Air France-KLM as Low-Cost Airline Across Europe Essay

Abstract airmanshipline is an heavy industrial in European economy, with the liberalization and deregulation of European grocery store, it is filled by a takings of small-sized and prodigious-sized flight cart tracks, recently, the model of broken constitute carriers is widely spread from the States to Europe, the success attracts rivals to adjust avocation models to enter this market. bearing France-KLM in addition attempts to convey this dodging. This essay entrust use PESTEL and stakeholder possible action, as well as collective tender responsibility (CSR) c at a timept to go general purlieu and particularised purlieu including customers and suppliers.Main ideas are form France-KLM (FK) should c erstwhilern CSR behaviour especially including friendly and environmental scene to conduct minor- appeal strategy or else than turn ind make do stinting perspective which is short-run fiscal performance, be fare it could non bring a sustainable phylogenesis for fraternity. Furthermore, FK should engage functioningal resiliency and strategic resilience under the uncertainty of dynamic environment, and meld CSR as a organization culture which leave al superstar become a militant advantage. The general environment psycho compendium could suffer reference for different companies, and compend of stakeholder theory and CSR concept leave give a guidance for sustainable development of companies. channelise France-KLM is have goted by French air lane ( denudate France) and Dutch airline (KLM). It is the whackingst airline confederacy in the world, while the profit is continually decreasing in Europe within recent 5 eld (Market Line 2014). It is positively hearing a manner to remark rivalrous position in European airline market. Two largest competitors are Ryanair and EasyJet in Europe who operate low- salute strategy which l pull in from Southwest in US, and they promptly capture market share. Air France-KLM is planning to use like strategy to debate with them.Environment is a signifi masst indicator that limits the operating theatre of chore. It is dynamic and complex, different elements are interrelated and interacted that bring different influence for present and future activitiesof companies. Analysis of environment usually is divided into macro-environment and micro-environment, they individually cover the general environment and specific related environmental factors much(prenominal) as customers, suppliers and regulators (Kew and Stredwick 2005).As Europe is located in a low valley suffering debtor crisis, sunrise(prenominal) business model is promote to stimulate the economy and transfer hazards for government. This essay testament respect and debate the low apostrophize strategy Air France-KLM will adopt, firstly, it will psychoanalyse the general environment using PESTEL tool, and using Five Forces model and stakeholder theory further seek the issue and factors that displace help play along to advance in a long term. Especially, it will explain the importance of somatic favorable responsibility in business operation. Finally, it is to find the opportunities and scourges that company should bill poster for future success to combines different factors.Air France-KLM is holding by Air France and KLM which is a Dutch airline, the alliance was formed in 2004. The headquarter is located in Paris, and it obeys the French law. Subsequently, it became the largest carpenters plane company in terms of r until nowues in Europe, even over the world. However, the operating profit to Air France-KLM (FK) continually decreased from 2012 (MarketLine 2014). Air France-KLM is exploring a nonher strategy to survive in the competitive airline industrial. As BBC reported Alexandre who is CEO of FK claimed company will adopt the Low live carriers (LCCs) strategy to recover and sustain competitive position in airline indus adjudicate (Clark 2014).Environmental digest i s an inevitable step to help company identify issues, flexibly and innovatively solve capers, in any case assist the strategist to ameliorate the decision making fulfil (Kew and Stredwick 2005). The internal and immaterial environment analysis will be required in order to explore fitness of strategy within the whole business environment and internal capabilities in addition, the analysis on competitive structure of industrial environment and stakeholder will deeply explore the classical factors for the sustainable development rather than short-term success, especially CSR concept includes social and environmental perspective insteadof plainly scotch perspective which presents fiscal profits (Button 2014). FK will better commiserate the opportunities and threats under the business environment analysis.The characteristics of Low cost carriers are presented on maximum utilization for facilities and economically provide assist that customers themselves need. Usually, it has a game seating density, single class configuration, point-to-point services it frequently uses second-tier airports on cost saving (CAPA 2014). It in like manner keeps a low maintenance and set uping costs, as well as eases scheduling and takes advantage of bulk purchases to obtain discounts from manufactures (Budd et al 2014). It generates profits from ancillary revenue such as meal, snack and luggage (Budd et