Mergers vs. Alliances: The Air France-KLM Story

40 Pages Posted: 7 Sep 2012 Last revised: 9 May 2019

Date Written: 2018

Abstract

This teaching case recites the history of KLM's, the merging process with Air France and post-merger developments. The case, written from the orientation of KLM, takes place since before the merger until today with full financial details. The case recites the complex web of alliances KLM was involved in and how the merger with Air France causes Continental and Northwest joining the Skyteam alliance leading to three major US carriers in Skyteam. Unlike most US airline mergers European airlines use a new model called "umbrella merger" to avoid some of the regulatory hurdles of Air Services Agreements and to preserve the commercial value associated with the national identity of the "flag" carrier. In effect umbrella mergers show some characteristics and tensions associated with alliances rather than mergers: two brands with strong national identity kept separate with limited merging of activities. The case raises the issue if the umbrella merger is characterized by similar governance issues as an alliance rather than a merged entity. Two airlines under one hat may keep at bay some of the difficulties in integrating fully two different national cultures, but the pressure for a full merger may increase if financial difficulties set in. The case also demonstrates how external alliance networks (multilateral alliances) were affected by a merger between two airlines coming from separate alliance groupings. Although AF-KLM appeared a success after the merger a turnaround situation arose and the financial situation of the brands became misaligned. Despite the large size of the combined entity a stable profitability was not secured, raising many questions about airline mergers and the profitability of airlines in general.

Keywords: Teaching case, business case, strategy case, mergers case, airlines, finance, mergers, alliances, multilateral alliances, Air France, KLM, AF-KLM, performance

JEL Classification: A23, L14, L93

Suggested Citation

Gudmundsson, Sveinn Vidar, Mergers vs. Alliances: The Air France-KLM Story (2018). Available at SSRN: https://ssrn.com/abstract=2142915 or http://dx.doi.org/10.2139/ssrn.2142915

Sveinn Vidar Gudmundsson (Contact Author)

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068
France

HOME PAGE: http://www.tbs-education.fr

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