AIR FRANCE–KLM: A STRATEGY FOR THE EUROPEAN SKIES
CASE STUDY SOLUTION
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SYNOPSIS
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In January 2019, the board of directors of Air France–KLM SA (Air France–KLM) was due to hear a
presentation on the firm’s new strategy for the European market. Air France–KLM was the fourth largest
airline group by capacity in Europe, and it was attending to the changing competitive environment. The rise
of low-cost airlines in the European market generated a price war on short- and medium-haul flights, while
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the arrival of long-haul flights from emerging markets was forcing incumbent firms to provide greater value
at a similar price. In parallel, traditional airlines, such as Deutsche Lufthansa AG (Lufthansa) and British
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Airways Plc, continued their expansion in the European market through acquisitions and the creation of
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The Case Solution Starts From page 5
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ASSIGNMENT QUESTIONS
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1. What are the key success factors for firms competing in the European airline industry?
2. Analyze each of the five business units separately (Air France, Air France Hop [HOP!], Joon SAS,
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KLM, and Transavia Airlines SAS [Transavia]) by identifying their target markets, business unit
strategies, resources and capabilities, core competencies, and (potential) weaknesses.
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3. For each business unit, determine whether the business has a competitive advantage and recommend a
strategy for going forward.
The Case Solution Starts From page 5
,1. What are the key success factors for firms competing in the European airline industry?
Question 1 poses a deeper analytical
challenge for them: identifying the industry dynamics at play. Here, the instructor can use Porter’s five-
forces framework to encourage students to understand (1) how profits are achieved in the industry, and (2)
what core assets are required to compete and win (i.e., the key success factors).
Depending on how much time is available, this step can be performed either in a large group discussion or
in teams, where each team must develop a five-forces analysis and list the key success factors based on the
analysis. If the latter approach is chosen, be sure to split the students into six equal teams because they will
take on specific roles later in the session. For either situation, the instructor can present this analysis on the
board (see Exhibit TN-1). The analysis of each component and the consequent key success factors follow.
Threat of New Entrants (high/medium)
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Barriers to entry into the European market were high, due not only to capital requirements but also to the
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cost of taxes, environmental regulations, and airport services. Given market saturation (i.e., the price war)
and significant cost demands, profit margins were small. However, although barriers to entry were high for
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new firms, they were lower for firms competing in other markets. With capital already secured, firms had
an opportunity to internationalize to outside markets, especially if the firms were well funded. As such,
European airlines competed not only among each other, but also with those from emerging markets such as
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Singapore Airlines, Turkish Airlines, and the Gulf-based companies (Emirates, Etihad Airways, and Qatar
Airways Company QCSC).
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Supplier Bargaining Power (high)
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Aircraft manufacturers were in a duopolistic position, with Boeing and Airbus capturing almost the entire
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The Case Solution Starts From page 5
, EXHIBIT -1: INDUSTRY FORCES AND KEY SUCCESS FACTORS
Force Assessment Key Success Factors
High for new firms; Medium for existing firms
Components:
Threat of New cost of capital, taxes, airport services, regulations
Entrants small profit margins
opportunity for existing airlines from other markets to
enter European market
High:
manufacturers with duopolistic position
airports with local monopolies
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unions that wielded power
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m
Sa
.
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tio
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The Case Solution Starts From page 5
CASE STUDY SOLUTION
e
pl
m
SYNOPSIS
Sa
In January 2019, the board of directors of Air France–KLM SA (Air France–KLM) was due to hear a
presentation on the firm’s new strategy for the European market. Air France–KLM was the fourth largest
airline group by capacity in Europe, and it was attending to the changing competitive environment. The rise
of low-cost airlines in the European market generated a price war on short- and medium-haul flights, while
n
the arrival of long-haul flights from emerging markets was forcing incumbent firms to provide greater value
at a similar price. In parallel, traditional airlines, such as Deutsche Lufthansa AG (Lufthansa) and British
tio
Airways Plc, continued their expansion in the European market through acquisitions and the creation of
lu
So
The Case Solution Starts From page 5
, e
pl
m
Sa
n
ASSIGNMENT QUESTIONS
tio
1. What are the key success factors for firms competing in the European airline industry?
2. Analyze each of the five business units separately (Air France, Air France Hop [HOP!], Joon SAS,
lu
KLM, and Transavia Airlines SAS [Transavia]) by identifying their target markets, business unit
strategies, resources and capabilities, core competencies, and (potential) weaknesses.
So
3. For each business unit, determine whether the business has a competitive advantage and recommend a
strategy for going forward.
The Case Solution Starts From page 5
,1. What are the key success factors for firms competing in the European airline industry?
Question 1 poses a deeper analytical
challenge for them: identifying the industry dynamics at play. Here, the instructor can use Porter’s five-
forces framework to encourage students to understand (1) how profits are achieved in the industry, and (2)
what core assets are required to compete and win (i.e., the key success factors).
Depending on how much time is available, this step can be performed either in a large group discussion or
in teams, where each team must develop a five-forces analysis and list the key success factors based on the
analysis. If the latter approach is chosen, be sure to split the students into six equal teams because they will
take on specific roles later in the session. For either situation, the instructor can present this analysis on the
board (see Exhibit TN-1). The analysis of each component and the consequent key success factors follow.
Threat of New Entrants (high/medium)
e
Barriers to entry into the European market were high, due not only to capital requirements but also to the
pl
cost of taxes, environmental regulations, and airport services. Given market saturation (i.e., the price war)
and significant cost demands, profit margins were small. However, although barriers to entry were high for
m
new firms, they were lower for firms competing in other markets. With capital already secured, firms had
an opportunity to internationalize to outside markets, especially if the firms were well funded. As such,
European airlines competed not only among each other, but also with those from emerging markets such as
Sa
Singapore Airlines, Turkish Airlines, and the Gulf-based companies (Emirates, Etihad Airways, and Qatar
Airways Company QCSC).
n
Supplier Bargaining Power (high)
tio
Aircraft manufacturers were in a duopolistic position, with Boeing and Airbus capturing almost the entire
lu
So
The Case Solution Starts From page 5
, EXHIBIT -1: INDUSTRY FORCES AND KEY SUCCESS FACTORS
Force Assessment Key Success Factors
High for new firms; Medium for existing firms
Components:
Threat of New cost of capital, taxes, airport services, regulations
Entrants small profit margins
opportunity for existing airlines from other markets to
enter European market
High:
manufacturers with duopolistic position
airports with local monopolies
e
unions that wielded power
pl
m
Sa
.
n
tio
lu
So
The Case Solution Starts From page 5
