CASE STUDY 1

G UILLAUME M AYOT , V ALENTIN D OUAT , S EBASTIANO M ARS , A DRIEN D UBOIS A HLQVIST

Strategic Marketing

CASE STUDY 1
T ABLE OF C ONTENTS
INTRODUCTION ................................................................................................................................. 2 FEW WORDS ABOUT AIR FRANCE .......................................................................................................... 2 QUESTIONS.......................................................................................................................................... 3 WHY IS THE DEVELOPMENT OF CORPORATE STRATEGY IMPORTANT FOR THE MAJOR EUROPEAN AIRLINES? ............................................................................................................................................... 3 USING THE CONCEPT OF THE 3 MAJOR STAGES OF CORPORATE STRATEGY, IDENTIFY THE POSSIBLE MAIN ELEMENTS THAT MIGHT APPEAR IN A STRATEGIC PLAN FOR LOW COST AIRLINES? ................ 4 WHAT SUSTAINABLE COMPETITIVE ADVANTAGES DO THE MAIN EUROPEAN AIRLINES POSSES? .... 7 WHAT STRATEGIES ARE NEEDED FOR THE MAIN EUROPEAN AIRLINES TO SURVIVE ......................... 9 STRATEGIC PROJECT .....................................................................................................................14 HOW DID SOME COMPANIES DO TO BE SUCCESSFUL? WHAT STRATEGIES HAVE THEY FOLLOWED? ...............................................................................................................................................................14 EXTERNAL CIRCUMSTANCES: THE CASE OF EMIRATE AIRLINES .......................................................15 TRENDS IN AIRLINES PASSENGERS ......................................................................................................18 ATTITUDE OF GOVERNMENTS TO COMPETITION ...............................................................................19 FUEL PRICE PRESSURES........................................................................................................................21 BIBLIOGRAPHY................................................................................................................................23

I NTRODUCTION
F EW
WORDS ABOUT AIR F RANCE Air France is a French airline created in 1933 and is now part of Air France-KLM, a privatized company, and is also a founding member of the SkyTeam alliance. This airline is one of the most famous airlines worldwide. This dual network with the Dutch airline KLM in 2004 has helped extend the choice of destinations worldwide with the hubway, connecting platforms Paris and Amsterdam, the fare combinability to use when matching the two companies to

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facilitate the purchase of tickets but also with Flying Blue loyalty program. The modernization of the company can be characterized by the creation of the A380 by Airbus in 2009, an ultra-modern to transport a large number of passengers in optimal conditions. Air France offers a balanced network not dependent of the different markets and providing a natural hedge risks. Each market has a different sensitivity in a economic or international ways. This French airline can also at any time adjust its schedule of flights depending on the circumstances (AIR FRANCE, 2013).

Q UESTIONS
W HY
IS THE DEVELOPMEN T OF CORPORATE STRAT EGY IMPORTANT FOR THE MAJOR

E UROPEAN

AIRLINES ?

In the case of the major European airlines like Air France, it is very important to develop corporate strategy is commonly used to develop a long-term plan for the company's success. Strategies may consist of offering lower prices or otherwise differentiating the organization from its competitors. No matter what particular strategy is chosen, the main purpose of a corporate strategy is to ensure the business can outlast the competition over the long term, no matter what external conditions may arise. Firstly, the marketplace can change as often and subtly as the direction of the wind. Companies with well-defined strategies (like Air France with the strategies of innovation for the business class and good quality flight) can more easily adjust to competition and economic forces, together with a focus on new products and services that will serve expanding markets and customer preferences. And that is the reason why it is necessary for the major European airlines to develop the corporate strategy because the world of airlines knows a kind of little crisis. Secondly, after the decision of the EU who thinks that the negotiation between different countries and airlines were against the open competition rules of the Treaty of Rome: because before the major European airlines were able to negotiate and decide with the different country a kind of exclusivity clause between the airport and the company. But now, without these old negotiations, the major European airlines need to develop very quickly news corporate strategies to prevent new national or international low-cost airlines to come and to take gradually 3 Case Study

more of the market shares. Firstly, the marketplace can change as often and subtly as the direction of the wind. Companies with well-defined strategies (like Air France with the strategies of innovation for the business class and good quality flight) can more easily adjust to competition and economic forces, together with a focus on new products and services that will serve expanding markets and customer preferences. And that is the reason why it is necessary for the major European airlines to develop the corporate strategy because the worlds of airlines know a kind of little crisis. Finally, we can see that the exclusivity clause (like low cost placement, alliances...) will allow to the major European airlines to change their strategies and projects to be ready for the future with the apparition of many low cost companies For example, Air France and KLM made the decision to merge together and to propose low cost price.

