Secondly, ASS and M&As brought the company’s significant benefits, such as cost reduction, network increase, and multiple hub structure development; whilst it also brought the Group several challenges and uncertainties, such as the operational difficulties for integration, and unpredictable risks on business and financial performance if partners in alliance not to fully participate in or to withdraw. And at last, since both the issues of profitability and responsibility are important for cuisines success, Air France-KILL needs to take both issues into mind before developing strategies. In last nine years, the Group balanced corporate profitability and corporate social responsibility objectives at same time through investing the Group’s modern fleet, investing in innovation and product quality, recruiting and training high-professional and loyalty employees, respecting culture diversity and enriching consumer relationship.
Contents Introduction Air France-KILL is a French-Dutch airline, and it is the result of the merger in 2004 between Air France and KILL. In 2008, the Group became the largest airline firm in the world, and it has been remaining one of the World’s ten safest airlines. This analysis report aims to use Air France-KILL as a case to answer three research questions associated with global corporate strategies: 1) how core competences and dynamic capabilities used by the Group to achieve and maintain competitive advantages in the worldwide airline industry; 2) how strategic alliances and mergers & acquisitions have enabled the Group to maximize corporate profitability; and 3) how the Group achieved corporate profitability and CARS objectives at the same time.
Question I: core competences and dynamic capabilities This section discusses relevant literature and appropriate techniques for strategic analysis in order to critically evaluate the core competences and dynamic capabilities applied by Air France-KILL to reach and sustain competitive advantages in the global airline industry. 1. 1 Theories of important concepts In order to answer research questions, it is important to understand the meaning of the terms ‘core competences’, ‘dynamic capabilities’ and competitive advantage’ in a theoretical and reflective perspective. 1. 1. 1 Core competences The concept of core competence serves as the basis driving force behind strategic changes and it arouses interest from both academics and practitioners.
Hammed and Parallax (1994) defines core competence as a bundle of techniques and technologies which helps a firm to offer a particular benefit to its consumers. According to Johnson et al. (2005), core competencies are not product specific; they are parts of company strategic management and mainly contribute the competitiveness of a range of products/services. Generally, core competences fulfill three primary criteria: 1) they re unique and imperfectly imitable (Barney, 1991); 2) significantly contribute to end- product/service benefits; and 3) offer access to a wide variety of markets (Parallax and Hammed, 1994). Core competencies are major sources for establishing companies’ competitive advantages.
As Horton (2000) implies, company core competences could be seen as the collective learning comprising tacit and explicit knowledge, skills and recourses, which a company has that products it a competitive advantage. Identifying core competences usually includes that process of scanning and evaluation company- radical resources, capabilities and competencies (Parallax and Hammed, 1990). Here, critical resources refer to the inputs to the value chain, while capabilities are seen as the companies’ capability to exploit its recourse, and the term competencies indicate to an integration of capabilities Avoidance, 1998). Simply put, core competences are a company’s strategic strength (De Wit and Meyer, 2010).
They are the unique resources of a company, influencing many products/ services, and offering the firm a competitive advantaging in the marketplace Monsoons et al. , 2005) 1. 1. 2 Dynamic capabilities The concept of dynamic capability emerged helps to answer the question of how this firm maintain competitive advantage in rapidly changing market. It is first defined by Collies (1994) as a company’s capabilities to develop new products/services/processes and respond to dynamic market environment. In most recently, increasing number of academics considers dynamic capacities as a company’s abilities use resources effectively so as to reach congruence with changing business circumstance (Hellcat et al. , 2007; and Men, 2010).
Broadly speaking, dynamic capabilities have unique characteristics that help for extinguishing them from other companies’ regular abilities in operational perspectives. Specifically, dynamic capabilities purpose to developing the existing company’s resource base through creating new resources, or extending/modifying the current ones, while regular operational capabilities pay no attention on the altering of resources base of the company (Pavlov and Saws, 2006). 1. 1. 3 Competitive advantages Competitive advantage places the heart position in company’s performance. According to Porter (1995), competitive advantage is rewarded as a position that the enterprise occupies against its competitors in the marketplace.
It highlights two important parts, representing a better business performance among competitors, and offering genuine value to the consumers. In summary, recently, strategy studies focus more on dynamic capabilities, which are established on the notion of core competencies in developing and adjusting these competencies to secure company’s competitive advantages in fierce competitive environment (Twice, 2006). This development was stimulated by the fact, I. E. Although many dominate companies have the abundant resources (such as Radio Corporation f American, Pan American World Airways, and Sears), they still fail to secure their position in changed marketplace.
