Reorganization of the Sales processes in the Gulf for Air France-KLM
Chapter One: Introduction
Air travel is indeed, one of the largest and fastest growing industries in the world. It is of
utmost importance to a number of countries for it facilitates economic growth, world trade,
international investment and tourism. It is then because of this that the travel industry has
increased its role in the process of globalization that is occurring in almost all other industries
(The Airline Industry, 2009). In the past decade, traveling by air has increased by 7% per year
due to the rising number of people who have engaged in either business or leisure travels (The
Airline Industry, 2009). Of these two purposes of travel, however, more people engage in leisure
trips. For this reason, airlines began the development of large aircrafts in order to make it more
convenient and affordable for people to travel to new and exotic destinations (The Airline
In a span of ten years (2000-2010), the International Air Transport Association or IATA
has estimated international air travel to grow by an average of 6.6% a year. This growth,
according to the said organization, is more visible and dynamic in the Asia-Pacific region
wherein trade and investment are steadily rising together with domestic property. On the other
hand, however, the main travel markets of the future, in terms of passenger trips remain to be
Europe, North America and Asia (The Airline Industry, 2009).
The abovementioned statement only shows that undoubtedly, the profitability of the
members of the airline industry is closely tied to economic growth and trade. It is because of this
that during the first half of the 1990s, the said sector suffered not only from worldwide recession
but also from the existence of the Gulf War (The Airline Industry, 2009). Because of such
difficulties experienced by the members of the airline industry during the 1990s, they began to
recognize the need for radical change in order to guarantee their survival and prosperity. Thus,
they began cutting down their costs in order to reduce capacity growth and to increase load
factors. Furthermore, airline companies also had to develop other initiatives which would allow
them to meet the demands of their customers. These initiatives usually include the provision of
better services to their customers, both on the ground and in the air. More or less, these also
include the provision of ticket less travel, new interactive entertainment systems and comfortable
seating in order to attract and retain the customers.
Without a doubt, the members of the airline industry have all increased their efforts in
order to properly respond to the changes in their environment. This then becomes the core factor
that has been taken into consideration in the field of airline management which would play a
central role to this research. Taking the said concept into consideration, this research is then
aimed towards the discussion of the different initiatives and processes adopted by Air France-
KLM in the Gulf Region in order to enhance their sales processes.
1.1. Background of the Study
The airline industry is currently affected by a number of factors that threaten their operations.
For instance, the poor economic times have negatively affected their operations. The high
operational costs have significantly reduced the market size due to the effects of the global
economic melt down as well as the uncertainty that defines oil prices. Because of this then, it is
without a doubt that members of the airline industry are operating in an environment that is hard
to predict and very costly. The inability of the airline companies to give paramount consideration
to strategic planning could more or less lead to their bankruptcy. For this reason, the
performance of corrective actions is necessary so as to ensure the generation of value by the
airline (FTP, 2009). The said initiatives include the development of cost cutting systems and
innovative approaches that are aimed towards the attraction of customers and increasing their
loyalty in order to ensure the success of the airlines’ operations. Beiske (2002) further states that
the said the success of the airline industry must be firmly anchored upon the following factors to
guarantee the loyalty of their customers which is essential to their business: (1) customer service;
(2) frequent flyer programs; and (3) complaint management.
Taneja (2008) stated that the environment of the Gulf Region tend to present a number of
opportunities that the members of the airline industry can take advantage of. This include its
perfect geographic location, high traffic growth, the sufficient aircraft and airport capacity, the
availability of large amounts of capital investment, the integrated management of aviation and
tourism supply chain, robust expansion, and the drive to create an alternative to oil production.
On the other hand, however, the global economic crisis remains a negative factor that threatens
the stability of the members of the said industry. This research is then aimed towards the
examination and analysis of Air France-KLM in the Gulf Region with regard to the manner by
which they manage their operations in order to sustain their profitability and sustainability
despite the challenges of the global economic meltdown.
This is because of the fact that as earlier mentioned, in reference to the work entitled ‘The
Airline Industry’ (2009), the profitability of the said sector is greatly dependent upon the
initiatives that they adopt in order to attract and retain customers. The corporate website of Air
France-KLM stated that they are constantly improving their services in order to tap the biggest
markets of Europe, Asia and the Americas in order to guarantee their development (Air France-
KLM, 2009). It is in line with this that they increased their operations in the Gulf Region in order
to take advantage of the economic success of the said region. However, the website of Air
France-KLM (2009) reports that they are currently facing intense competition with the gulf
The strong competition is generally brought about by the following factors: (1) the
financial support given to these carriers by their local states, thus providing them with services
such as airports, civil aviation authorities, airport and navigation charges, and complementary
infrastructure and (2) the existence of a favorable tax environment i.e. absence of corporate tax
and social security charges. This particular situation then points to the main subject of this
research. True enough, while the airlines undergo initiatives aimed towards their attainment of
sustainable development, a number of factors continue to negatively affect the former, thereby
requiring them to put more effort in order to improve their services.
1.2. Problem Statement
As earlier stated, the changes in the environment wherein airline companies operate have
greatly affected their operations. These changes were both positive and negative in nature. Most
of the time, however, the negative factors tend to outnumber the positive ones. Furthermore, it
was earlier showed that the local factors in a certain region also tend to cause the misalignment
of the initiatives of the foreign airline companies as governments tend to show paramount
support to the local carriers. Hence, it has been relatively difficult for the members of the airline
industry to take advantage of the positive changes due to the inability of the companies to lessen
their vulnerability to the said risks. Taking the experience of Air France-KLM in the Gulf
Region, it has been noted that it has been relatively difficult for them to take advantage of the
growing economy of the countries contained in this geographical area due to the unfair
competition existing between them and the other Gulf Carriers. It is in line with this that the
following research questions shall play a central role to this research:
1. How does Air France-KLM apply the concepts related to airline management?;
2. What are the programs established by Air France-KLM in order to ensure the proper
management of their business operations?:
3. How does airline management affect the operations of Air France-KLM?;
4. What are the initiatives adopted by Air France-KLM in order to ensure their proper
operations in the Gulf Region?; and lastly,
5. What are the opportunities and challenges faced by Air France-KLM in the Gulf Region?
1.3. Objectives of the Research
The main objective of the study is to determine the exact position of Air France-KLM in
the Gulf Region by analyzing its internal system and the nature of the macro environment to
determine opportunities and the threats that the organization is faced with. In general, this
examination and analysis are firmly anchored on the strategies developed by the said
organization in order to increase their profitability in the Gulf Region. More specifically it also
aims to determine the following:
1. To analyze how Air France-KLM applies the concepts related to airline management.
2. To look into the programs established by Air France-KLM in order to ensure the proper
management of their business operations?;
3. To determine how airline management affects the operations of Air France-KLM?;
4. To analyze the initiatives adopted by Air France-KLM in order to ensure their proper
operations in the Gulf Region; and lastly,
5. To examine the opportunities and challenged faced by Air France-KLM in the Gulf
Aside from the abovementioned, this research is also aimed towards the acceptance or
rejection of the following hypotheses, as derived from the research questions earlier enumerated:
Null Hypothesis 1: Air France-KLM does not apply the concepts related to airline management.
Alternative Hypothesis 1: Air France-KLM applies the concepts related to airline management.
Null Hypothesis 2: The programs established by Air France-KLM do not ensure the proper
management of their business operations.
Alternative Hypothesis 2: The programs established by Air France-KLM ensure the proper
management of their business operations.
Null Hypothesis 3: Airline management does not affect the operations of Air France-KLM.
Alternative Hypothesis 3: Airline management affects the operations of Air France-KLM.
Null Hypothesis 4: Air France-KLM does not adopt initiatives in order to ensure their proper
operations in the Gulf Region.
Alternative Hypothesis 4: Air France-KLM adopts initiatives in order to ensure their proper
operations in the Gulf Region.
Null Hypothesis 5: Air France-KLM does not experience opportunities and challenges in the
Gulf Region that affect their operations.
Alternative Hypothesis 5: Air France-KLM experiences opportunities and challenges in the Gulf
Region that affect their operations.
1.4. Significance of the Study
The significance of this study lies on its capacity to determine the importance of airline
management to the members of the air travel industry. More specifically, this study is
advantageous to Air France-KLM, a company that seeks to further strengthen their position in
the world as one of the most successful airline companies in the world as they enter into
operations in the Gulf Region. However, as repeatedly pointed out in the foregoing sections of
this chapter, Air France-KLM tends to face a number of negative experiences that prevent their
profitability in the said region. Aside from the aforesaid, the significance of this particular study
can also be perceived from its capacity to propose changes to the members of the airline industry
in order to ensure their profitability despite being subject to a number of negative factors.