U SING

THE CONCEPT OF THE

MAJOR STAGES OF

CORPORATE STRATEGY , IDENTIFY THE POSSIBL E MAIN ELEMENTS THAT MIGHT APPEAR IN A STRAT EGIC PLAN FOR LOW COST AIRL INE S ? For every business strategy, there are steps that must be followed. These steps are essential whatever your goals, whether short, medium or long term. That means companies need to think about the current marketplace but also the future one, your organization must be directed in this direction. Corporate strategy must be in relation with the fact that the success of your company can be jeopardized by some changes in the organization. For examples, competition can be one of the factor of changes that will affect your success. This is the first step of a corporate strategy: your competitive position.

1) C OM P E T I T I V E P O SI T I ON
In this step, you have to know in which position your company is, you should know if the price of your goods or services is lower or higher and if the perceived quality of your goods or services is better than the competition might want to put market shares somewhere. In this case, low costs airlines will be evaluate about the price of the tickets and all the services during the flight. You 4 Case Study

can also compare the number of passengers, it was 20 millions passengers with 3000 employees for EasyJet and 15 millions with 2000 employees for Ryanair. So for these companies, their position will be a low cost price with a low quality of the product. These companies have considerably increased their number of passengers. Low costs airlines can take advantage of the current economic crisis to grab some market share to the major airlines companies but these last ones adapt their prices in response of low prices offered by low-costs airlines. In order to know the competitive position of a company, it must propose specific surveys.

Finally, we can see that the exclusivity clause (like low cost placement, alliances...) will allow to the major European airlines to change their strategies and projects to be ready for the future with the apparition of many low cost companies For example, Air France and KLM made the decision to merge together and to propose low cost price.

2) D I FFE R E NT I A T I ON
To be successful, a business must develop ways to differentiate themselves to the competitors (PINK, Steven, 2011). Depending of its position, a company will have to adjust to some settings to change its position to really differentiate. The brand recognition is an important factor of the success of some changes in your organization. However, the price for a brand awareness can be high and requires an effective long-term strategy. Lowcosts airlines focus on low prices to increase number of customers while costs are still kept low with an efficient cost reducing strategy. Low-costs are more present in the short-haul than biggest airlines like British Airways (63% of long-haul) or Air France (57% of long-haul). By focusing on a smaller segment, businesses may be able to increase market share and push competitors out (PINK, Steven, 2011). Whatever your strategic or marketing choices, they must be consistent with the strategy initially chosen. One of the most important is your products judgment by the customers; in that case, if your ticket is considered like the lowest, low-costs airlines will have a serious advantage.

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Finally, we can see that the exclusivity clause (like low cost placement, alliances...) will allow to the major European airlines to change their strategies and projects to be ready for the future with the apparition of many low cost companies For example, Air France and KLM made the decision to merge together and to propose low cost price.

3) I M P LE M E NT

T HE ST R A T E G Y

Once the strategy is established, companies have to develop it. After having organized an action plan, timelines and a study of finances and asset are needed to work on the plan efficiently. A plan can be divided in four parts, in that way, companies can see their plan in different perspectives: Financial Perspective: Sales & Marketing Departments have to create an action plan to reach some objectives like increasing profit and profitability. With the growth of the sales in the lowcosts airlines sector, this objectives can be achieved for a budget airline. Customer Perspective: The Marketing Department must improve the relationship between the brand and the customers, to attract more clients and studying customers needs by making some surveys in the airports or airlines web sites for example. Internal Perspective: The Marketing department should ameliorate client services like develop e-mail lists. In that way, these airlines can bring new clients for their long and short-haul flights. Learning and Growth Perspective: The Human Resources must improve the selection of staff by an adaptation to new realities or specialization and give them a better future perspective by improving working conditions and income.

