Introduction4 1. The internal analysis5 1. 1Historical overview5 1. 2Mission, vision, goals and strategy5 1. 3Structure6 1. 3. 1Corporate Governance and management control systems6 1. 3. 2Leadership6 1. 3. 3Culture7 1. 3. 4Structural configuration7 2. The external analysis8 2. 1Current situation 8 2. 1. 1SWOT analysis8 2. 1. 2BCG matrix9 2. 2In relation to the competition9 2. 2. 1Porter’s Five Forces Model9 2. 2. 2Benchmark10 2. 3The company’s image10 2. 3. 1Quality of services and products10 2. 3. 2Image as employer10 Sources11 Appendices 1. Air France-KLM structure and main subsidiaries . Financial figures 3. SWOT analysis 4. Benchmark 5. BCG matrix and Porter’s Five Forces Model ? Introduction The Air France-KLM Group is one of the biggest airline companies in the world. AF-KLM Cargo is, within this group, a business unit focused on freight. The past few years, AF-KLM Cargo managed to integrate its activities and teams, through this ‘integration’, the process of “rightsizing” the organisation has begun. In the current economic environment “rightsizing” the organization becomes more important if an organization wants to be more profitable than their competition.
Effective rightsizing focuses on creating success and avoids the dangerous downward momentum that can come from poorly planned downsizing. This is, however, complex to achieve. This is the main reason why AF-KLM Cargo asked us, advisory team Resultancy Group, to help them with finding a solution to this problem. It’s important, when looking at different solution, to have a clear picture of the organisation and the problem itself. This Quick Scan helps us to form this clear picture and problem. In this report we took a closer look at Air-France KLM as a group and at the separate division: AF-KLM Cargo.
The Quick Scan is divided into two parts, which are ‘The internal analysis’ and ‘The external analysis’. In the first part the focus will lay on the organisation itself, questions like “What past issues are important for the future? ”, “What does the company want? ” and “How is the company organized? ” will be answered here. The second chapter describes the main situation of AF-KLM and how AF-KLM is doing in relation to the competition. The SWOT analysis and the BCG matrix are some useful models that we used to clarify certain problems. Finally, the company’s image will be discussed at the end of the second part.
Concluding, to make sure that we were all finding information and working towards the same goal we came up with the following problem definition: The company is too decentralized, which leads to higher costs than necessary. ? The internal analysis Chapter 1 1. 1Historical overview In this paragraph a timeline of the most important developments and issues of the past will be shown. These events have made the Air France-KLM group and its division AF-KLM Cargo into the type of organization it is nowadays. 1919In this year KLM was set up to serve the Netherlands and its colonies. 933In October 1933 Air France was formed from a merger of Air Orient, Air Union, the S. G. T. A (Societe Generale de Transport Aerien), the C. I. D. N. A. (Compagnie Internationale de Navigation Aerienne) and the Compagnie Generale Aeropostale. 1958Martinair was founded in 1958 by aviation pioneer Martin Schroder and was at that time called “Martin’s Air Charter”. 2004Air France and KLM Royal Dutch Airlines have become one airline Group with two airlines (Paris-Charles de Gaulle and Amsterdam-Schiphol) and three businesses (Passenger Business, Cargo and Engineering & Maintenance). 005In 2005 a new frequent flyer program (Flying Blue) was introduced by Air France-KLM. It was the first time in history that two airlines had combined their loyalty programs (service for loyal customers). 2008The KLM Group became a sole shareholder of Martinair Holland NV and AF-KLM Cargo became a division of the Air France-KLM group. 1. 2Mission, vision, goals and strategy Mission KLM, Air France and Martinair Cargo are operating as one company; AF-KLM Cargo. In 2005 the Cargo section became part of KLM, because of this AF-KLM Cargo company became the world’s biggest non-integrator operator, with total revenues of 2. billion Euros. In December 2008 KLM Group became a sole shareholder of Martinair Holland NV and so extended their plane capacity. “AF-KLM Cargo & Martinair Cargo offers a wide range of a air with transport services in the market, providing seamless connections throughout the world with more than 350 destinations” (AF-KLM Cargo, 2011). Vision The services that AF-KLM Cargo offers is close cooperation with their customers, also taking into account their transportation needs in the entire logistic process. Being a customer-driven company, they have established a presence throughout the world.