1.5. Scope and Limitations
This study covers the management and strategies being adopted by Air France-KL as
they begin their operations in the Gulf Region. In addition to this, the following are the main
topics that this study shall look into:
1. The organizational process and structure relative to the nations that Air France-KLM
2. The business demographics in the nations wherein the airline operates in;
3. The evaluation of data regarding processes and undertaking a research to determine vital
processes that have to be kept local;
4. Developing a proposal that seeks to set up a common unit for all countries;
5. Determining the financial cost and benefits; and lastly,
6. The rolling out and development of an evaluation plan.
1.6. Organization of the Study
This dissertation is composed of five chapters in order to facilitate a better discussion of
the topic at hand. These chapters are the following: (1) Introduction; (2) Literature Review; (3)
Methodology; (4) Analysis, Results and Discussions; and (5) Conclusions and recommendations.
The first chapter, as clearly stated, is devoted to the provision of necessary concepts that
are important to the study.
The second chapter then presents the findings obtained by the researcher from the
literature review conducted.
The third chapter, on the other hand, discusses the methods used by the researcher in
order to obtain pertinent information with regard to the main issue of this research;
Chapter four then presents the analysis, results and discussions obtained by the researcher
with regard to the topic at hand.
The fifth and last chapter then provides the conclusion to the study as well as the
recommendations that the researcher deems necessary for Air France-KLM, in the betterment of
their practices related to airline management and for future researchers who wish to undertake
the same study.
This study is devoted to the discussion of the concepts and principles related to airline
management. As previously stated in the foregoing paragraphs of this chapter, the airline
industry is heavily dependent upon economic growth and development. It is then for this reason
that the presence of a global economic meltdown has threatened these businesses. Generally,
airline companies have undergone a number of initiatives by which they could ensure their
sustainability and profitability despite being caught in the midst of a financial crisis. One of the
said initiatives is usually concerned with the provision of better services to the customers in
order to attract and retain them. However, still a number of problems exist that prevent the
continuous entry of revenues into their companies. Furthermore, local situations that have been
tapped by these companies tend to cause the misalignment of their business initiatives. This
study is then aimed towards the analysis of the initiatives of Air France-KLM and how they
adopt the concepts and principles of airline management. The next chapter then discusses the
literature reviewed by the researcher in order to provide a solid ground by which this research
shall rest on.
Chapter Two: Literature Review
The second chapter of this dissertation has been devoted by the researcher to the review
of extant literature concerning airline management and how its concepts apply to the experience
of Air France-KLM in the Gulf Region. This paper is then divided into the following sections in
order to ensure a better flow of discussion with regard to the topic at hand: (1) introduction, (2)
summary of the organization that includes organizational structure, culture, innovation and
communication, market presentation and recent performance; (2) summary of the operational
environment, taking into consideration the social, industrial, economic, political and
technological trends; (3) the tools by which the organization may be studied such as PEST,
Porter’s Five Forces, SWOT Analysis and Marketing Mix; (4) strategic planning; and (5)
The first chapter presents a definition of airline management that shall be applied
throughout the entire research. As stated, airline management refers to the manner by which the
members of the airline industry align their goals in order to achieve their ultimate objective; that
is, to sell the right seats, to the right person, at the right time (Yu, 1998). Shaw (2007), on the
other hand, enumerates the following principles as of utmost significance to airline management:
(1) the customer, (2) the marketing environment, (3) strategy formulation, (4) product design and
development, (5) pricing and revenue management, (6) distribution channel selection and
control, and (7) selling, advertising and promotional policies. Without a doubt, a number of
factors have significantly affected the said industry and this is the reason why airline
management are of paramount importance nowadays in order to prevent the bankruptcy of the
members of this particular industry. Thus, the concepts enumerated by Shaw (2007) are worthy
of note in the discussion of airline management and how this is practiced by Air France-KLM in
the Gulf Region. The topics contained within this literature review shall thus be discussed both
from the general and specific perspectives. General, in a sense that it would cover an extensive
discussion with regard to the topics earlier enumerated; and specific, as these concepts shall be
applied to the experience of Air France- KLM in the Gulf Region in order to determine the
manner by which they operate.
2.1. Summary of the Organization
As stated in the introductory portion of this chapter, the first section is devoted to the
summary of the organization wherein this study shall focus on: Air France-KLM in the Gulf
Region. To understand the said organization, the succeeding paragraphs shall highlight the
following factors: Organizational Structure, Culture, Innovation and Communication, Market
Presentation and Recent Performance. Through the extensive discussion of the aforementioned,
the researcher expects to gain a better understanding regarding the manner by which the
organization manages its businesses in order to achieve the objective of their company.
2.1.1. Organizational Structure. The first factor that is highlighted with regard to the
discussion of Air France-KLM in the Gulf Region is concerned with the structure by which the
company is organized. The researcher believes that the organizational structure of the company
in question must be taken into consideration as this is of paramount importance in analyzing
management strategies, especially those that have undergone mergers, as in the situation of Air
France-KLM. According to Bouchikhi and Kimberly (2007), there are usually four identity
integration models that offer alternative approaches to making one organization out of many. In
general, each of the said models is a representative of certain trade-offs between how to deal
with historical identities in building a common future, a necessity for merged companies in order
to help them achieve their goals when implemented consistently, Bouchikhi and Kimberly
Mergers and Acquisitions tend to commit two common mistakes in post-merger
integration. The first one is concerned with the involuntary ignorance of identity as they
formulate their post-merger organizational design and management structure. According to
Bouchikhi and Kimberly (2007), leaders tend to focus only on the strategic and operational
alignment of their merged companies without taking into consideration the implications of these
on the identities of their organization. Naturally, an organizational plan that disregards the
historical identities of the companies involved will not result to a successful endeavor. Aside
from this, another mistake commonly committed is concerned with use of language from one
model yet pursues integration from another. More or less, this is referred to as the colonial
approach by which the autonomy and identity of the company being acquiesced tend to be
compromised for it loses its autonomy to the other organization with the bigger share (Bouchikhi
and Kimberly, 2007).
While the aforementioned are the common mistakes regarding organizational structure as
established amongst merged companies, Bouchikhi and Kimberly (2007) cited the experience of
Air France-KLM as a successful endeavor based on the statement of Jean Cyril Spinetta, the
CEO of the Air France-KLM combination. The merged company was able to restructure their
organization in a sense that they never took their historical identities for granted in order to
ensure viable and dynamic balance between theoretical synergies and organizational realities.
The claims of Bouchikhi and Kimberly (2007) are then supported by the work of Laws, Prideaux
and Chon (2007) that also affirmed the capacity of the said merged company to give paramount
importance to integration as a process; therefore, there is a need to reconcile the strategies with
their historical identities.
In order to further illustrate this concept, Bouchikhi and Kimberly (2007) cited the
statement of the company’s CEO who said that their organization does not rule out upfront all
those factors that create value for they relied on value creation by which the success of their
organization will be firmly anchored on. It is in line with this then that their organization has
created ten task forces (one dealing with cargo, the other with passenger business, others with
local branches, maintenance, IT, etc) in order to determine those areas where cooperation
opportunities exist. Aside from this, it was noted that the organization has also established a
strategic management committee in order to drive their alliance. From the said statement, one
can see that Air France-KLM adopts an organizational structure that transcends the classical
view of such, thereby guaranteeing the success of the programs they adopt concerning business
2.1.2. Culture. Having looked into the organizational structure by which the company
operates, this research then looks into the culture that prevails over the manner they conduct their
businesses. Azevedo and Pomeranz (2008) as well as Bouchikhi and Kimberly (2007) cited the
importance of culture in companies that have merged just like that in the case of Air France-
KLM. Despite being merged with one another, both Air France and KLM decided to maintain its
brand, identity and culture in order to render efficient service to their customers. According to
Azevedo and Pomeranz (2008), the value given by these companies to culture is most notable
with regard to their establishment of a common loyalty program in April 2005, the first time two
leading European companies merged an initiative of that form in order to create a single one.
Basically, the said program was aimed to accomplish the following: (1) show the benefits of their
merger to the travelers, (2) emphasize local client satisfaction, (3) capture and generate more
value, and lastly, (4) to reduce costs (Azevedo and Pomeranz, 2008). Basically all these were
developed in order to ensure their customers of better services thus encouraging them to fly with
The success of the said programs was also illustrated by Azevedo and Pomeranz (2008).
According to them, the following figures testify the said efficiency: (1) the increase in the
number of members from 10 to 11.2 million (thus showing a twelve percent increase); (2) the
program member activity rate increased from forty four percent to fifty eight percent; (3) rates of
turnover decreased (from 8.1 percent to 6.8 percent); (4) there was a true e-change success; and
(5) costs invested by asset have been rationalized by 2.5 percent. Without a doubt, culture is
needed in order to ensure the success of the programs adopted by members of the airline industry
with regard to the management of their businesses. As seen from the discussion presented,
retaining the culture of the organization is of paramount importance for this could increase the
number of customers and at the same time helps them in maintaining their loyalty towards a
certain business (Azevedo and Pomeranz, 2008).
The importance of culture to a certain organization has also been highlighted by the
discussions made by Finkelstein, Harvey and Lawton (2006). According to them, mergers and
acquisitions are usually undergone in order to expand a certain company’s horizon. However, in
order to reap the benefits of the said action, they must be able to establish markets and
restructure according to the needs of the customers. Finkelstein, Harvey and Lawton (2006)
noted that in order to accomplish the abovementioned, it is of utmost significance that a company
must be able to remain intact with its customers prior to the merger. Thus, the need to retain the
culture of a company prior to its merger with another is once again highlighted.