The key of these airlines success is the important market share comparing to its costs, that means that the number of passengers must be important. They must organize an action plan that will guarantee these facts while ameliorating the relation between the customers to reach an important perceived quality of the product. In this way, low-costs will become a reflex for new potential clients and not only a better way to save money. Nowadays, people are using trends to compare the prices of their 6 Case Study

tickets, in this way, they can choose the better way to travel like with low-costs airlines. Unfortunately, changes happen everyday and this process can be in danger if the leadership isnt aware of this.

Air Frances business strategy is mainly focused on its huge Paris Charles de Gaulle hub connecting Air France to its main destinations, the Skyteam alliance, flights across France with "La Navette", the importation of the company in new countries, particularly in China. Modernization of its universe with the A380 but also with its transformation plan: Transform 2015 that will improve competitiveness and place the product and customer service at the best level. Low-cost airlines have developed a huge number of choices in long or short haul, in this way Air France has to develop low prices for few destinations.

W HAT SUSTAINABLE COMP ETITIVE ADVANTAGES MAIN E UROPEAN AIRL INES POS SES ?

D O THE

Brand: Air France, Lufthansa, British Airways or Finnair benefit from a long story in air transports, they have been leaders of their national markets for such a long time that for most people it has become a reflex to associate air travel to their respective national companies, its almost PNL at that point. They are big names, carry with them a sense of national pride, a feeling of security and tradition which is costless since its almost part of national culture. Even now with the competition being more and more aggressive due to new entrants and airports being more and more open there is still a sense that our respective national carrier is better than the others and that despite price, security history (Air France for example) or an obvious reduction in the services included during the flight. Theses names are more than just names or brand, they are part of each national culture and that is their main strength: despite everything they profit of everlasting names, its easy to understand when ABC thinks the Pan Am is a good topic for an American TV show. They are legend and legacy in each and every one of their countries. Bigger organizations: Theses companies are often huge, enormous: Air France for example has more than 72000 employees whereas Virgin Airlines doesnt have more than 6000 of them, which is twelve time less! This can be both an advantage and a disadvantage, well only focus on the advantages that it 7 Case Study

gives them. First it gives them a bigger leverage when they need to buy their fuel reserves or new airplanes. This also give them an easy access to bigger airports or to better formations for their pilots: they can make scale economies on almost each of their costs! Their size is an amazing leverage in discussions and that combined with their names allow them to benefit from advantages from any of their partners (except customers but here they have their reputation) (CASE STUDY 1). In a company such as Air France this identity is integrated in their very name and immediately appeal the nationalistic fiber in each and every French or francophone person. Easy access to cash: being in business for much longer than the newcomers and therefore have more active reserves, means that they can suppress lots of useless flights, sell shares, planes and contract their activities if they ever need to make massive investments. They also register more activity, more revenue (even if it isnt always more benefits) allowing them an easier access to important cash reserves and easier access to banking services (AIRLINE FINANCIAL.COM, 2012). In order to get a better idea of this difference between small and big companies we can just look at the difference in the revenue between Ryanair and Air France. Air France scores a revenue of 16479 million of dollar whereas the Irish company dont even get to the billion: 840 million dollar and Ryanair is not even the smallest player in the air carrier market. Help from the governments: Big European airlines are often nationals ones as we said earlier and sometimes they benefit from their governments for small or sometimes important help. Brussel Airlines for example wouldnt be alive anymore if it wasnt for the 30 million euro the Belgian government gave them in end 2012 (DEREDACTIE.BE, 2012). In 2010 when the volcano d'Eyjafjallajkull came out the losses were estimated at more than 1.7 billion euro and if it werent for the help of the EU some companies would have died that year (BBC, 2010). In other cases they benefit from fiscal advantages in their respective countries: Air France for example is accused by Ryanair to have received more than 1 billion euro of illegal help from the French government, SAS is also clearly helped by the Scandinavian governments despite free concurrency rules (LETESSIER, Ivan, 2010). French government for example has a participation of 15,7% in Air Frances capital that obliges them to help the French carrier anyway (LE MONDE, 2010) 8 Case Study

