Airline’s core competencies and dynamic capabilities.............................................7
Question Two: Strategic Alliances and Mergers and Acquisitions ..........................................................8
Strategic alliances and mergers and acquisitions in the airline industry...............................................8
Low cost leadership and product differentiation.................................................................................10
Question Three: Corporate Social Responsibility...................................................................................11
Organizational purpose and corporate profitability corporate responsibility paradox........................11
Corporate profitability and corporate social responsibility.................................................................13
Conclusion ..................................................................................................................................................14
References...................................................................................................................................................15
Air France and KLM Merger
4
Introduction
The corporate environment is described as a dynamic environment. This can be attributed to a
number of factors including the ever changing needs and tastes of consumers, and advancements
in the field of technology. Corporations therefore have to develop measures that will enable them
to remain profitable in the corporate environment; a case that applies to the airline industry. In
this case, the report will Air-France-KLM was formed after the merger between of two European
airlines namely French Air France and Dutch KLM. Air France was a national carrier of France
and was majority owned by the French government, however the French government reduced its
stake after the merger. Similarly, Dutch KLM was a Dutch airline, with immense national
recognition. The merger was completed in 2004, resulting to the largest airline group in Europe.
Both airlines, before the merger were respectable corporate brands in the airline industry, both
nationally and internationally, and they coming together was expected to bolster their
performance in the competitive airline industry. However some industry pundits saw the alliance
as a bad move, something that led to the stock prices of both airlines dropping after the merger
went public. According to Som (2009), the airline industry was characterised by alliances and
thus mergers were viewed with scepticism. Industry exp