However, with dynamic capabilities, company competitive advantages could be secured, since the firm has ability to alter and develop its competencies in ways that are valuable to the consumer but imperfectly imitable to competitors (Barney, 1991; Porter, 2005; Johnson et al. , 2005). In another word, dynamic capabilities enable a company to sense business opportunities and then to capture them via relocating current competencies or creating a new one (Pavlov and Saws, 2006). 1. Air France-KILL strategy analysis Through above brief explanation of theoretical concepts, this section aims to critically discuss how Air France-KILL uses their core competences and dynamic capabilities to secure the company’s competitive advantages in the global airline industry. The Air France- KILL Group was born of the merger between Air France and KILL in 2004.
With revenue of around 24 billion Euros, The Group deals with three main businesses: passenger transportation, cargo transportation and services in aeronautic maintenance and overhaul (Air France-KILL Annual Report, 2012). Since it as founded, the Group applied a set of strategic investment to enhance the company core competences and dynamic capabilities in order to satisfying consumers’ rapid changing requirement and to compete with various European rivals in airline industries. One of the Group’s distinctive competences is to consistently invest in new aircraft and operate one of the most streamlined and modern fleets in the airline industry (Air France-KILL Annual Report, 2008).
For example, with an average age of ten years, in 2008-2009, the Group brought 17 new aircraft into fleet and pulled out 15 older ones. This long-term modern fleet strategic investment ensures the company competitive advantages in three perspectives: 1) it offers consumers a higher degree of in-flight comfort; 2) it obtains savings on fuel consumptions and maintenance costs; and 3) it reduces the impact on the environment (e. G. Reduce gas emissions) (Air France-KILL Annual Report, 2008). Another Group’s core competence is to continuously develop its powerful and balanced network. According to Air France-KILL annual report (2010), the Group has the largest route network between Europe and the rest of the world.
It provides nonusers 179 long-haul destinations, and 43 of them are not served by its rivals in the market, which significantly enhance the advantage of the Group’s network. Further, the Group’s network is organized by dual intercontinental hubs, Paris and Amsterdam. With the dual hub system, the Group could direct reduce flows and optimizes the fleet. As well, the system is also seen as shock absorber of some business crisis. For example, it could offer consumers an immediate solution when they direct flights have been delayed or cancelled. Finally, as the company website states, Air France-KILL is permanently engaged in a yeoman to improve their products and services.
For example, during 2011-2012, the Group upgraded its offers on board the medium-haul flights to address them more closer to the long-haul service, which effectively met the consumers’ increasing needs. In the meantime, the Group launched Mini flights across France and Europe with very competitive prices, which successfully attracted passengers’ attentions (Air France-KILL annual report, 2012). Question II: strategic alliances and mergers and acquisitions This section includes two parts. The first one purposes to evaluate the meaning and effectiveness of ‘strategic alliances’ (Ass) and ‘mergers and acquisitions’ (M & As) in the global airline industry. And the second part aims to discuss how ASS and M enable Air France-KILL to maximize its corporate profitability. 2. Theories of important concepts 2. 1. 1 Strategic alliances An airline alliance refers to any collaborative arrangement between two or more air companies involving Joint operations with the purpose of increasing competitiveness in the marketplace, improving business performance, and maximizing corporate profitability via low-cost leadership and/or product differentiation (Diagnosis, 2001). There is no doubt that airline industry has developed globally since deregulation. With worldwide deregulation, more and more airline carriers make a strategic alliance in order to achieve economic operations and obtain economies of scale (Diagnosis, 2001). As (Herein et al. 2000) presents, airlines enter into alliance for attaining the technical efficiencies of low production costs/better service, as well, they could rise their geographic reach and increase network (Mom et al. , 2008). Generally, strategic alliance could be classified into three types basing on the level of co- ordination. These types are interline alliance (I. E. Simplest alliance involves low extent of co-ordination on few routes), broad commercial alliance (I. E. Alliances extends the areas of co-ordination for Joint system developing and Joint marketing), and equity alliance (I. E. Alliances that partners co-operate in all areas of Joint activities)(Diagnosis, 2001 Effective strategic airline alliances decrease costs per unit for each partner, and enhance their network and marketing feed (Herein et al. , 2000).
In addition, it also enables each airline to share brand image, fixed arrangements on revenues, and there various benefits within a global scope (Mom et al. , 2008). And the most important point is, effective strategic alliances helps airlines to satisfy consumers’ increasing requirement on low flight fare and add their perceived value through various different programmer. 2. 1. 2 Mergers and acquisitions Mergers and acquisitions in airline industry has considered as effective methods to ease carriers’ cost pressures. A merger happens when two airlines purpose to go forward as a new company other than remain separately owned. A merger highlights combination of equals, and the partners are often of about the same size.