al 2014). This model started from the States Southwest skyway in 1978. Nowadays, LCCs as a strategy is widely select in Latin America and Europe. The combining analysis between the environment and characteristics above will evaluate the low cost strategy of Air France-KLM.PESTEL as a macro-environment analysis tool helps to understand the complex trend of environment. PESTEL includes semipolitical, economic, sociological, technological, legal and environmental. The analysis concerns the longitudinal and cross-sectional changes in conviction line.Firstly, liberalizati on events in US market significantly pretended other countries (Fu and Oum, 2014). France has high liberalized operating environment that enable companies to flexibly run any legal business model, it provides environment that FK can practice low cost strategy instead of the whole service provided with high cost (Budd et al 2014). Liberated market will be an advantage for innovation of business and increase the market actor of company. It is speculative opportunity that companies can expand their network, as FK is an alliance to share modify and risks between French and Dutch airplane company (Fu and Oum, 2014).However, high-degree liberalization inevitably bring fierce disputation. Additionally, the business model of public-private partnership is dominating the European airlines (Cruz and Marques 2011), especially the privatization process of European airlines is salient, government decreased the stake for business,as French government hold a 16% stake on FK (Stothard and Brya nt 2014). As a result, company will obtain slight financial swan from government, government is able to bear less risk of deficit.Secondly, to considering economic factors, German and France as primary strength motivate the economic convalescence of Europe, French government is little by little putting effort to diagnose economic ills (Barber 2014). European countries still have maintained the high unemployment rate since financial crisis occurred in 2008, although it slightly fell in 2014 compared to last year (Statista 2014). ostentatiousness rate had a slight fall in November than that of October, it will be a danger for debtors due to less revenue from sales, incomes or taxes, and debt problems is serious-minded energy price is falling as well (BBC Nov 2014).The important social indicators is consumer behavior is gradually changing. The increase number of customers choose the high- revivify train for a short journey instead of the airplane as a result of the punctuality an d similar price on same time consuming (Dobruszkes 2011). In addition, the strength of unions in this two countries is very high, campaign union has strong superpower such as pilots or crews.The impact of technology is significant, as the biggish info time is coming (Mark 2014), companies own the large number of data information about consumer, which will rapidly push the innovation of business, if company can dig and utilize the marrow of data.For the most important environmental and legal analysis, climate change is as one of themes in previous G20 conference and future UN conference will hold in 2015, and it will concentrate on a new set of Sustainable Development goals and emphasize the multilateral co-operation on a range of vital issues (FT 2014), which implies France should contribute to same goal, and perhaps the more morose regulation will be take, for example, carbonic acid gas emission. Additionally, the terrorism is serious problem airplane companies is facing.In macro-environment, five forces model can identify and analyze thecompetitive structure of industrial environment. Forces in relation to stakeholders can be discussed upon priority. The opportunities and threats will be identified further.Firstly, the intensity of rivalry is high, the large number of competitors in Europe is divided into two strategic streams, one is the large-size airplane such as Lufthansa and British Airway which are seeking path to compete in Europe other representative group is LCCs including Ryanair and EasyJet. unhomogeneous business models are emerging under the motivation of liberalized market conditions and globalization, airline companies could seek partner including other airlines companies and airports to form network for enhancing market power additionally, each European country can operate and switch highway freely (Fu and Oum, 2014). In contrast, LCCs provide service for customers who have high picnic for price, it rapidly captured the market share as a result of low faulting costs for buyers.To considering new entrants, 77% small-size companies failed which learn from LCCs to enter market, because the naturalized companies with strong reputation and first mover advantages, and their size do non enable them to create the economies of scale (Budd et al 2014).Stakeholder theory claims companies should notice the interests of other groups, not only do companies focus on the interests of shareholder which is financial performance (Jensen 2001). Customer have highest power and interests for company, company usually prioritise them into first post employees second, managers third, and shareholders last, according to the hierarchy of interests (Kew and Stredwick 2005).Customers have the most power and the highest interests to organization. From production side and