Access to inner country: historically each one of the massive European airlines has had a leading position (when its not a monopoly situation) in inner countries travels. Theses markets are hard to attack for newcomers since most of the time theses branches are not that profitable and it would take too long for a new entrant to make any return on investment. Bigger companies can allow themselves to be on such markets because they can compensate their losses by high incomes on international flights. That being said some companies are trying to link big cities in other countries by putting in places minor planes for correspondences: for example Alitalia has flights from Marseille to Toulouse but it costs 40 more than with Air France making it a poor choice for travelers. Nonetheless even though Air France is more or less the only true competitor in inner country flights it is important not to forget the power of substitutes such as train or TGV that is usually less expensive and easier to get. Ability to diversify: big main European airlines have another important advantage: they can (and do) diversify their offers. We already spoke about their ability to sell inland flights (which most smaller companies dont do) but they can also appeal different types of customers. EasyJet for example focuses only on very low costs flights and despite the fact that it has proven very effective they dont reach higher-class customers such as business people or medium classes who want both to have a minimum amount of comfort and at the same time want affordable prices. Airlines such as SAS or Air France have been able to sell both low cost and business class flight and this ability to call onto different types of customers is something that others such as Ryanair and EasyJet cant do, if there is an important increase of business class travel only the biggest ones will be able to offer the services required and therefore it gives them an important competitive advantage on their competitors (AIR FRANCE, 2012). Nonetheless even though Air France is more or less the only true competitor in inner country flights it is important not to forget the power of substitutes such as train or TGV that is usually less expensive and easier to get (AIR FRANCE, 2013).

WHAT

STRATEGIES

ARE

NEEDED

FOR

THE

MAIN

E UROPEAN

AIRL INES TO SURVIVE

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According to Porter's view we have got two different generic strategies to follow: 1) Cost leadership (identical product to competitors but at a lower cost 2) Differentiation (or benefit leadership, for example increasing services and quality) The worst strategic error is to try to follow all the strategy. Porter strongly discourages not pursuing more than one generic strategy. The choice of strategies a firm can pursue depends from size, arguing that only larger firms with greater access to resources can pursue either a cost leadership or differentiation strategy while smaller firms can only purpose a focus strategy. (Wright, 1987)

What do we mean with cost leadership? Transportation itself is a very simple thing. So the first concern for an airlines company is to cut all possible costs.

In transportation the basic process is that objects and people undergo a shift of place at a certain speed, yielding a utility of place and time (Nooteboom, 2006) Ryanair (imitating the main elements of Southwest's model) worked on reducing costs using only one plane, to reduce maintenance costs, selling tickets directly to customers, and eliminating seat assignments and free in-flight meals. They also avoids high-cost airports such as Heathrow and chooses smaller ones outside big cities, such as Luton: its hub in London. However, in order to reduce airplane operating costs, Ryanair also eliminated free blankets, pillows, sodas or snacks, and even sick bags. You get what you pay for is Ryanair's philosophy. Through these tactics, Ryanair has lowered its cost structures so far that no other European airline can come close to offering its low-cost fares and break even, let alone make profit (HILL , Charles and Jones, Gareth, 2006). Cost leadership strategy has produced the phenomenon of low cost company such as EasyJet. They gain a competitive advantage and earn a higher rate of economic profit that the average economic profit in the industry. 10 Case Study

Low cost airlines have been able to guarantee low-price flights earlier than their competitors but before 1990s low cost airlines have had an issue regarding delays. This all changed with the European Deregulation of 1990s (when the government ceding control over certain aspects of the air industry to the airline corporation): the passenger growth on low cost airlines in 1990 was staggering with less than 3 million. This revolution led the traditional full service carriers to lower fares and in case of British Airways and KLM caused them to introduce their own low cost subsidiaries, branded Go and Buzz respectively. Air France has proven to be sensitive to the theme of cost leadership pledging to reduce costs.

The idea is to take market share stated Pierre-Henri Gourgeon, Chief Executive Officer from Air France We are engaged in an activity that attempts to lower costs, trying to maintain the level of service (ILTURISTRA.INFO, 2011). Pierre-Henri Gourgeon states that the easy method to achieve this is to make sure that the planes fly during most of the time and spend very little time on land. According to his forecast this mechanism will enable Air France to cut costs by 15%. According to this view, Air France has launched a project to rationalize and reduce the programming on regional airports of Marseille, Toulouse and Nice. How can a company like Air France reduce all the waste of time? Assigning seat numbers based on the passengers optimal speed, attributing their carried luggage and tickets checking automatically by electronic equipment at the gate, in order to speed to smooth the procedure and spending the less possible time. Finally Air France has announced the birth of a new low cost airline called Hop in March 2013, with the aim to compete with other low-cost airlines.