Unlike a merger, an acquisition involves the activity that one company buying another one, and there is no exchange of stock as a new firm (Adler and Bergmann, 2001). Although there are some differences between mergers and acquisitions, both types of combination have one common target: to create synergy which promotes the combined firm’s value greater than the sum of two separate carriers (Adler, 2005). It is true that mergers and acquisitions increase airlines profitability and financial viability. It could increase company’s financial benefits, such as cost reduction wrought the eliminating of duplicative operations and redundant city-pair services, and increasing revenues through expanding airline network (Change and William, 2002).
Additionally, as Button (2002) indicates, both mergers and acquisitions could helps to reach more passengers, and increase market share through obtaining new domestically and international city-pair routes. Even though airlines reward mergers and acquisitions as an approach to increase profitability, however, they have to take the operational and regulatory challenges into mind before actual conduct a combination (Adler, 2005). For example, operational challenges usually involve the combination of aircraft fleets and information technology systems and process. 2. 2 Air France-KILL strategy analysis ASS and M, serve as strategic options, successful brought Air France-KILL many benefits, such as cost reduction, network and market share increase, and a effective multiple hub structure development(Air France-KILL, 2008).
For example, strategic alliance with Delta in 2010 helps the Group to enhance its offer on North Atlantic, and in the meantime, with its US partner, the Group have a 25% market share of the leading worldwide airline market (Air France-KILL, 2010). Further, the Group also benefits a lot from Global Steam alliance. In 2011, the Stamp alliance expanded in Asia which brings Air France-KILL three strategic partnerships, China Southern, China Eastern and Vietnam Airlines. These ASS made the Group to become the leading European firm to China and South-East Asian (Air France-KILL, 2010). When ASS helped the Group to increase network and market share, M brought the company financial variability through low-cost leadership and product differentiation.
For example, in a specific aspect, Air Franc-KILL in the first year of their merger reported 33% rise in pre-tax income and 27% increase in operating income (Air France-KILL, 2005). In a more broadly perspective, in last nine years, merger enables the Group to form effective dual hub system based in Paris and Amsterdam. This duel hub system operates efficiently to enable the company to leverage the complementarily of Air France and KILL networks to connect with Europe and to the rest of the world (Air France-KILL, 2012). As well, this dual hub system enables consumers to access the network developed from KILL hub or Air France hub, and therefore multiplying the mound-trip offer to/from 850 global destinations (Air France-KILL, 2012).
It is worth to note that the M also brought the Group several challenges and uncertainties. Specifically, the development of Air France-KILL needs the combination of two major and complex activities that were operate separately until 2004, which brought the Group difficulties with the integration (Air France-KILL, 2005). For example, Air France used to apply generally accepted accounting standards in France (French GAP) to form financial statements, whilst Slum’s used generally accepted standards in the Netherlands (Dutch GAP). The merger of two companies requires the new Group to apply new accounting standards which might bring unpredictable risks.
In addition, as mentioned, although securing and developing strategic alliances with partners’ airlines are important for the Group’s activities. However, the effectiveness of alliance primarily bases on the strategies pursed by the various partners, beyond which the Group has a limited degree of control. Therefore, the decisions made by partners not to fully participate in or to withdraw from the alliance could exert significant influence on the Group’s current business activities and financial position. Question Ill: Organizational purpose and the profitability-responsibility paradox This section discusses the issue associated with organizational purposes in the context of corporate profitability-corporate-responsibility.
The case of Air France-KILL is also used to discuss how the Group achieve company profitability and social responsibility objectives at the same time. 3. 1 Relation between corporate profitability and corporate responsibility Corporate social responsibility (CARS) refers to a company’s responsibility to its stakeholders and a voluntary contribution to sustainable development (Crane and Matted, 2007). It highlights environmental protection, employees’ welfare, and the development of community and civil society. There are many prior studies concern the relation between CARS activities and corporate profitability (e. G. Mailing et al. , 1995; Cummings, 2000; and That et al. 2012), however, few of them could identify the direct impact of CARS on financial performance. As (That et al. , 2012) states, long-term CARS programs is positive for a company’s stakeholders, but, it could positive or adverse connect with company profitability. According to De Wit and Meyer (2010), the paradox of profitability and accessibility exist when the company develop its business strategies. On the one side, the firm has the demand for financial profitability in order to survival in competitive marketplace. Profitability is seen as a result and a resource that the company could uses to increase its competitive advantage. It enables the firm to improve position in the market and achieve its targets.