2.1.3. Innovation and Communication. Other factors that are central to the discussion
of the manner by which Air France-KLM in the Gulf Region carries out their management
strategies and objectives are innovation and communication. Azevedo and Pomeranz (2008)
earlier noted that the culture is important in a certain company for this allows the latter to remain
intact with its customers. This is more significant with regard to those companies that have been
subject to mergers and acquisitions, such as the experience of Air France- KLM. According to
Azevedo and Pomeranz (2008), innovation and communication are important to these companies
as it allowed them to properly determine the needs of their customers, and from these, satisfy
2.1.4. Market Presentation.
The market for the services of the members of the airline industry must be taken into
consideration as they develop their strategies with regard to the proper operation of their
businesses (Shaw, 2007). It is in line with this that they must be able to take a number of factors
into consideration in order to determine the most appropriate way by which they could present
themselves to the market. Shaw (2007) enumerates the following factors as the necessary issues
that airline companies must take into consideration: (1) transportation, (2) communication, (3)
leisure, (4) logistics, (5) information and (6) selling services. Aside from this, Shaw (2007) also
reiterated the need for airlines to closely determine who their customers are. In this regard then,
they will be able to determine the needs of the customers and thus provide them with these,
making their businesses successful. Moreover, their constant regard for the identification of the
customers would also allow them to choose the most suitable way by which they could market
their services to the targeted population.
2.1.5. Recent Performance. The recent performance of Air France has been described by
SAM Research AG (n.d.). According to the research produced by the certain organization, Air
France-KLM is the largest airline company in the world in terms of their total operating
revenues. Aside from this, the company is also the third largest in the world in terms of
passenger-kilometers and passenger fleet size (SAM Research AG, n.d.). In general, the success
of the said company can be attributed to the successful merger of its components (Air France and
KLM). More specifically, SAM Research AG (n.d.) also attributes the said success of the
company to their proper establishment of initiatives that deal with the following areas: (1)
passenger transportation, (2) cargo, (3) aeronautics maintenance catering, (4) charter services,
and (5) other air-transport related activities. Without a doubt, Air France- KLM has undergone a
number of initiatives by which they could improve the services they render to their customers. In
the same manner, the success of the abovementioned can also be highly correlated with the fact
that both Air France and KLM were able to maintain their own cultures and identities even after
undergoing through the processes of mergers and acquisitions.
2.2. Summary of the Operational Environment
This section of the literature review is then devoted to the discussion of the environment
wherein Air France-KLM operates, taking into consideration previous researches that looked into
the social, industrial, economic, political and technological trends. More specifically, this section
shall also provide details with regard to the common trend in the Gulf region to which Air
France-KLM is subject to.
2.2.1. Social Trends. Shaw (2007) notes that in order to properly look into the operational
environment, one must first look into social factors that influence the latter. The following are
usually, in general, the social factors that influence the airline industry where Air France-KLM is
a part of: (1) the ageing population, (2) changing family structures; (3) the changing tastes and
fashions in holidays; (4) the uncertain and deregulated labor market; and (5) the female business
traveler. These social factors shall be discussed in detail in order to gain a better understanding
of such. The said discussion shall then be anchored on the work of Shaw (2007) but will
incorporate the findings of other researchers.
Ageing population. Shaw (2007) considers ageing population as a general factor that
affects the members of the airline industry. The ageing population has some notable implications
with regard to the manner by which members of the airline industry market their services and
products. Without a doubt, the term ‘ageing population’ refers to the fact that more people live
longer. In this sense, Shaw (2007) believes that airlines must cater to the needs of these
customers. Hence, they must provide special services and attention to those who are disabled and
need medical help. Furthermore, Shaw (2007) noted that this could also imply a number of
changes that the travel industry must undergo regarding promotional policies. Because their
customers are in general, part of the ageing population, they must shift away from their
promotions that focus on images that appeal only to the fun-loving younger people for this may
discourage the older people from going to these destinations (Doganis, 2006).
Changing Family Structures. Shaw (2007) also mentions the change in the family
structures as another important factor that must be given utmost significance in their use of
promotions that would market their services. According to Doganis (2006), the travel industry
must accommodate the modern views of the family that simply transcends the picture of one
man, one woman and two children (a girl and a boy). Through the use of better promotional
measures, they will be able to somehow cater to the needs of the modern day .
Changing Tastes and Fashions in Holidays. Page (2003), Doganis (2006) and Shaw
(2007) all noted that travelers nowadays have their own requirements regarding the activities that
constitute their holidays. True enough, they are no longer after relaxation in a hotel and spending
their days sunbathing beside the pool. It is for this reason then that the airline industry must be
able to accomplish the so-called ‘de-packaging’ the package in order to give their passengers
more freedom in choosing the right vacation for them (Page, 2003). It is also for this reason that
airlines must not constrain their passengers with packages that make them a mere part of the
herd, following someone around (Shaw, 2007). Thus, airlines must come up with travel packages
that are compatible with the changing tastes and fashions of their passengers in holidays.
The Uncertain, Deregulated Labor Market. Shaw (2007) recognizes the fact that unlike
before, most employees are no longer experiencing job security. Most of the time, according to
Page (2003), those that enjoy travel are those that are employed in part time jobs or those that
have recently retired. For this reason, Doganis (2006) believes that it is of paramount importance
to ensure that the promotional activities of the airline companies are compatible with the needs
of this people.
The Female Business Traveler. For Shaw (2007), airline companies must be able to cater
to the needs of the business travelers, especially the women. This particular factor must be
significantly embedded on their promotions in order to ensure the effectiveness of the latter
The abovementioned, although appropriate to the entire airline industry must be given
paramount importance by Air France-KLM as they operate in the Gulf Region.
2.2.2. Industrial Trends. Industrial trends are another group of factors that are essential to
the concept of airline management, Shaw (2007) stated. Basically, this would enable the
company determine their particular position in a certain industry, thereby devising their
strategies based on this standing, as compared with their competitors. Taneja (2008) noted that
companies operating in the Middle East must consider a number of factors in order to ensure
their proper operations; these are the following: (1) the perfect geographic location; (2) high
traffic growth; (3) sufficient aircraft and airport capacity; (4) the availability of large amounts of
capital investment; (4) the integrated management of aviation and tourism supply chain; (5)
robust expansion; and lastly, (6) the drive to create an alternative to oil production. Without a
doubt, Taneja (2008) believes that the Gulf Region is becoming a powerhouse for the aviation
industry. For this reason then, the airline companies operating in the said region must be able to
take advantage of these in order to ensure their success.
Aside from the abovementioned discussion in reference to the work of Taneja (2008),
Pershing, Stolovitch and Keeps (2008) highlights the importance of industrial trends as those
factors that significantly affect the entire airline industry as a whole rather than just one company
contained in such. According to the said authors, industry tends usually constitute the following:
(1) supplier bargaining power, (2) buyer bargaining power, (3) threat of substitutes; (4) intensity
of rivalry and lastly, (4) industry growth. The last factor had the most significant on the airline
industry for its growth is usually hampered by certain factors such as the continuously rising of
oil prices that obviously hamper the businesses of the different airline companies (Heinberg,
2005; Pershing, Stolovitch and Keeps, 2008).
2.2.3. Economic Trends. Shaw (2007) identifies economic trends as those that are
concerned with economic growth and the trade cycle. Without a doubt, economic situations tend
to significantly affect the businesses of the members of airline industry. Page (2003) stated that
the success of the airline industry is usually dependent upon the growth of the world economy.
Consequently, the decline of the world economy may pose significant implications to the airline
industry. Nevertheless, as Taneja (2008) mentioned, the aviation industry in the Gulf Region is
increasing due to the factors enumerated in the foregoing section. Hence, it is expected that
airline companies that will operate in this region will obtain more chances of increasing their
revenues and obtaining more customers.
2.2.4. Political Environment. Trends in the political environment must also be taken into
consideration. In general, this should include the analysis of the effects of the following to the
members of the airline industry, Shaw (2007) enumerates: (1) terrorism fears and political
instability; (2) deregulation and open skies; (3) marketing policies for a deregulated
environment; (4) privatization and state aid; and (5) allocation of airport slots. For Dibb and
Simkin (2005), these factors tend to pose either negative or positive implications to the airline
industries that may enhance or hamper their business operations. The abovementioned factors
that constitute the political environment that significantly affect the members of the airline
industry shall then be discussed in detail, as perceived by previous authors who have written with
regard to the said issue at hand.
Terrorism Fears and Political Instability. Undoubtedly, fears of terrorist attacks and the
instability of a political situation in a certain country can be disadvantageous to members of the
airline industry. The effects of this particular factor are demonstrated in the situation in the
United States of America following the terrorist attacks on the World Trade Center as well as in
Pentagon. The said effects led to a lot of losses for the members of the airline industry for they
were forced to cut down their operations due to the closing down of operations in the Eastern
coast of the United States of America (Shaw, 2007). Drakos (2002) noted of the effects of
terrorism on Air France-KLM which also suffered from tremendous amount of losses following
the events of September 11, 2001.