What do we mean by differentiation? Airlines can do three things to follow an Increasing Services Strategy: 1) Get management in direct contact with customers

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All levels of management should be exposed to customers, they must talk to their, in order to develop a relationship of fidelity. I also think its a fundamental strategy to ensure that it create a loyalty between the customers and the brand. It is important because the moment in which it manifests the work of the company is at the moment when there approaches the customers.

2) Get customers involved in creating customer service standards No one can know more than the customer what the customer wants. So they have to be involved. Involve the customer is a good guarantee of satisfaction from the service that we offer, because no more than the consumer knows what the consumer really wants.

3) Leadership must show everyone customer service is a priority There are many examples of employees who deliver fantastic service. Some people will continue doing so no matter who lead their company. But, these people tend to be exceptions to the more general rule. The leaders set the tone and direction for a company's culture. If the top leaders expect great service for every customer every time, then they will naturally do what it takes to create a culture that breeds such service. The company's leadership must decide to make service a priority. Then they need to demonstrate this in their words and their actions. It needs to be at the core of everything they do. In my opinion isnt enough to innovate, but we must take a proactive approach. Firstly, the simplest way to differentiate is simple to charge a lower price. Value is added in seating, catering, entertainment and safety procedures. Post arrival value is added in docking, checking out, luggage retrieval, connecting transportation, lost luggage, customs and complaint procedures (STIRTZ, Kevin, 2010). The challenge in differentiation moves from costs-area to services-area. The major airlines were competing on offering better in-flight meals, higher quality in-flight entertainment, longer seat-room and so on. Airlines company wants to increase service and quality levels by fostering innovations both in the air and on ground in order to remain competitive against Asian and low-cost carriers. 12 Case Study

Air France enjoys a great brand both as regarding transportation travel and transportation business. The service offered by Air France enjoys a high degree of differentiation thanks to the airport lounge, smiling and beautiful staff, and excellent service. In this way the strategy of differentiation and therefore the services policy, make airline travel much more than a mere transport.

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S TRATEGIC PROJECT
H OW DID SOME COMPANIE S W HAT STRATEGIES HAVE THEY
DO TO BE SUCCESSFU L ? FOLLOWED ?

Two types of strategies have been successful in late years: low cost airlines such as Ryanair or EasyJet and emerging countries airlines such as Singapore Airlines or China airlines which are mainly due to events that we will see in more details in the next question.

Low costs are the one big trend in airline business, they emerged with companies such as GO and Buzz around 2000 and todays market leaders are Ryanair and EasyJet, we shall focus more on measures that EasyJet installed in order to understand better their strategy and how they execute it. EasyJet started with one very easy strategy to penetrate the market: differentiation by price. Over the year they developed a certain amount of technique in order to keep the prices really low. Their first idea was to use only direct routes without need to change planes: that helped them reduce luggage management costs but also avoid paying several airports for one trip and therefore increase the inflight time (only place a plane makes money). Speaking of airports, EasyJet usually prefers to use regional airports or secondary airport around major population areas. They also got rid of agencies and made reservations only available on the internet and per telephone reducing thereby significant inefficient costs. They also put in place a politic of ticket prices based on planes load factors, this is an important factor of their politics since the cost of the flight for the company is the same regardless of the amount of people that are in the plane: more people in the same plane make the trip more and more cost effective. They got rid of most of the procedures regarding the check in (do it yourself) allowing them to get rid of the personnel who wasnt cost effective enough. Their planes are all the same: one low cost cabin in Airbus's A320: all planes are thereby interchangeable and if one is in maintenance (which they dont pay for since they only lease their planes and maintenance is already in the cost of leasing) they can use another one without any differences. They also dont sell any meals inflight: this reduces teams seize and they can still sell expensive snacks onboard. Their last solution to reduce cost is to outsource everything that hasnt to do with having planes in the sky such as maintenance or luggage (Gilbert, D., Child, D. & Bennett, M., 14 Case Study