On the other side, the firm also has the demand for social responsibility which could help it to build trust around the stakeholder, and then establish a positive relationship with them. In fact, to the author’s view, companies operate usually with various CARS activities which could bring both social and economic consequences for the corporation. As Osseous-Scares (2012) indicates, in current complicated business world, many companies view the CARS activities as a strategic program derive via the highly requirement of stakeholders. The growth number of stakeholders today highly concern to the social and environmental influence of corporate business practices. As result, firms need to deal with the challenges come from these individuals and combine social permission within their business in order to maintain a good petition.
In another word, CARS has been considered as an obligation of corporations to be responsible for the environment and for their stakeholder in a manner which goes beyond company financial purposes (Crane and Matted, 2007; and Osseous-Scares, 2012). Balancing profitability and social responsibility is both essential solution and challenge for the company which needs to satisfy shareholders’ demands and the stakeholders’ needs. Today, there are various drivers that push the company’s business toward CARS (Carroll, 2006). The government, for example, could force the implementation of social objectives in business sectors though various national legislation and state codes. Likewise, consumers also could be the driver.
Existing evidence indicate that companies CARS performance could affect its buyers’ purchase decision (Schuler and Cording, 2001). Investor also could push firms to concern more on CARS, because the increasing number of investor in present see a corporation’s ethical concern as a very important criterion to determine if this firm is worth to invest (Rollicks, 2008). At last, in order to recruit and maintain efficient employees, the organization should concern their social performance, because fewer individuals prefer to work in a company with low reputation (Turban and Cable, 2003). 3. 2 Case analysis In last nine years, Air France-KILL dedicated itself to achieve corporate profitability and corporate social responsibility objectives at same time.
Generally, the Group balanced profitability and responsibility through various company strategy designed for value improvement. The most successful example could be the Group’s modern fleet policy. As mentioned before, the Group has consistently invested in its modern aircraft. With an average GE of ten, the Group owns the youngest and the most streamlined fleets in the airline industry. This fleet strategy brings the Group advantages in both aspect of profitability and responsibility. Specifically, from perspective of profitability, modern fleet offers passengers a higher degree of in-flight conforms and directly increase the flight sales. As well, it successful saves company’s costs on fuel consumption and maintenance.
From aspect of social and environmental responsibility, modern fleet efficiently reduces greenhouse gas emission and noise pollution for local residents in airport zones. Consistently investment in innovation and product quality is also a strategy that the Group used to balance corporate financial performance and responsibility for consumers. Specifically, the Group’s launched various technological innovations that purpose to improve travel experience for its consumers and thus increase their loyalty. For example, since 2009, check-in through mobile phone has also been available for passengers on short and medium-haul routes (Air France-KILL, 2009). And, until 2012, more than two third company’s consumers use the Group’s e-services to finish their check-in at the place that they prefer.
As well, since 2010, the Group has applied a new automated boarding system named Snowboarding on several routes. This new automated boarding system enables consumers to no longer need to show their identity in the boarding (Air France-KILL, 2010). As the Group states, in order to pursue high corporate profitability in competitive and technological environment, recruiting and training high-professional and loyalty employees are very crucial. Within the both French and Dutch companies, various vocational trainings are available for each employee. As well, in last several years, the Groups launched a series of measure to increase employees’ loyalty and involvement.
For example, in the 2012, the Group’s management and the unions increase their working time for all the staff (Air France-KILL, 2012). There are many other examples to present how Air France-KILL simultaneously reaches corporate profitability and responsibility. For instance, due to the increasing number of international consumers, the Group undertook various measures to respond to cultural diversity: e. G. It recruited cabin crews of nationals from destination countries in order to offer the consumers a comfortable service environment; it offered a wide range of cuisine for consumers from different cultural background; and it provided multi-languages entertainment system on the flight (Air France-KILL, 2012).
In addition, since 2008, the Group’s consumers could access to Bluebill. Com to share their tips, reviews and opinions about their travel. This social network applied by the Group on the one side successful increased the visibility of the brands and enhanced consumer loyalty; and on another side, it enabled the Group to generate certain amount of advertising revenues (Air France-KILL, 2008). Conclusion Overall, both core competencies and dynamic capabilities are major sources for establishing companies’ competitive advantages. Used Air Franc-KILL’ as example, the Group’s core competences include that: 1) to consistently invest in modern fleet; and 2) to continuously develop powerful and balanced network.
Likewise, the Groups dynamic capacity lies into company’s permanently engagement to improve their products and services through the investment of technology and innovation. Both the Group’s core competencies and dynamic capabilities enabled the company to increase market share and financial performance, and then secured its competitive advantages in the global airline industry. There is no doubt that both ASS and M could bring the company’s both advantages and limitation. For Air France-KILL, ASS and M&As, serve as strategic options, successful reduced the Group’s cost reduction, increased its network and market share, and enabled the company to form a effective multiple hub structure.