Competing Through Alliances in the Airline Industry: the Air France- Klm/Delta Air Lines Joint Venture Essay

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Competing through alliances in the airline industry: The AIR FRANCE- KLM/DELTA AIR LINES JOINT VENTURE

In less than twenty years, the global industry has gone through tremendous change. Several airlines had gone out of business that had been on top of the industry for years. One of the remarkable changes had been airline alliances. The case focuses on the airline industry and how airlines are forming alliances and joint ventures. It then introduces the partner firms Air France KLM , and Delta . Air France KLM had over 25 collaborative agreements with other carriers and was a founding member of Skyteam, one of the leading airline groups. Air France KLM and Delta Airlines formed revenue
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The course of action the company’s managers should look at is what affect will the alliance have on the airline should the joint venture fail and Delta pulls out, what will be the future of the alliance, how many airlines would be allowed to join the joint venture and what would be the distribution of profits and losses among all of the partners. The company’s managers should have in place specific goals setup to be carried out by all parties involved. When airlines enter into an alliance it is to gain economies of scale and scope, build global networks at relatively little or no extra cost, gain access to new markets and increase their load factors and seat capacity. An airline alliance is an agreement between multiple independent partners to collaborate in various activities to streamline costs (e.g. sharing sales offices, maintenance facilities, ground handling personnel, check-in and boarding staff etc.) while expanding their global reach and market penetration. In this case study, Air France- KLM and Delta Airlines (which involved six carriers) formed a revenue and cost sharing joint venture that included all transatlantic routes of the two airlines and an agreement to share revenues, costs, profits and losses. This joint-venture generated sales of over $12 billion.
When there is competition it forces carriers to become efficient or go out of business, instead of being subsidized by regulated route and fare structures. Additionally, when new