2001). All theses costs management results in the fact that EasyJet operates each flight at 55-60% of British Midlands budget and that mean they have a significant advantage over the competition. In the end they sell the same service as their competitor (going from point A to point B by air) but thanks to their ability to keep costs in check they have the ability to sell their services at less than 50% of the cost of their competitors (BRIDOUX, Herv, 2004)! Air France in another hand is finding itself having troubles to choose between the strategies that have been able to put in application and therefore Air France may not be the most successful airline worldwide now or even in a few years. Another important reason for their success is the loss of power of the biggest classic airline companies such as Air France or SAS who are having issues finding their segment in a market where too few people are ready to pay twice the price for the same service but where the low cost spots have been already taken. A certain amount of old airlines companies have tried a mixed approach to fight this new competition but as Porter have said the worst strategic error is to be stuck in the middle [...] of all strategies. Theses low cost companies did not only opened air journeys to new customers, they also took some of the formers big companies customers and that is why EasyJet now has as much travelers as KLM. Almost each success story in the airlines business has to do with the same six secrets for success: only one type of planes, point to point flying instead of having activities based around a central hub, simple in flight travel, low and simple costs for a ticket, strong management, positive human resources management in order to avoid strikes and delays and attention to fuel costs (SHRAGER, James).

E XTERNAL A IRLINES

CIRCUMSTANCE S : THE CASE OF

E MIRATE

Emirates Airlines is one of the most respectable airlines company of the Asian continent, and maybe of the world. Some external changes have involved Emirates Airlines between 1997 and 2007.

P OL I T I C A L

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Emirates Airlines has been very lucky after 2000s. The political situation was very favorable because most of the Pacific Asian countries have made agreements that have improved trade between the countries, also with what regards the air transport market. This countries have signed with each other and also other countries of the US and the UE. This change has opened the Arab market to the rest of the world but also it opened the European market to them

E CO N OM I CA L
The Asian Pacific region, and in particular the United Arab Emirates, has developed its economy very quickly. Most of the Asian Pacific countries are highly developed. Their total income is influenced by the fact that their economies are growing at a remarkable place. This means that many of Asian pacific inhabitants are earning more income per capita, so they can afford to travel by air, and also they can take advantage by really low prices. Air traffic in the rest of the world are decreasing, but nevertheless the success of Emirate Airlines is directly linked to that of United Arab Emirates most famous city Dubai: because many projects have been planned about it (a theme park like Disney World, or the sector of real estate is really attracted by the opportunity to invest capital here), so the city represent a great attractive both for tourism and for the economy.

S O CI A L
Emirates Airlines is situated in a very favorable region in terms of worker and labor costs. Emirate Airlines does not possess a wide variety of plane as the rest of the airlines, so the company can grow in terms of work specialization without having to invest large amounts of capital.

T E CH N O L OG I CA L
In the 1990s we have witnessed a real Industrial Revolution with regard to new technologies. The main exponent of the new technology, namely the Internet, embodies the ideal tool to capture your strengths and weakness in relationship with your customers. In the 2000s this technologies are common goods, but only companies that had implemented the technology over the 1990s can now enjoy a competitive advantage over its competitors. This is unfortunately not the case of the Emirate 16 Case Study

Airlines, but instead is the case of the low cost company like EasyJet, Go...etc. In fact with the help of internet they were able to eliminate the tedious passage through the travel agency: EasyJet customer can book a flight directly by Internet.

LEGAL
Its very important to underline that, in the previous years, the governments of the countries in the Asian Pacific were paternalistic governments. This implies that the government will deal with it, like a father, to protect their national companies from outside threats isolating them from the rest of the world market. Recent political changes of openness to the rest of the world economy have instead produced good results, it was exactly what to allow Emirate Airlines to grow. This means less bureaucracy and fewer legal constraints. Similarly in UE took place something like: after the Schengen agreements each European citizen can move freely throughout UE countries and this led inevitably to an increase in movements by air.