Pettus (2003) and Page and Connell (2006) also cited the negative effects that the
existence of a Gulf War has brought about to members of the airline industry. Pettus (2003)
discussed that the presence of the said has tremendously reduced load factors of the airline
companies to its all-time lows.
Deregulation and Open Skies. Another political factor that tremendously affects the
members of the airline industry is concerned with deregulation and open skies. According to
Shaw (2007), the airline industry has always been constrained by decisions made by politicians
and governments. In general, the said controls are usually aimed towards limiting the areas
where airline companies can fly. Furthermore, it is usually concerned with the manner by which
the members of the said industry come up with policies relating product planning and pricing.
Aside from the abovementioned, Burghouwt (2007) notes that the governments has
always engaged themselves in the regulation of the members of the airline industry by focusing
on the safety standards they promote, as well as their prices in order to ensure fair competition.
On the other hand, however, Burghouwt (2007) and Shaw (2007) stated that these regulatory
measures had been halted. Nowadays, airlines had been given the opportunity and challenge to
respond to a freer economic environment. Hence, airlines were given leeway with regard to the
manner by which they price their products. Furthermore, they had also been given easier access
to markets by allowing them to adopt newer routes (Doganis, 2006; Rhoades, 2008).
The abovementioned trend with regard to deregulation and open skies was largely
acknowledged by de Boer and Turner (2007) in their article entitled “Beyond Oil: Reappraising
the Gulf States.” According to the said article, the governments of those countries found in the
Gulf States tend to adopt different measures by which they liberalized the airline industries.
Through this, they were able to somehow allow the said companies to freely conduct in the said
Marketing Policies for a Deregulated Environment. It is then in line with the second
political factor discussed in the foregoing paragraph that the third category or the different
marketing policies that are essential for a deregulated environment is highlighted. According to
Doganis (2006), members of the airline industry are facing numerous challenges pertaining to
change and adaptation due to their being subject to a deregulated environment. True enough,
according to Shaw (2007) airline companies used to enjoy reassurance of regulated conditions as
they only faced limited competition and a very slow pace of change. With deregulation,
however, new opportunities are provided which these companies must take advantage of in order
to ensure their success (Doganis, 2006; Rhoades, 2008). On the other hand, however, this could
also bring threats once the airline companies fail to respond to the said changes efficiently
(Shaw, 2007). Thus, without a doubt, there is an increasing need for members of the Airline
Industry to give utmost importance to marketing policies as they operate in a deregulated
environment (Burghouwt, 2007).
The marketing policies that members of the airline industry must adopt in order to cope
with the deregulated environment must be firmly grounded based on the following factors, as
identified by Shaw (2007): (1) the control of distribution channels, (2) advertising and
promotional policies that build the brand; and (3) a low-cost base.
Privatization and State Aid. The airline industry has traditionally been controlled by the
government, several authors earlier pointed out. In general, governments used to regard the
existence of a national airline as an important factor by which they could attain a sense of
nationhood. Aside from bringing prestige to a certain country, airlines bring about benefits such
as it being a back-up for national defense capability, employment and the balancing of payments
and tourism income (Morrison and Winston, 2000; Shaw, 2007). Because of this, common
perception was that state ownership was suitable to the members of the airline industry in order
to ensure their services to be aimed towards the fulfillment of the national interest. In fact, the
main role played by the government was to ensure the members of the industry that they will
face no major setbacks for they will take care of the latter’s financial matters.
The changes regarding the economic situation encouraged the privatization of the airline
companies. Eventually, this particular step has resulted to a number of problems and
opportunities experienced by the members of the industry (Aharoni, 2000). True enough, one of
the major benefits obtained was concerned with the fact that the said companies were given a
more ways by which they could effectively manage their practices. On the other hand, however,
the said privatization could more or less make the companies more vulnerable to economic crises
Nevertheless, an issue concerning this particular matter surfaces and this is with regard to
state aid. Governments tend to provide aids to their national flag carriers in order to help them
cope with the changes in the environment despite having allowed them to attain a private status.
In general, the provision of the said aid varies from one airline to another, depending on the rules
of the government to which it is subject to (Shaw, 2007).
Allocation of Airport Slots. The last political factor discussed under this particular chapter
is related to the government’s allocation of airport slots for the members of the airline industry.
In general, Shaw (2007) regards this factor as of paramount importance in terms of allowing a
certain airline company to include a particular country into its list of destinations in order to
obtain a significant amount of profits, most especially if there is a high demand for such amongst
2.2.5. Technological Trends. The latest advancements in technology must also be adopted
by the members of the airline industry in order to guarantee the success of their initiatives. For
instance, they can take advantage of the internet in order to further ensure the efficiency of their
programs that are aimed towards the consolidation of their business practices that are designed to
increase the loyalty of their customers to their programs.
In this study, the researcher shall make use of four tools in order to analyze the operations
of Air France-KLM in the Gulf Region. This will include the following: PEST (in order to
further examine the political, environmental, social and technological factors that affect their
businesses); Porter’s Five Forces which include the analysis of the rivalry amongst existing
firms, substitution, new entry, power of customers and suppliers and disintermediation; SWOT
(strengths, weaknesses, opportunities and threats experienced by Air France-KLM); and lastly,
Marketing Mix (to determine how the organization takes product, price, promotion and place
into consideration). The abovementioned shall then be discussed extensively in the fourth
chapter, devoted to the presentation of the results obtained by the researcher into the operations
of Air France-KLM in the Gulf Region.
The first tool that the researcher shall be using in this particular study is the PEST
Analysis. PEST stands for Political, Economic, Social and Technological Analysis in order to
properly examine the macro-environmental factors that are used in environmental scanning as an
essential part of strategic management (Wilmshurt and Mackay, 2002). The succeeding
paragraphs shall discuss the different factors that make up this model in order to better
understand how the framework shall be used in this particular study.
The first group of factors is political in nature which shows how or to what degree the
government intervenes in a certain economy (Harris, 2007). More specifically, this group
includes factors such as tax policy, labor law, environmental law, trade restrictions, tariffs and
political stability. Furthermore, political factors may also include the goods and services which
the government wants to provide and be provided or those that they do not want to be provided
(Drummond and Ensor, 2005).
The second group of factors then includes economic matters such as economic growth,
interest, exchange and inflation rates (Harris, 2007). Basically, these are the factors that have
major impacts on the manner by which businesses operate and render decisions.
Social factors on the other hand covers the cultural aspects of a certain group of people,
including health consciousness, the growth rate of the population, age distribution, career
attitudes and emphasis on safety (Drummond and Ensor, 2005; Harris, 2007).
The last group of factors under this particular frame work is those that are related to
technological advancements that also cover ecological and environmental aspects (Harris, 2007).
In general, the technological aspect of this framework refers to the manner by which
organizations use advancements in order to provide better services to their customers
(Drummond and Ensor, 2005).
Porter’s Five Forces
The second tool that the researcher shall use in this study is Porter’s Five Forces.
Basically, this particular model is concerned with the determination of the weak points where the
company must improve on in order to develop an edge over rival firms in order to guarantee their
survival and profitability despite being in the midst of intense competition (Wilmshurt and
MacKay, 2002). The following are the five forces that make up this particular framework: (1)
rivalry, (2) threat of substitutes, (3) buyer power, (4) supplier power, and (5) barriers or threats to
entry (Stonehouse, Campbell, Hamill and Purdie, 2004; Porter, 2008). A number of other factors
that influence the abovementioned forces shall then be discussed in order to gain a better
understanding of the manner by which the researcher shall use this model in order to analyze the
sales processes of Air France-KLM in the Gulf Region.
The first factor is rivalry which must be analyzed by looking into its particular elements
such as the different exit barriers, industry concentration, fixed costs and value added, industry
growth, intermittent overcapacity, product differences, switching costs, brand identity, diversity
of rivals and corporate stakes (Stonehouse, Campbell, Hamill and Purdie, 2004; Porter, 2008).
Threat of substitutes, the second ‘force’, meanwhile refers to the costs of switching, the
inclination of the buyer to substitute, and the price performance trade-off of substitutes (Porter,
2008). On the other hand, buyer power focuses on the bargaining leverage, buyer volume and
information, the identity of the brand, sensitivity of the price, threat of backward integration,
product differentiation, buyer concentration vs. industry, availability of substitutes and the
incentives of barriers (Porter, 2008). In the same manner, supplier power refers to concentration
of those providing supplies, importance of volume to the latter, the differentiation of inputs, the
impact of cots of firms in the industry, the presence of substitute inputs, the threat of forward
integration and the cost relative to total purchases in the industry (Stonehouse, Campbell, Hamill
and Purdie, 2004).