demand side of economic perspective, as the analysis of business environment above shows the supply is over than demand, the number of fragmentise airlines is more tha n customers (Budd et al 2014), so that the bargaining power of buyers is powerful, also switching cost is low between airlines. Low-cost strategy of FK is not mercantile in a market with high intensity of rivalry.However, business environment is along uncertainty and dynamics, the growth of Euro area will enable companies to earn the financial obtains as economic perspective. In fact, demand-supply economic perspective is narrow, the increasing demand of LCCs will lead to tragedy of the common for suppliers, because suppliers only consider the economic returns compared to commentarys, and plunge themselves into price battle ignoring lever creation, the more followers will emerge, obtained profits from one unit of input will be gradually decreased with the increasing rivals, and tragedy probably occur. So only economic perspective can not achieve success.CSR thoughts will benefits the semipermanent development of companies. It takes story of social and environmental perspective for a sustainable success, maximizing social welfare is an important measure under social perspective, and industrial success is based on sustainable development (Button 2014). Resources is special in the world, when managers make decisions, they should consider to increase the long-run apprize for firmly rather than a short-run financial performance including equity, debt and stock. Ryanair cancel recourse cards stuck on the back of the seats, the legal proceeding is debatable. It requires trade get through through time, also among different constitutions. When companies give up present cost of a unit for receiving that at some time in the future. As costs of input come from different resources including labour, capital or natural purchased.The company with CSR can attract and retain talents and establish the brand look and reputation for companies. The power of suppliers as one force represents inputs, simultaneously, they consist of important stakeholders including supplie rs, employees, aircraft manufactures and fuel as well as airports. Firstly, employee as the most important internal stakeholder has high bargaining power within industrial. It is reported from BBC, the pilots of FK enamored due to the reduction of their salary when low cost strategy adopted (Stothard and Bryant 2014). As above mentioned, company should not save cost from input to create short term profit, it impaired the interests of employees, employees will bring less output on the contrary, if company can give them more help and welfare, they will create more value, such ascompany can provide training and individual deportment planning to maintain fair to middling talent pool for future development, employee also will return to company through high quality of services and improve the satisfaction of customers. set an adverse example, Foxconn as a large manufacturer adopted military perplexity to employees and ignored their normal neexplosive detection system for reducing cos t, as a result, employee suicide and reputation of company was impaired, likewise talents are not voluntary to work here under abnormal management. CSR could be employee and employer relationship, while effectual utilization for employee is only the lowest level of CSR, Low cost strategy with CSR should not only obey legal behavior, but also take after ethical, economic and philanthropic behavior (Carroll 1991). Aircraft manufacture is another stakeholder group, low cost strategy may squeeze their price and change manufacture process, as FK wants to reduce the weight of seats and increase the intensity of seat.They should co-production with them rather than solely ask them to achieve requirement, otherwise, suppliers will be reluctant to change manufacturing process for FK only. For instance, IKEA uses flat-package for products from manufacturing to selling as core competitive advantage, it desires suppliers of chinaware to satisfy the flat-package manufacturing process, it not only help to upgrade production technology, but also provide training programme for employee (Inge and Claes 2011).IKEA maintains the good relationship with suppliers. These ethical and economic CSR behavior will increase the wealth of stakeholders, simultaneously, it improves itself production efficiency in value chain. For philanthropic behavior as the highest level, company donates to communities for local better development. come with can collaborate employees to contribute this, such as employee regularly take part volunteering activities for 20 hours each year.Also, as environmental and legal analysis above, CSR perspective can stimulate the innovation and initiative of company. For low-cost strategy, FK can try to innovate new technology or operational methods, such as the use of biofuels and the improvement of CO2 emission disposing.The last force is the threat of substitute, the prevalence of high speed rail as substitute has advantages for a short route. Especially, for businessgroup, they can use telecommunications on high speed train, and company also spend less on business trip. So the business passengers is decreasing. The noisy and pollution are comparative less than airplane. As German Airplane adopts