E N V I R O N M E NT A L
Its a common knowledge that airlines must face the problem of treating its image in terms of environment, ecology and sustainability. Diffused experiences are those relating tree planting or pay attention to the amount of waste directed to landfill. On the issue of recycling is pointed out that many companies adopt recyclable tools (cutlery, glasses...) on board in order to appear sensitive to the problem. Everything must be placed in a broader context of the objectives of Corporate Social Responsibility. In 2008 Airbus and Boeing had signed an agreement in order to work closely on environmental matters with an initial priority to focus on global interoperability of air traffic management (ATM). Stefanello says that he expected to yield its first concrete results in 2012 and to deliver its final output in 2020 by when it is intended to deliver fuel efficiency gains of around 10% (DALY, KIERAN, 2008). The geo-socio-economic situation of Air France is completely different from that of Emirates Airlines since the French territory cannot take advantage of the political and social changes that have instead affected the region of Dubai. This asymmetry is similar to the contrast between the Western countries and the famous emerging economies: on the one hand, we have already developed countries and stable, on the other hand we have 17 Case Study

countries that impart grace to external changes can grow very quickly. The only significant exception concerns the IT and the use of technology in general: while in the United Arab Emirates the development is a recent fact, France has participated fully in the Industrial Revolution of technology of the 1990s. As mentioned in prior, only companies that had implemented the technology over the 1990s, like Air France, can now enjoy a competitive advantage over its competitors.

T RENDS

IN AIRLINES PA SSENGERS

Compared to previous decades, the number of passengers in airlines has improved considerably, there are more and more of reasons to travel: tourism, business travel or work in another country. People are flying all around the world more and more often. If we compare the number of passengers in 2006 (2,13 billions), there has been an increase of more than 600 million passengers in five years according to a study of IATA (International Air Transport Association). Not only did the amount of passengers augment but also the current trends in airlines passengers: customers needs are not the same than few years ago (APEX EDITOR'S BLOG, 2012).

Airbus, which in 2005 adopted a consumer-centric approach in order to understand the various needs of airlines, flight attendants, maintenance workers and of course the passenger to deliver the right products and processes. Airlines have to adapt flight conditions in order to achieve a better-perceived quality: the size of the seats for a better comfort. In the future, a personalization of each passenger can be considered. The current trends are also a large proportion of female in airlines passengers, they earn more money than few decades ago and this create a new interesting market. Because the global warming, an environmental aspect of airlines is born, they are dealing with the fact to preserve the environment limiting gas emissions, in this way people shouldnt feel guilty to take a plane. The European airline market has known a precise segmentation, in the first hand, people who wants cheapest prices : the economic crisis has significantly reduced the purchasing power 18 Case Study

of travelers, they dont really pay attention about brands anymore. The other type of customers are the business class travelers: they are really connected with major airlines and so dont have the same point of view about which tickets they have to choose when theyre taking the plane. This segmentation could be an advantage for budget airlines: The lack of such segments has made it easier for the budget airlines to attack the leading European companies (CASE STUDY 1) Nowadays, airlines passengers have another way to buy tickets: on Internet, ATMs, at the last minute, booth low-cost and highcost companies have increased the possibilities to travel. People want faster ways to deals with purchasing tickets and flights issues, public transports have already this advantage and airlines are getting example from this. Trends are constantly changing and airlines have no choice but to do with benefit or to survive. Air France is also using new ways to deals with the tickets; they offer a personalized accompaniment in the hubs and in the plains with a adapted staff. With the new program Transform 2015, Air France will improve the comfort for all passengers and with Flying Blue, its loyalty program; the French airline has found a easy way to keep having a big market share. It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change. (DARWIN, Charles, 1859).

A TTITUDE

OF GOVERNMENTS TO CO MPETITION

We are going to see how much and why government intervention is necessary in a free market system and in a second time, we will see example of these interventions. There is an ongoing battle between proponents of leaves it alone to proponents who argue that continual and intense government monitoring is necessary to protect the consumer. Each year, the government produces thousands of pages of new regulations spelling out in painstaking detail what businesses can and cannot do.

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Each year, some regulations are increased while other regulations are lessened, but more often than not conforming to new regulations increases the cost of doing businesses. Regardless of the position of government for regulation and intervention, many of these regulations would not be required.