The last force contained under this particular model is then concerned with the different
barriers to entry that more or less include the following: absolute cost advantages, propriety
learning curve, access to inputs, policy of the government, the economies of scale, capital
requirements, brand identity, switching costs, access to distribution, expected retaliation and
propriety products (Stonehouse, Campbell, Hamill and Purdie, 2004; Porter, 2008).
Without a doubt, the use of Porter’s Five Forces is of paramount in this study as it
determines the current status of Air France-KLM in the Gulf Region as it highlights the
competition it faces in the said geographical area, thereby threatening the alignment and
effectiveness of its sales processes.
Aside from the use of PEST Analysis and Porter’s Five Forces, this research shall also
employ the SWOT Analysis in order to examine the operations of Air France-KLM in the Gulf
Region. SWOT analysis is often employed in order to evaluate the strengths, weaknesses,
opportunities and threats that are involved in a certain project of business venture (Wilmshurt
and MacKay, 2002; Stonehouse, Campbell, Hamill and Purdie, 2004). Strengths are basically
those attributes of the company that are helpful in attaining strategic development. On the other
hand, weaknesses refer to the characteristics that are harmful in their achievement of objectives.
Opportunities then refer to the external conditions that are helpful to the company as they try to
achieve their objectives while threats are the factors existing outside the organization that are
harmful to the latter. The SWOT Analysis shall then look into the different factors that either
increase or reduce the chances of Air France-KLM in attaining strategic development, based on
the abovementioned criteria.
The last tool that the researcher shall use in the study is the marketing mix which s
accepted as the use and specification of the four Ps (product, price, place and promotion) in order
to properly describe the strategic position of a product in the market place (Wilmshurt and
Mackay, 2002). In general, product refers to the tangible or intangible services produced by a
certain company. Price, on the other hand, is concerned with the amount a certain customer pays
for a certain product, as determined by factors such as market share, competition, material costs,
product identity and the perceived value of the product. Meanwhile, place refers to the location
where the product can be purchased. Finally, promotion is discussed as the communication
methods employed by a certain organization in order to market their products (Stonehouse,
Campbell, Hamill and Purdie, 2004).
The discussion related to the previously mentioned tools is of utmost significance to this
study as it looks into the performance and sales processes employed by Air France-KLM in the
2.4. Strategic Planning
Given the number of factors the significantly affect the airline industry both in general
and in the Gulf Region, Katsioloudes (2002) gives paramount importance to strategic planning in
order to reduce their operational costs while increasing their market share. It is for this reason
that the principles of management that take into consideration the abovementioned is of
paramount importance in order to further establish strategic planning amongst these companies.
Strategic planning, then, in this study, as taken from the context of Air France-KLM’s
operations, is the manner by which they manage their business initiatives and practices, by
ensuring their profitability despite being caught in the midst of intense competition.
This literature review provided the concepts by which this research shall be grounded
upon. In general, it provided a holistic overview with regard to the environment wherein Air
France-KLM is currently situated and how this could increase or reduce their chances of
attaining development in the Gulf Region. Furthermore, the provision of such overview shall
earlier help the researcher in determining whether the sales processes adopted by the company
are appropriate to the environment where they are operating in. Furthermore, this chapter also
enumerated the different tools that the researcher shall be using in order to ensure the proper
conclusion of this study by pointing out the strategies of the organization. The succeeding
chapter then provides a discussion of the different methods that the researcher used in this
Chapter Three: Methodology
The third chapter of this study has been devoted to the discussion of the different research
methodologies used by the researcher in order to obtain the data needed for the attainment of the
goals of the study. Aside from this, these methodologies are also expected to help the researcher
in terms of finding the data needed in order to provide answers to the research questions that
were enumerated in the first chapter of the study. It is then in line with this that the main purpose
of this chapter is to develop a research study that the author may use in order to collect and
obtain important data which will then be used in order to yield reliable and valid conclusions that
are congruent to its goals. In order to provide a better and extensive discussion of these
methodologies, this chapter is divided into the following sections, namely: (1)
Introduction/Overview, (2) Research Design, (3) Data Collection Method, (4) Sampling, (5) Data
Analysis, and finally, (6) A Summary of the Chapter.
3.1. Research Design
The first section of this chapter is devoted to the discussion of the manner by which this
research is designed. Research design, according to many scholars, is of paramount importance
to any study (De Vaus, 2001; Myers and Well, 2003; Cresswell, 2007). This is because of the
fact that it provides the foundation by which a project can be held together. Basically, a design is
used in order to provide the structure of the research as well as how its’ major parts- samples and
groups, measures, treatments and programs and the methods of assignment – work together in
order to address the central research questions (Miller and Salkind, 2002; Marczyk, DeMatteo
and Festinger, 2005).
In general, in order to provide the best manner to explore the phenomena; this research
shall make use of a quantitative design of which the survey questionnaire would be the main tool
for data collection. It is basically through the methods falling under this that the researcher will
be able to collect, obtain and analyze the data needed for this study’s accomplishment of its
Quantitative Design. As previously stated, this research, shall first and foremost, adopt a
quantitative design. According to Black (1999), a research that makes use of the quantitative
approach is basically a study that aims to determine the relationships existing between its
variables. Because of this, the use of statistics is deemed to be of vital importance under this
particular approach. Black (1999) believes that this is because of the fact that statistics provide
the best aid to quantitative researchers in determining how their variables are related with each
other. Cohen, Manion and Morrison (2003) then point out the advantages that researchers may
gain in their use of the quantitative design; these are the following:
• Quantitative researches provide an excellent way for the finalization of results thus aiding
the researcher in the rejection or acceptance of hypotheses;
• Quantitative research designs are easy to adopt for they are structured in a standard way;
• The statistical analysis of the results leads to an easier way of reaching comprehensive
answers to research questions; and finally,
• Results obtained by the researcher can be discussed and published legitimately.
The researcher then recognizes the abovementioned advantages of the quantitative
research design, thereby supporting the fact that the latter is indeed, appropriate to this research.
There are, however, disadvantages that are associated with the use of the quantitative
approach to research. Some scholars cited the tendency to collect a narrower and superficial
dataset. Aside from this, quantitative researches were also perceived to provide limited results
through numerical descriptions rather than through detailed narrative statements that provide a
better understanding of the human perception. Nevertheless, considering the topic at hand, the
researcher believes that a quantitative research is a more suitable approach to this study as it
would give a better analysis of the strategies adopted by Air France-KLM in order to properly
manage their sales and operations.
While this research is quantitative in nature as it employs the use of the questionnaire
method, it shall also employ the use of various techniques of secondary research in order to
provide a more holistic approach to the discussion of the business initiatives and processes
adopted by Air France-KLM as they engage in the operations in the Gulf Region. Thus, the
analysis of secondary data shall be employed as an important data collection method in order to
properly support the results of the survey obtained by the researcher.
3.2. Data Collection Method
Aside from the previously mentioned, this research shall also make use of the
questionnaire method in order to obtain the perceptions of the one hundred and fifty respondents
with regard to the issue at hand. It is basically the main method by which the researcher collects
pertinent data and information for this study. The Questionnaire Method, also known as
statistical surveys is often used in order to collect quantitative information regarding certain
items in a population. According to Bernard (2000), the questionnaire method is one of the most
important ways of measurement used in social research. Ornstein (1998) further states that there
are usually two research objectives by which this is deployed. One of these is to depict certain
facets of the group being investigated in the study. It is also used in order to solicit individual
evaluation through predetermined items or questions. Their responses then, which may contain
their own views, compose the data set for statistical analysis, Ornstein (1998) discusses.
The questionnaire method, has a number of disadvantages as well, including the fact that
it tends to confine the answers of the respondents to items that are predetermined. However, the
researcher believes that the goals of this study can be better accomplished through the use of the
questionnaire as this would help in evaluating the perceptions of the employees of the company
with regard to their initiatives concerning the proper management of their strategies.
As earlier stated, this study shall also employ the use of analysis of secondary data in
order to obtain pertinent information with regard to the topic at hand. According to Duffy (2005),
analysis of secondary data is the most valuable alternative source of data that would allow the
researcher to obtain important information with regard to the topic being written. In general, the
use of the method is necessary for it entails the discussion of previous researches and studies
undertaken in relation to the subject matter of this dissertation.
The researcher believes that it is important to discuss the manner by which the sampling
procedure would be carried out. Sampling, as defined by Thompson (1992) is the process by
which the researcher selects the units from a population of interest. As previously mentioned, the
samples that would be obtained in this study belong to the organization of Air France-KLM
dealing with operations in the Gulf Region.
In general, the manner by which they will be chosen shall take on the non-probability
design, making use of the convenience sampling method. Since the sampling method of this
study takes the non-probability design, this means that the subjects would not be chosen in a
random manner as done in probability sampling. Hence, non-probability samples can not be
used in order to make statistical references (Robson, 2002; Saunders, Lewis & Thornhill, 2007;
Curwin & Slater, 2008).