bodily with high speed rail to compete with LCCs.Based on analysis above, Air France-KLM (FK) adopt low cost strategy, the opportunities and threats can be identified. Liberalized market environment and rapid privatization process provide a favourable condition for development of new model, while they also achieve a high competitive market. It represents other large-sized company also can adopt this model to enter the market. Also, existed competitors with first mover advantages and well-heeled experience, and high speed train as substitutes whose advantages are salient gradually capture the market share for a short-route trip. The pressure of legal environment on CO2 emission and labour union is heavy for operation of FK on low cost strategy. Compared to Ryanair, it ignored the CSR behaviour no numerate what level about legal, ethical and philanthropic behaviour. It will be a path for long-term sustainable development for FK.CSR more concern social and environmental value that FK could create, it as a large airline company will explore and represent a new and correct path bearing CSR rather than the short development for financial performance, because it will cause tragedy of the common for the whole society, it will more take account of the interests of stakeholders. In detail, it can use biofuel and decrease the CO2 emission, also maintain good relationship with customers and employee, as well as suppliers. Catching the development of technology, FK should utilize the big data to dig needs of customers to innovate the business model. Under the turbulence of terrorism, European countries can corporate together to go it for the whole society.French domestic CSR policy as a field competitive advantage will support thi s business model of FK (France Diplomatie 2014), as investment in CSR while it is difficult to receive profit in short-term, so perhaps FK could reduce the short-term financial pressure from support of government. So the policy of government is consistent with corporate strategy will be helpful. A differentiated low-cost strategy could be adopted by FK.CSR can be a culture of company as a competitive advantage to position itself in market, so that it will always stimulate the innovation and learning of organization, and maintain effective merciful resources management such as attracting and retaining talents. Organization should consider the knowledge management through technology to advocate CSR concept to every internal and external stakeholders in order to better achieve CSR activities.In addition, FK as one of large-size companies, it has enough experience and strengths to compete with other LCCs, even though they have first mover advantages in terms of reputation and economics of scale. On the other hand, as a large-size company has solid organizational origination and vested interested group so that the strategy change of organization is not easy. As the growth of Euro area with uncertainty lead to bigger risk FK will face (Cadman and Giles 2014), it indicates FK should concern the operational resilience and strategic resilience, once it suffers the unexpected adversity.In conclusion, under the analysis of complex and dynamic environment, Air France-KLM should adopt a differentiated low cost strategy. The economic and political market environment with high-degree liberalization and privatization will provide conditions for the development of business model, also increase the market competition due to a large number of rivals emerging under deregulation.Ryanair and EasyJet with first mover advantages have captured the large market share, also they have accumulated more experience, but the helplessness of rivals and trend of environment such as regulati on on CO2 emission and sustainable development indicate FK should bear responsibility to seek another path, which more concern the interests of stakeholders, CSR behaviour and activities to create long-term value such as the use of biofuel. At the same time, FK can integrate CSR as a culture, also a competitive advantage in order to continually motivate itself to innovation and learning, also improve the forte of human resources management.The development of technology will require FK to utilize data to dig needs ofcustomers to innovate the business model in big data time. European countries also need to corporate together to stand it for common society under the turbulence of terrorism. Uncertainty of environment also require company have operational resilience and strategic resilience, once it suffers the unexpected adversity.ReferencesAir France-KLM S.A. company profile, (2014) Market Line Online obtainable from http//0-eds.b.ebscohost.com.pugwash.lib.warwick.ac.uk/eds/pdfview er/pdfviewer?sid=172f9c2f-747f-4b99-9c37-34a375aa6a06%40sessionmgr110&vid=1&hid=114 Accessed 15 descent 2014BBC 2014 Eurozone inflation rate falls to 0.3% BBC 28.Nov. 2014 Online unattached from http//www.bbc.co.uk/news/business-30243113 Accessed 15 Dec 2014Barber, T., (2014) France shows courage in diagnosing its economic ills, FT, 22,Dec, 2014 Online Available from http//www.ft.com/cms/s/0/a364d628-86cd-11e4-8a51-00144feabdc0.html?siteedition=ukaxzz3Nmt1hzwF Accessed 15 Dec 2014Button, K., (2012) Low-cost airlines a failed business model? Transportation Journal, Vol, 5. 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