Now we are going to see the effect of these interventions on the airlines market. For example after the decision of the EU who thinks that the negotiation between different countries and airlines were against the open competition rules of the Treaty of Rome: because before the major European airlines were able to negotiate and decide with different countries some sort of exclusivity clause between the airport and the company, like the example of Germany and the USA. USA and Germany have negotiated a limited numbers of airlines and by the way they have excluded other foreign or European countries and the effect was to prevent a too hard competition. And Air France who was like one of the king of the market, has seen lots of new concurrent coming on the market after this regulation. The EU liberalization of January 1993 saw the deregulation of the airline industry in Europe in a package of measures known as the third package (The open access for all EU airlines with such an operating license to all routes within the EU, the introduction of harmonized requirements for an operating license for EU airlines, the full freedom regarding to rates was also introduced) and was an important development by allowing the low cost no frills airlines to start and develop. It is why big companies like Air France have decided to develop little by little the low cost part, because the low cost market share will gain year by year an important place in the airline market. The airline industry after the markets opening now consists of three types of airline companies; traditional full service, full cost scheduled carriers and low cost or charter airlines. And companies like Air France need to adapt themselves to these new types of market. In conclusion we could say that the positive side of the intervention of governments to competition has been to opened the market to many competitors and low-cost airlines often with less frills than those which existed under regulation. But in one other hand, these attitudes of regulation or deregulation can be create crisis and lots of trouble in the airlines market and push lots of companies to the bankrupt For Air France it is a bad 20 Case Study

thing, because this French company was a leader on the market and knows this company needs to choose the good strategy to stay the leader of the market. And with the sky team alliance and the fusion with KLM, Air France makes big changes to follow the trend of the new market

F UEL

PRICE PRESSURES

It is not surprising to see that fuel costs per seat and km are almost identical between lots of airlines companies. And it is not surprising if lots of airlines companies suffer because of the price that continually grow up. We can say that fuel prices put pressure on airline profits. Rising fuel prices are expected to drag airline profit margins. The issue is not as simple as higher fuel prices. It is about the rate at which they increase, for lots of companies it is time for governments to reconsider regulations (oil prices must be reach between USD100-120 per barrel) such as the controversial carbon tax being imposed by the European Union on the industry for soon. This situation of instability will progressively force more changes in the way airlines operate. Up to a certain level, incremental fuel price changes can be met by similarly incremental pricing adaptation, and this will be bad for the airlines company and for the customer. Airplanes societies try to find solutions to use less and less fuel, for example the economies of scale obtainable by using larger aircraft to fly the same distance since the fuel required to fly a 200 seat aircraft 1,000 km is not double that of two 100 seat aircrafts flying the same distance. Air France have the same problem than the other companies because of the instability of the fuel price, but the French company has decided to take risk to make lots of economy with the fuel. In fact, Air has decided to buy a very important quantity of fuel in one time (when the price will be the cheapest), but this strategy has a big risk because if the fuel becomes less expensive after your big buying the other company will make economies but Air France will lose lots of money...

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B IBLIOGRAPHY
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HILL , Charles and Gareth JONES. 2006. Strategic Management Theory: an integrated approach. In: Strategic Management Theory: an integrated approach, p.157. ILTURISTRA.INFO. 2011. Air France come Ryanair: i passeggeri puliranno l'aereo, come carburante olio da cucina. [online]. Available from World Wide Web: <http://www.ilturista.info/blog/9406Air_France_come_Ryanair_i_passeggeri_puliranno_l_aereo_come_ carburante_olio_da_cucina/#.UReUax1vonU> LE MONDE. 2010. Le gouvernement franais "effar" par l'amende inflige Air France. [online]. [Accessed 10 February 2013]. Available from World Wide Web: <http://www.lemonde.fr/economie/article/2010/11/10/legouvernement-francais-effare-par-l-amende-infligee-a-airfrance_1438333_3234.html> LETESSIER, Ivan. 2010. Aides, tat franais, Air France. [online]. [Accessed 28 January 2013]. Available from World Wide Web: <http://economie.lefigaro.fr/_societes/aides-etat-francais-airfrance.html> PINK, Steven. 2011. Three steps to developing a business. Business Focus. SHRAGER, James. The Success of easyJet and Other Low Cost Airlines is Due to Their Focus on Pursuing A Pure Low Cost Strategy and the Subsequent Ruthless and Effective Management of their Value Chain. STIRTZ, Kevin. 2010. Four Things Airlines Can Do to Improve Customer Service. [online]. Available from World Wide Web: <http://www.customerservicemanager.com/four-thingsairlines-can-do-to-improve-customer-service.htm>

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