According to Curwin and Slater (2008), the use of non-probability sampling methods are
of vital importance to studies that make use of the survey questionnaires as a data collection
method. This is because of the fact that the use of this particular method does not entail some
element of justice in its selection (Curwin & Slater, 2008). Furthermore, it has been that the
characteristics of random sampling are not also appropriate to researches that make use of the
survey questionnaire method for the use of such does not exclude persons based on their other
characteristics aside from the population to which they come from (Curwin & Slater, 2008;
The non-probability sampling design then is further divided into two specific categories:
accidental and purposive (Druckman, 2005). Taking the nature of this study in consideration, as
previously stated, this research shall adhere to the purposive sampling technique. According to
Ritchie and Lewis (2002), purposive sampling is a technique used by researchers wherein the
subjects are selected based on the purpose that the researcher(s) have in mind. Silverman (2005)
concurs to this definition, stating that the researcher must develop the inclusion criteria which
shall help him or her in selecting the appropriate respondents to his or her study, based on its
A total of one hundred employees of Air France-KLM were obtained for this particular
research, making sure that they meet the following criteria: (1) must be knowledgeable of the
programs adopted by the company in order to attain development; and (2) must have expressed
his or her consent in participating in the study.
3.4. Data Analysis
In order to analyze the data obtained by the researcher, the Statistical Package for the
Social Sciences (SPSS) will be used. The researcher then provides the descriptive statistics that
would show the responses of the survey participants to the different questions included in the
data collection tool. For instance, the researcher shall present the Min in order to determine the
lowest rating given by the respondents to a particular topic. Meanwhile, Max shall also be
presented in order to discuss the highest rating given to a certain topic. On the other hand, Mean
will give the readers a better understanding of the collective responses of the survey participants
as well as their general perception regarding a given topic. Finally, Standard Deviation would
also be presented in order to show the difference in the responses of the sample used by the
This research, as stated in this chapter, was carried out through the use of the quantitative
design to research that makes the survey questionnaire the primary data collection tool. The
subjects of this study are the members of Air France-KLM involved in operations in the Gulf
Region whose sample size will be set to one hundred and fifty. The next chapter of this research
is then devoted to the presentation of the results obtained by the researcher.
Chapter Four: Analysis, Results and Discussions
This chapter is aimed towards the presentation of the following: (1) the analysis of the
manner by which Air France-KLM operates in the Gulf Region; (2) the results obtained by the
researcher from the use of survey questionnaires and the analysis of secondary data; (3)
discussions of the abovementioned in order to aid the researcher in ascertaining the threats,
opportunities and position of Air France-KLM in the region; and lastly, (4) the evaluation of the
strategic planning means employed by the certain company. It is through the abovementioned
that the researcher aims to gain a better understanding of the concepts adopted by Air France-
KLM in relation to the manner by which they manage their company as a part of the air travel
industry, pursuant to the principles of airline management earlier defined.
The first section of this chapter is devoted to the analysis of the business operations of
Air France-KLM, based on the following tools: (1) SWOT Analysis, (2) Porter’s Five Force
Analysis, and (3) PEST Analysis. Data presented in this particular section were obtained from
the researcher’s analysis of the secondary data published with regard to the topic at hand.
Furthermore, the abovementioned are also supported by several items contained within the
questionnaire developed by the researcher.
4.1.1. SWOT Analysis
The first analysis performed by the researcher was related to the examination of the
strengths, weaknesses, opportunities and threats being experienced by Air France-KLM, most
especially with regard to their operations in the Gulf Region. As defined in the second chapter of
this study devoted to the review of literature, analysis using the SWOT framework refers to the
examination of factors that affect a certain business venture whether positively or negatively
(Wilmshurt and MacKay, 2002; Stonehouse, Camplbelly, Hamill and Purdie, 2004). As earlier
discussed, strengths refer to the attributes of the company that are helpful in attaining their
strategic development. On the other hand, weaknesses refer to those characteristics that are
harmful to their achievement of objectives. Opportunities then refer to the external conditions
that are helpful to the economy as they try to achieve strategic development whilst threats are
those factors that may be harmful to their operations. Each factor contained within this particular
framework shall then be discussed extensively by the researcher in the succeeding paragraphs.
Strengths. One of the strengths of Air France-KLM is related to the size of the airline
company. Fyall and Garrod (2005) and Latrou and Oretti (2007) generally attribute the success
of the merger, making them the largest European fleet as of paramount importance in order to
ensure the success of their business initiatives. It is then in relation to this that one can conclude
that the airline company has a relatively large market. Delfmann and his colleagues (2005)
supported the abovementioned discussion by stating that the merger between Air France and
KLM did not just merely increase their wide range of customers. The merger also allowed them
to increase their routes in order to cater to the needs of their customers and frequent passengers
(Delfmann, Baum, Auerbach and Albers, 2005). More or less, the commitments were of
paramount importance to increasing the profitability and competitiveness of the company as it
enabled them to provide better services by merely increasing the frequency of their travels from
one point to another rather than by simply starting from scratch on a particular city pair which
could eventually lead to bankruptcy if not supported by the demands of their passengers,
Delfmann, Baum, Auerbach and Albers (2005) discussed.
Aside from what has been discussed in the foregoing paragraph, Fyall and Garod (2005)
also stated the importance of the company’s possession of twin hubs that provided the company
with the better way by which their services could be accessed by their customers. It is also in
relation to this that Latrou and Oretti (2007) and Kernchen (2007) mentioned the capacity of the
company to over a wider range of destination to its customers as another important strength by
which the company possesses.
In the survey questionnaire developed by the researcher, a certain section has
been devoted in order to analyze the perspective of the employees of the airline company with
regard to the strengths of their organization. In general, this particular section contained eight
statements which the respondents were asked to rate using the scale: 5- strongly agree, 4- agree,
3- neutral, 2- disagree, and 1- strongly disagree. The use of this Likert-Scale is deemed to be
advantageous for this study as it would enable the researcher measure the perceptions of the
respondents effectively. The researcher, however, recognizes the fact that the use of the Likert-
Scale would limit the answers of the respondents to only those specifically provided by the
researcher. In this case then, the researcher undergoes extensive research in order to properly
select the items that the survey questionnaire shall include in order to ensure its reliability and
The following were the statements in relation to Air France-KLM’s strengths analyzed in
the section: (1) it is the leading European Global Airline Group with significant economies of
scale, (2) it has an enhanced European catchment area, (3) it possesses a twin hub which focus
on the reinforcement of the pricing marketing power, (4) their possession of an efficient new
fleet, (5) the growing proportions of long-haul flights, (6) their capacity to offer unique
destinations from Europe, (7) the service it provides to its customers, and (8) the wide margin for
profits due to its membership in the Sky Team.
In general, the respondents:
1. Agreed that one of the strengths of Air France-KLM can be attributed to its
characteristic as the leading European Global Airline Group with significant
economies of scale (X= 4.05 ; SD= 0.88);
2. Agreed that one of the strengths of Air France-KLM can be attributed to their
enhanced European catchment area (X= 4.85; SD= 0.48);
3. Were neutral with regard to Air France-KLM’s possession of a twin hub that
reinforces their pricing marketing power as a strength of the company (X= 3.48; SD=
4. Agreed that their possession of an efficient new fleet is a strength (X= 4.39; SD=
5. Agreed that another strength that must be taken advantage of the company is
concerned with the growing proportions of long haul flights (X= 4.54; SD=0.83)
6. Were neutral regarding their capacity to provide unique destinations from Europe (X=
3.82 ; SD= 1.18)
7. Agreed regarding their capacity to ensure efficient service they provide with their
customers (X= 4.77; SD= 0.61)
8. Agreed that the company possesses wide margin for profits due to their membership
in the Sky Team (X= 4.08; SD= 0.98).
Min, Max, Mean and Standard Deviation: Strengths of Air France-KLM
N Minimum Maximum Mean Std. Deviation
II1 100 1.00 5.00 4.0500 .88048
II2 100 3.00 5.00 4.8500 .47937
II3 100 2.00 5.00 3.4800 .89307
II4 100 2.00 5.00 4.3900 .99387
II5 100 2.00 5.00 4.5400 .83388
II6 100 2.00 5.00 3.8200 1.17534
II7 100 2.00 5.00 4.7700 .60059
II8 100 2.00 5.00 4.0800 .98144
Valid N (listwise) 100
The discussions made in the foregoing paragraphs pointed out the different strengths
possessed by Air France-KLM. From the discussion, it was relatively clear that the strengths
resulted from the fact that the airline company is the largest organization within the air travel
industry in Europe. It is for this reason then that they have a larger access to customers, have
bigger fleets and also has the capacity to provide their customers with more routes. Without a
doubt, both the analysis of secondary data and the survey conducted by the researcher reveal that
the strengths of Air France-KLM stems out from the successful integration of its two component
Weaknesses. Having discussed the strengths of Air France-KLM, this subsection is then
devoted to the identification of the weaknesses that prevent the company from achieving its
strategic development. Several authors – Jarach (2005), Onkvisit and Shaw (2004), and Light
(2004) - have identified the different weaknesses of the company. Usually, the list includes the
following: (1) the relatively low capex when compared to their competitors; (2) their inability to
promote further a competitive culture; (3) a declining financial leverage, and (4) the complexity
of cost cutting. The abovementioned causes the inability of Air France-KLM to take advantage
of the strengths presented in the foregoing subsection.