With more than 150 offices worldwide there is always a motivated team with local expertise nearby. Their professional staff is dedicated to deliver the values of the company, like; responsiveness, commitment, professional capabilities and drive to perform is included in their values. Goals “The company is dedicated to giving the customers access to the world by expanding and improving the worldwide network, fleet and capacity. Reliability and quality are crucial in our market. The key to success in this regard is the quality we offer throughout the logistics chain.
Last but not least, we are dedicated to making life easier for our customers by developing e-tools that give them 24/7 access without even the need to call or fax” (AF-KLM Cargo, 2011). Strategy The new Air France-KLM strategy is structured across five areas: Customers, Operations, People, Development and Finance. This will cover all three business sectors, namely; Passenger transport, Cargo and Maintenance. ?Customers: By putting the customer as a central point in their strategy and by strengthening their service culture one of the key priorities for development is achieved. ?Operations: Passenger safety is absolute priority. People: The success of the strategy depends on the skills of their employees. ?Development: AF-KLM will continue to expand its global operations to maintain its European Leadership position by expanding its partnerships. ?Finance: “Air France-KLM must return to profitable growth within the next few years, with an operating margin of 7% and a Return On Capital Employed (ROCE) of 8%” (AF-KLM Cargo, 2011). 1. 3Structure 1. 3. 1Corporate Governance ?Strategic Management Committee The Air France-KLM group has a Strategic Management Committee, in which Air France and KLM are equally active. The Board of Directors The Board of Directors is a group of fifteen members who are responsible for the daily business operations. ?The Group Executive Committee This is a group of twelve members which meet every two weeks. In these meetings the group determines the main orientations within the framework of the strategy, which are approved by the Board of Directors (Air France-KLM, 2011). 1. 3. 2Leadership From the beginning of the merger, the two topleaders of AF-KLM; Spinetta and Van Wijk, were acting like role models to the management and employees of KLM and Air France.
Together they agreed on a clear course of action and came up with the slogan “One group, Two Airlines, Three Businesses’. They stand for equal partnership and loyalty to each other, this results in joint appearances, like; managementconventions and other meetings. This acts as a symbol of trust for many employees of AF-KLM, because both leaders don’t take advantage of their powers. The main point, however, concerns the vertical relations within these two companies. At KLM they prefer to reach for consensus when taking decisions, while AF favors a more hierarchical management style.
This is associated with differences in delegation and empowerment (KLM delegates it’s decision making process more to lower levels of management then AF) and in the relationships between managers and employees. Another difference concerns the orientation towards time. KLM managers have a more monochrome time orientation (one thing at the time) while AF is more polychromic (things can be done simultaneously). (Hall & Hall, 1990). Finally, related to the time orientation is the difference in how both companies deal with planning and preparing their course of action and policies.
KLM (who is used to long-term consensus processes) puts a strong emphasis on this process: early start on the preparation and consultation. AF however, the decision-taking-process can be very quickly (because of the more hierarchical nature), but people are less inclined to start with the preparation in advance. (Janik K, 2003/2004) Concluding, there is not one absolute style of leadership in the AF-KLM company. 1. 3. 3Culture Since the merging, AF-KLM came up with culture-bridging activities, aimed at developing mutual awareness between the two corporate cultures, the effect, however, of the culture-bridging activities is hard to tell.
There have not been big cultural related clashes during the merging. Overall, it seems that the positive effect of the merging was more appreciated by employees than the negative effects. By developing a culture of commitment to compromise, Air France and KLM ensured that their combination was as mutually beneficial to both companies as possible. 1. 3. 4Structural configuration AF-KLM is in a divisionalized organization, the reason for this is the structure of the organization. It is one organization, but there are still two airlines operating separately.
These units are called the divisions and here the flow of power is not bottom-up, but top-down. The power is at the top and the focus is on the market, by using this strategy they want to stay one of the biggest company in their area. AF and KLM are independent units and connected with each other, since they are one organization. Each division has its own purchasing, engineering, manufacturing and marketing activities. In general the headquarters allows the divisions to full autonomy, which means that they are allowed to make their own result. These results are continually monitored to ensure consistency in the company.
Mintzberg says that within the division a machine organization is working most profitable. This way of structure is used most of the time in the larger organizations. The separate divisions have their own strategy and way of leadership. The most important advantage is that the risk is relatively low, because of the separate divisions. The danger of working in this way are the high costs, because of the many different divisions with each their own departments. By working in this way AF-KLM is closest to a limited vertical decentralization. (An overview of the Air France-KLM structure and main subsidiaries can be found in appendix 1. ? The external analysis Chapter 2 2. 1Current situation 2. 1. 1SWOT analysis When we take a look at some financial figures of AF-KLM that where collected at the end of each financial year (year ends and begins at March 31st) and put them next to the figures of AF-KLM Cargo we see the following trend (Appendix 2). The revenues are building up very fast, with a huge rise in 2005. Of course the crisis also affected AF-KLM Cargo, the effect was that in 2008 the revenues somewhat declined, with the highest decline in 2010. In the first quarter of 2011 the economic environment improved and so did the revenues.
The Revenues for the Cargo line always remain somewhere around the 13% of the total revenues. On the other hand, there are a lot of things that are going to have a negative impact over a longer time frame. For example the earthquake in Japan or the ongoing situation in the Middle East and Africa, add the higher fuel prices to this picture and an uncertain situation is created. Due to this situation the Board of Directors has decided not to advise a dividend for this year. Of course the shareholders can demanded the money, but this may damage the company and so has a negative effect over the long term.
There are also opportunities, since global trade is growing rapidly and so also the case for the cargo transport sector. Furthermore a new technology is being developed that enables airplanes to fly outside the atmosphere where no frication such as wind exists. So when a certain speed is acquired there is no need for fuel anymore. One of the trends that are going on right now is the environment trend, because rules that are tightened every year it is important to keep up with this trend. The main reason for the environmental trend has to do with the fast expansion of the world trade and so also cargo transport.
The main parts that are linked to environment are: air quality, noise, traffic and safety issues. The last part mentioned is something that that has for a large part to do with terrorist’s attacks, how to be prevented these and still maintaining a good flow of transportation. The main reason AF-KLM bought Martin Air, is that there just where not even planes to meet the growing demand in the market. This weakness does not need to be a problem when a competitor can be found who is not earning a lot so a take-over can be realized. Another threat that is a major problem for the company has to do with centralizing the company.
At this moment the companies are not really aligned in a proper way and so are actually two companies operating separately. This rises several issues with for example HRM, the companies have different policies and regulations that need to be re-aligned to make sure the company is running as a whole. Furthermore in this business of transporting there are not a huge amount of changes each year, which is good since than a steady growth can be realized. Where the company needs to be creative is to see new opportunities where transport is needed.
The global trade is expanding and so new areas can be considered, there is, however, a downside that in new areas often already is a transportation method. Concluding that there are opportunities that AF-KLM Cargo could consider, this can only be realized when they have the ability to change. This is where the problem lies, since the company is not working as a whole no changes can be made. If they want to make use of opportunities this problem needs to be solved first. (A schematic overview of this SWOT analysis can be found in appendix 3). 2. 1. 2BCG matrix
Passenger Flight: Star The main product of AF-KLM is also the top product of the company. The market is growing for AF-KLM in passenger transport, since their share in Asia is growing. Also, since the economic recovery will result in a rising demand of flights, this will have a positive effect on the market growth of AF-KLM. Secondly, AF-KLM passenger is the market leader for the long-haul network out of Europe. “With a market share of 13. 2% relative to 10. 6% and 10. 1% for Lufthansa and IAG, they certainly have a high relative market share” (AF-KLM, 2011).
High market growth rate and high relative market share means that this part of AF-KLM is a star. Cargo:Cash Cow The cargo part of AF-KLM is also a product with a high relative market share. “Its market share (including Martinair) amounted to 31. 1% in 2010 (32. 7% in 2009) amongst the AEA (Association of European Airlines) and 7% at the global level (8. 4% in 2009)” (AF-KLM, 2011). Although, the market growth rate stays stable, which means the cargo business is a cash cow. Aircraft maintenance:Cash Cow The 3rd business of AF-KLM is the aircraft maintenance business.