The researcher then seeks to validate the abovementioned by devoting a section in the
questionnaire that deals with the examination of the most common weaknesses experienced by
Air France-KLM. The following were the statements included in the questionnaire, to be
analyzed using the same Likert-Scale (5- Strongly Agree, 4- Agree, 3- Neutral, 2- Disagree, 1-
Strongly Disagree): (1) the unfair competition, (2) their incapacity to promote a competitive
culture, (3) the high business costs that result from high fuel costs, (4) the insufficiency of their
promotional activities, and (5) the inefficiency of their promotional activities aimed towards the
marketing of their destinations.
In general, respondents agreed to the first two as visible weaknesses of Air France-KLM,
based on the means (X=4.12; 4.85 respectively) and standard deviations (SD= 0.92; 0.46
respectively) that their responses produced. Meanwhile, all respondents agreed that another
weakness stems out from the rising business costs due to the high fuel costs (X= 5.00; SD=
0.00). Lastly, the respondents were neutral with regard to the two last statements contained in the
section as judged by the means (X= 3.76; 3.41 respectively) and standard deviations (SD= 0.95;
1.13 respectively) obtained.
Min, Max, Mean and Standard Deviation: Weaknesses of Air France-KLM
N Minimum Maximum Mean Std. Deviation
III1 100 2.00 5.00 4.1200 .92420
III2 100 3.00 5.00 4.8500 .45782
III3 100 5.00 5.00 5.0000 .00000
III4 100 1.00 5.00 3.7600 .95473
III5 100 1.00 5.00 3.4100 1.12900
Valid N (listwise) 100
Opportunities. Having looked into the preceding factors, the researcher then looks into
the opportunities that Air France must take advantage of in order to ensure their survival and
profitability. According to Palepu, Peek and Bernard (2007), Fyall and Garrod (2005) and Iatrou
and Oretti (2007), the presence of emerging markets in the European continent is one of the
major opportunities that Air France – KLM must take advantage of. It is discussed that it is
through giving paramount importance to this particular opportunity that the company will be
able to increase their customer base, thereby increasing their profit.
Aside from the afore-said, Bruhn and Georgi (2006) considers the membership of Air
France-KLM in the Sky Team alliance as another opportunity that must be taken into
consideration in order to increase the profit margin. According to them, the membership can
help them secure more customers by offering the latter with new routes despite the fact that they
are loyal to other members of the alliance that do not cater to the different destinations that they
offer. It is in line with this then that Iatrou and Oretti (2007) capitalize on the size of the airline
company, thus having the capacity to service more destinations and cater to the needs of more
Morrell (2007), on the other hand, gives importance to the need for Air France-KLM to
improve labor relations through employee ownership program. It is thus through this that they
are able to ensure that all members of the organization are aimed towards the development of
better services for the benefit of their customers. Finally, Fyall and Gallod (2005) state the
importance of cutting down costs in order to expand their profit margin to further ensure their
The survey conducted by the researcher the responses of the survey participants concur
with the abovementioned findings obtained from the analysis of secondary data. The responses
of the employees revealed that without a doubt, the membership of Air France-KLM in the Sky
Team presents an opportunity to their business (X= 4.08; SD= 0.98).On the other hand,
however, they were relatively neutral with regard to the capacity of the company to offer
exciting destinations from Europe as another opportunity they must take advantage of (X= 3.82;
Threats. The last factor examined by the researcher through the SWOT framework was
concerned with threats. With regard to their operations in the Gulf Region, Air France-KLM
(2009), in their official website noted of the most common threats that they encounter.
According to them, the presence of unfair competition is very evident. In general, Gulf Carriers
tend to benefit from a number of factors that are not applicable to Air France-KLM. For
instance, the airlines receive financial support from their local state that provides them with a
wide range of services such as airports, civil aviation authorities, airport and navigation charges
and a complementary infrastructure (Air France-KLM, 2009). Aside from this, they also enjoy a
favorable tax environment for the government has waived their corporate tax and social security
charges (Air France-KLM, 2009). Hence, the foregoing factors have strengthened the edge of
the carriers over that of the European airlines (including Air France-KLM) within their
The threats to the operations of Air France-KLM were also recognized by Haberberg and
Rieple (2008). According to them, competition is indeed, one of the threats to the company.
Aside from this, another important threat that must be highlighted is the continuous increase in
the prices of oil that may more or less contribute in the growing costs of the company, thus
hampering their goal of profitability. Furthermore, costs of the company tend to further increase
as they compensate for the services rendered, Fyall and Garrod (2005) and Haberberg and
Rieple (2008) noted.
The threats of unfair competition and higher business costs were also recognized by the
survey participants, garnering means and standard deviations of 4.12 and 9.24; and 5.00 and
0.00 respectively. In this study, unfair competition refers to the inability of Air France-KLM to
properly vie for the same amount of market share as their rivals in the Gulf Region due to the
extraordinary support received by the latter from the government.
4.1.2. Porter’s Five Force Analysis
As earlier stated, this particular section is also aimed towards the analysis of Air France-
KLM using Porter’s Five Forces. As discussed in the second chapter of this study, this model is
concerned with the determination of the weak points where the company must improve in order
to develop a competitive edge over rival firms in order to guarantee their survival and
profitability despite being in the midst of intense competition (Wilmshurt and MacKay, 2002).
There are basically five forces that make up this framework: (1) rivalry, (2) threat of substitutes,
(3) buyer power, (4) supplier power, and (5) barriers or threats to entry, Stonehouse, Campbell,
Hamill and Purdie (2004) and Porter (2008) enumerated Each of the factors shall be discussed
individually in order to properly examine the operations of Air France-KLM.
Rivalry. Air France-KLM (2009) discussed that it is greatly affected by a certain degree
of rivalry in their operations. According to them, the competitive environment has been brought
about by the number of factors which include the following: (1) the deregulation of the US
market, (2) the deregulation of European Air Transport, (3) the prevalence of the concept of
globalization which facilitated the formation of alliances, and (4) the development of fast-
developing new technologies. As a result, Air France-KLM is situated within a new competitive
environment (Air France-KLM, 2009). Aside from these factors, the degree of rivalry to which
Air France-KLM is subject to is affected by the presence of low-cost operators in the medium-
haul network and from carriers in the Gulf and Asian regions (Air France-KLM, 2009).
Threat of Substitutes. Another essential factor under the Five Forces model of Porter is
concerned with the presence of substitutes. According to Air France-KLM (2009), De Burca,
Fletcher and Brown (2004) and Graham (2008), the prevalence of low cost airlines has
significantly influenced the environment wherein Air France-KLM operates., Customers tend
to choose these low cost carriers over established ones such as Air France-KLM because of the
low prices they offer. Nevertheless, Air France-KLM (2009) claims that the said low cost
carriers have not damaged their operations significantly for they were able to rework their
pricing strategies thereby reducing their costs in order to lower down the prices of their seats.
Buyer Power. The strength of Air France-KLM as one of the biggest European fleets is
its source of buyer power. The merger of the two component companies has resulted to an
increased buyer power (Smart and Megginson, 2008). On the other hand, however, the buyer
power that the said airline company possessed has been hampered by the existence of low cost
carriers as well as by other airline companies in the Gulf Region. Customers tend to search for
the better price that members of the airline industry can offer. As previously mentioned, low
cost and Gulf carriers tend to possess other factors that are not present within Air France-KLM,
thereby making it relatively difficult for them to lower their prices easily (Fyall and Garrod,
2005). Nonetheless, Air France-KLM, as earlier discussed, make sure that they offer the best
service to their customers by providing them with a better experience while travelling in order
to encourage and retain the former to ensure the company’s profitability (Keynes, 2008).
Supplier Power. Another important factor that must be taken into consideration in order
to properly examine the strategic development of Air France-KLM through Porter’s Five Forces
Framework is supplier power (Haberber and Rieple, 2008). This is more or less likely to be
connected with the provision of other external parties of pertinent products or services that are
necessary to the operations of the said company. In general, the supplies of Air France-KLM
with regard to their initiatives to increase their flights to the Gulf Region are concerned only
with regard to the provision of new fleet in order to satisfy the said operational initiatives (Air
France-KLM, n.d.). Furthermore, according to Holloway (2008), the supplier power of Air
France-KLM must be taken into consideration when looking into the equipments used by the
company in order to provide better services to their customers to attain more buying power.
With regard to oil, however, another important resource necessary for the execution of
business within the airline industry, Nasser, Nguyen, Boelke and Yu (n.d.) stated that
Barriers or Threats to Entry. The last component of Porter’s Five Forces was concerned
with the common barriers or threats to entry experienced by Air France-KLM as they enter into
business in the Gulf Region. As earlier pointed out, a number of factors threaten the entry of the
said airline company into the Gulf Region, these are the following: (1) airport and landing slots,
(2) tax incentives provided by the state to the gulf carriers, and (3) the unfair competition to
which Air France-KLM is subject to due to their inability to receive aid and other factors that
Gulf carriers receive from the states to which they belong to (Iatrou and Oretti, 2005; Air
Using the abovementioned framework in order to examine the operations of Air France-
KLM in the Gulf Region, it is evident that the said airline company is subject to intense
competition due to the a number of factors. Without a doubt, thus, there are a number of issues
that they must address before they could ensure their profitability as they enter into business in
the Gulf Region.