It’s hard to determine the market share of AF-KLM in this sector, but they are globally ranked 2nd amongst the multi-product players in this market. With this, we can conclude that the relative market share is high for this business. Although there are a raising number of airplanes, the market is not growing very fast. Since this is the 3rd business of AF-KLM, we can conclude that this market growth rate in the BCG matrix is low. This means the aircraft maintenance is a cash cow. (An image of the matrix can be found in appendix 5) 2. 2In relation to the competition 2. 2. 1Porter’s Five Forces Model
In this part we will analyze AF-KLM with the five forces model (Porter). This will give us a better view of the environment of the company. (An image of the used model can be found in appendix 5) ? Threat of new entrants The threat of new entrants in the air transport business is very low, because a company needs to buy a lot of airplanes to start the business, which will cost a lot of money. Second reason why it’s hard to join this business is, that AF-KLM is a very large company, so they will be able to offer the services a lot cheaper than small companies can. ?Threat of substitutes
There are not much substitutes for the services that AF-KLM provides. For transport of cargo over small distance other options can be trucks or trains. But when cargo has to be transported to overseas continents, there is no other option than do this by plane. ?Bargaining power of suppliers Because AF-KLM is able to buy a lot of items from their suppliers at the same time, they will get a discount. In comparison to smaller companies, AF-KLM pays a lot less money for their items than their competitors can, since they are so large. AF-KLM is most of the time one of the best customers of their suppliers.
This means the bargaining power of suppliers is low. ?Bargaining power of buyers There are a lot of buyers in this business and few sellers. This means that there is a lot of cargo that needs to be transported and there are not many opportunities for customers to choose their airline company. This means the bargaining power of buyers is also low. 2. 2. 2Benchmark 2. 3The company’s image 2. 3. 1Quality of services and products AF-KLM Cargo is a customer-driven company. The service that AF-KLM Cargo offers is a result of close cooperation between AF-KLM Cargo and their customers, so that the transportation needs of the customers are taken into ccount. “Capacity to serve you” and “Putting you First” are two sentences of the website of AF-KLM Cargo that confirm the importance of the customer. The products that AF-KLM Cargo offers are “Equation”, “Cohesion”, “Variation”, “Dimension” and Mail Services. ?Equation: Equation is the express product of AF-KLM Cargo and focuses on the customers who require a quick delivery. ?Cohesion: Cohesion is a tailor-made service for the ones that need their service customized. It offers the customer all the benefits of their product portfolio including some extras. Variation: This product of AF-KLM Cargo is made for the customers that would like to transport high valuable or unusual items. ?Dimension: Dimension is the general cargo solution for a competitive price. ?Mail services: AF-KLM Cargo has three types of mail deliveries. 2. 3. 2Image as employer AF-KLM Cargo finds it important to be a good employer for its employees, they achieves this by offering the employee’s good working conditions and for example an excellent pension scheme, a lease car for employees in higher salary brackets and a cafeteria scheme.
KLM managed to get to the second place in the Best Employer 2010 list (Effectory, 2010) with a score of 8. 5 out of 10. The level of satisfaction in the organization as a whole was one of the aspects on which KLM scored high. Though, also culture, activities and colleagues are themes that employees were asked to give opinions on. The high score shows that AF-KLM Cargo succeeds in fulfilling the employees’ needs. ? Sources ?AF-KLM Cargo (2011). Company Information. Retrieved September 9, 2011, from http://www. af- klm. com/cargo/b2b/wps/portal/b2b/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLN4o3c_EASYGYxk7mLvqRIJZRSJg5
TNTM2A8iaB5gARczCoCIIek2M_LHEDMPMMfQ6-xhhqnXGEmvr0d-bqp-kL63foB-QW4oGESUOyoCAFUmTro! /delta/base64xml/L3dJdyEvd0ZNQUFzQUMvNElVRS82XzJfNkRR ?AF-KLM Cargo (2011). Products and services. Retrieved September 9, 2011, from http://www. af-klm. com/cargo/b2b/wps/portal/b2b/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLN4o3s7AASYGYxk7mLvqRIJZRSJg5 TNTM2A8iiKTSzCgAi5g_hph5gDlEzDwALubsYQZV5-KBsAOm1yVQ39cjPzdVP0jfWz9AvyA3FAwiyh0VAboURLc! /delta/base64xml/L3dJdyEvd0ZNQUFzQUMvNElVRS82XzJfNjg4 ?Air France-KLM (2011). Cargo business. Retrieved September 15, 2011, from http://airfranceklm-finance. om/en/Group/Activities/Cargo ?Air France (2011). Corporate Strategy: Embark. Retrieved September 14, 2011, from http://corporate. airfrance. com/en/the-airline/corporate-strategy-embark/ ?Air France-KLM (2010). Annual Report 2010-11: Together open & committed. Retrieved September 9, 2011, from http://www. airfranceklm. com/fileadmin/user_upload/pdf/rapports_annuels/Rapport_Annuel_2011en. pdf ?Air France-KLM (2011). Board of Directors. Retrieved September 16, 2011, from http://www. airfranceklm-finance. com/en/Corporate-governance/Board-of-Directors ?Air France-KLM (2011). Corporate Governance.
Retrieved September 16, 2011, from http://www. airfranceklm. com/en/group/corporate-governance/ ?Air France (2011). Histoire. Retrieved September 12, 2011, from http://www. airfrancemusee. org/en/histoire. php ?Air France-KLM (2011). The Group Executive Committee. Retrieved September 16, 2011, from http://www. airfranceklm-finance. com/en/Corporate-governance/Group-Executive-Committee ?Air France-KLM Finance (2011). Annual reports 2004 to 2011 (adjusted). Retrieved September 16, 2011, from http://www. airfranceklm-finance. com/en/Financial-information/Annual-documents ?Airline Business (2011).
Flight global data research August 2010. Retrieved September 19, 2011, from www. flightglobal. com ?Dam, N. van, & Marcus, J. (2005). Een praktijkgerichte benadering van Organisatie en Management. Groningen: Noordhoff Uitgevers B. V. ?Effectory (2010). Beste werkgevers 2010: KLM. Retrieved September 14, 2011, from http://www. beste-werkgevers. nl/bedrijf/klm/ ?EMCC (2008). Managing change in EU cross-bordermergers and acquisitions: Case example Air France-KLM. Retrieved September 15, 2011, from http://www. eurofound. europa. eu/pubdocs/2008/041/en/1/ef08041en. pdf KLM (2008). De weg van Smart Leadership.
Retrieved September 15, 2011, from http://www. klm. com/corporate/nl/images/NL_Jaarverslag0708_tcm730-335892. pdf ?Janik, K. (2003) Managing cross-cultural mergers – the role of management style Case Air France – KLM. Retrieved september 15, 2011, from http://www. du. se/PageFiles/5051/Janik%20thesis. pdf ?Gittell, J. , Cameron, K. ; Lim, S. (2005). Relationships, Layoffs, and organizational Resilience: Airline Industry Responses to September 11th. Berrett-Koehler Publishers. ?KLM (2009). Merger Air France – KLM: HR-experiences Miriam Kartman (KLM). Retrieved September 17, 2011, from ttp://ec. europa. eu/transport/air/events/doc/eu_us_labour_forum/miriam_kartman. pdf ?KLM (2011). AIR FRANCE KLM. Retrieved September 12, 2011, from http://www. klm. com/corporate/nl/about-klm/air-france-klm/index. html ?KLM (2011). History. Retrieved September 12, 2011, from http://www. klm. com/corporate/nl/about-klm/history/index. html ?Martinair (2011). History. Retrieved September 12, 2011, from http://www. martinair. com/nl_nl/about/history. aspx Air France-KLM structure and main subsidiaries Appendix 1 Table 1: Air France-KLM structure and subsidiaries (Air-France KLM, 2010-11) ?
Financial figures Appendix 2 RevenuesPercentage changeCargoPercentage change 2004 12,337 1,412 2005 18,983 53. 87% 2,494 76. 63% 2006 21,452 13. 01% 2,882 15. 56% 2007 23,077 7. 58% 2,909 0. 94% 2008 24,127 4. 55% 2,928 0. 65% 2009 23,975 -0. 63% 2,857 -2. 42% 2010 20,999 -12. 41% 2,439 -14. 63% 2011 23,622 12. 49% 3,159 29. 52% In Millions (Euro) Table 2: Financial figures (Air France-KLM Finance, 2011) ? SWOT analysis Appendix 3 PositiveNegative Internal factorsStrengths: ?Good working conditions ?Well known brand Weakness: ?Operating as two separate companies ?Not enough airplanes
External factors Opportunities: ?Fast growing global trade ?Fuel saving technologyThreats: ?Environmental regulations ?Safety, terrorist attacks Table 3: SWOT analysis ? Benchmark Appendix 4 Revenue ($B)Market Share Lufthansa Group36,114,66% United Continental Holdings3413,80% Delta Air Lines31,812,91% Air France-KLM Group31,312,71% FedEx Express24,69,99% AMR Corporation22,29,01% International Airlines Group (British Airways/Iberia)19,57,92% Japan Airlines Corporation166,50% All Nippon Airways Group166,50% The Emirates Group14,86,01% 246,3 Table 4: Benchmark (Airline Business, 2011) ?