In order to better understand the examination of Air France-KLM’s operations in the Gulf
Region through the use of Porter’s Five Forces, the researcher shall present the responses of
survey participants with regard to the current position of Air France-KLM in the Gulf Region.
The following were the results obtained: (1) the respondents were neutral with regard to the
statement that Air France-KLM currently dominates the airline industry in the Gulf Region (X=
3.07; SD=0.76); (2) they were neutral regarding the fact that the airline company is facing
unfair competition in the region (X= 3.53; SD= 1.17); (3) the respondents disagreed with the
statement that Air France-KLM was able to take advantage of the growing market in the Gulf
Region (X=2.97; SD= 0.83); and lastly, (4) they disagreed that customers in the said region tend
to prefer Air France-KLM over other airlines in the said area (X= 2.85; SD= 0.90).
Min, Max, Mean and Standard Deviation: Current Position of Air France-KLM in the Gulf
N Minimum Maximum Mean Std. Deviation
I1 100 2.00 4.00 3.0700 .75552
I2 100 1.00 5.00 3.5300 1.16736
I3 100 1.00 5.00 2.9700 .83430
I4 100 1.00 4.00 2.8500 .90314
Valid N (listwise) 100
4.1.3. PEST Analysis.
The last method of analysis employed by the researcher is the PEST framework. In the
second chapter, this particular framework has been defined as the tool by which macro-
environmental factors are analyzed in order to determine how Air France-KLM strategically
manages their operations (Wilmshurt and Mackay, 2002). As its name implies, it looks into
several factors such as: (1) Political- how the government intervenes with the industry, (2)
Economic- the effects of economic growth and other concepts to the operations of the
organization being studies; (3) Social- the cultural aspects of a certain group of people; and
lastly, (4) Technological – the different steps undertaken by companies in order to provide better
products or services to their customers. In order to better understand the abovementioned, the
researcher shall then discuss the said factors in relation to the airline industry of the Gulf Region
in order to properly ascertain the environment that Air France-KLM will be entering.
Political. The political aspect of this analysis is usually concerned with regard to the
manner by which governments influence the operations of a certain industry. As discussed in the
earlier portions of this chapter, Air France-KLM (2009) discussed that the airline industry in the
Gulf Region is heavily supported by the governments of the states located therein. The said
members of the airline industry receive so much support from their government through
favorable tax policies and the provision of airport slots as well as complementary infrastructure
in order to better conduct their businesses. It is then for this reason that it has been relatively
easier for the Gulf carriers to reduce their prices as compared with Air France-KLM.
Economic. Currently, the whole world is experiencing a global economic meltdown that
affects many businesses. The earlier portions of this dissertation maintained that the airline
industry has always been affected by the economy. For this reason, the global economic
meltdown has in one way or another, reduced the number of air travelers. On the other hand,
however, there are those who still continue to travel yet nevertheless prefer those airlines that
have cheaper rates. Thus, in general, customers tend to prefer the competitors of Air France-
KLM in the Gulf Region as they tend to have the ability to cut their prices, as already presented.
In the same manner, the presence of low cost carriers also tend to greatly affect Air France-KLM
for they are preferred by customers due to the cheaper prices they offer.
Social. Social factors then refer to the attitudes of the customers towards the airline
industry in the Gulf Region. In general, this particular aspect is also related to the social standing
of the customers that make them search for lower air fares due to the effects of the global
economic crisis on them. Once again, this research reiterates the tendency of customers to prefer
low cost airlines due to the relatively weak global economy. On the other hand, however, social
factors refer to the popularity of the Gulf Region as a destination. The vastness of Air France-
KLM has influenced them in ensuring that they offer members of the European Community
with frequent flights to the Gulf Region. Furthermore, the company has also catered to the needs
of the business travelers by providing them with better flight schedules.
Technological. The last factor contained within the PEST framework is concerned with
the technological innovations employed by the company in order to render efficient customer
service. These technological advancements have been applied by Air France-KLM in order to
ensure that their customers gain a better travel experience with them.
4.2.1. Marketing Mix
In order to determine how airline management concepts have been applied by Air France-
KLM in order to properly ensure their profitability and survival in the Gulf Region despite being
caught in the midst of intense competition, this section is then devoted to the presentation of their
strategies through the marketing mix framework. Wilmshurt and Mackay (2002), from their
researches, defined marketing mix as the tool that examines four Ps: product, price, place and
promotion in order to effectively analyze the operations of a certain company or organization.
Each factor shall then be discussed in the paragraphs to follow.
The product being sold by Air France-KLM has been continuously improved in order to
cater to the demands of their customers as dictated by a number of factors. In general, the
company continues to exert effort in order to provide their customers with the best experience in
Air Travel. On the other hand, with regard to price, Air France, as earlier mentioned were
showing considerable efforts in order to lower down their rates in order to efficiently compete
with the dominating low cost carriers. The place of operation meanwhile, is an advantage to Air
France-KLM considering their two large hubs. The possession of the said hubs allows them to
offer more destinations to and from the Gulf Region. The last factor, promotion, is perhaps the
weakest of all the components of the Marketing Mix. It was earlier stated by findings both of the
analysis of secondary data and that of the survey questionnaire that Air France was not able to
come up with effective promotion strategies that show their competitive culture that is important
to ensure their profitability. Thus, they cannot keep up with the competitive environment present
in the Airline Industry of the Gulf Region.
The analysis and results presented by the researcher in the two previous sections reveal
the most common threats to Air France-KLM as a member of the airline industry in the Gulf
Region. The said threats arise from different factors earlier identified: the weaknesses of the
company as well as the external threats that the environment provides. As earlier established, the
inability of the said company to adopt strategies and policies relating to their competitiveness is
one of the factors that threaten its profitability. Aside from this, another threat identified was
concerned with the inability of the company to keep up with its competitors. One of the said
reasons were already mentioned – the inability of the company to promote a culture of
competitiveness. On the other hand, however, the current environment in the Gulf Region where
the said company is operating in tends to pose a number of negative factors that threaten Air
France-KLM. As discussed in the earlier parts of this paper, its competitors in that particular
region had been granted with aids and subsidies by the government that aid the latter in the
performance of their operations. Air France-KLM does not receive said subsidy thereby
preventing them from coping with the competition in the said region.
The analysis of the results obtained by the researcher also reveals that the continuous
increase in the price of oil has also been threatening the operations of Air France-KLM. Similar
to the other members of the airline industry, the continuous increase in the said price has thus
resulted to greater business cost operations thereby hampering their objective of maximizing
A number of opportunities have also been identified by the researcher following the
presentation of the results obtained by this study. The opportunities that Air France-KLM must
be taken advantage of are concerned with their characteristic as the largest European fleet arising
from the merger of the two component companies. Earlier pointed out was the fact that this
particular merger led to the following: (1) their status as the largest European fleet, (2) increased
access to a wider customer base; and (3) the capacity to provide new destinations to meet the
demands of their customers.
4.3.3. Strategic Positioning
Based on the discussion of the strengths, weaknesses, opportunities and threats of Air
France-KLM as well as the other factors that affect the environment which the said airline
company is operating in, it is evident that the strategic positioning of Air France-KLM in the
Gulf Region has not been efficiently established. In general, this is brought about by the fact that
competition amongst Air France-KLM and the Gulf Carriers are relatively strong thereby
hampering the operations of the former. Nonetheless, the airline company is devoted towards the
improvement and growth of its network and services in the said region by increasing their
frequencies to Tehran and Muscat. Furthermore, they also apply initiatives by which they could
ensure that the daily services to Abu Dhabi and Kuwait are more attractive to business travelers.
4.4. Strategic Planning
The last section of this chapter is devoted to the discussion of the manner by which Air
France-KLM carries out their initiatives concerning strategic planning. Discussions regarding
this particular subject matter shall be carried out in relation to the responses of the survey
participants to the questions contained in the fourth section of the survey. Majority of the
respondents (92%) reveal that Air France-KLM adopt concepts related to airline management
(Table 4, below). Of the one hundred respondents, eighty six (86%) noted that these concepts are
essential for they help the company in improving their services in order to gain profitability and
remain competitive (Table 5, below). In general, they claim that such services are of paramount
importance in order to attract customers and help them in retaining the old ones (66% affirmed
said statement, see Table 6, below). Table 7 then shows their responses with regard to the overall
effectiveness of the airline management concepts applied by the company. In general, the
respondents were relatively neutral with regard to the effectiveness of their initiatives pertaining
to airline management.
Frequency and Percentage Breakdown: Adoption of Airline Management Concepts
1.00 92 92.0
2.00 8 8.0
Total 100 100.0