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Abstract

This is part of a case series. Airlines that were flag carriers of European countries has always been a symbol of pride for the individual countries. Air France and KLM, flag carriers of France and Netherlands, had merged together to fly higher than others in the European airspace. At the same time, other flag carriers such as Alitalia, Italy's flag carrier, was treading in troubled waters, with high debt equity ratios. New airspaces had opened up for Air France-KLM in the growing markets of Africa, Asia and South America. Wishing to reach higher altitudes with competing European airlines, Air France-KLM decided to merge with Alitalia, giving it a helping hand in the process of its turnaround. However, the political and social forces were not open to this idea of letting go Alitalia, the pride and competitive advantage of Italy, though it was loss making for years together. Meanwhile, Gulf carriers, with their brand new fleet, positioned themselves as the hub-of-the-world, were searching for an opportunity to enter Europe and gain a share in the busy mature and lucrative airspace. Competition from low cost carriers such as Ryanair and EasyJet also increased. At the same time, Air France seems to be in trouble because of its own increasing debts. The case discusses the challenges of AF-KLM in this situation. Will they be able to restructure and compete effectively with Gulf airlines such as Emirates and Etihad? In the meantime the alliance with AF-KLM and Alitalia failed and Etihad got ownership of Alitalia with 49% stake.
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About

Abstract

This is part of a case series. Airlines that were flag carriers of European countries has always been a symbol of pride for the individual countries. Air France and KLM, flag carriers of France and Netherlands, had merged together to fly higher than others in the European airspace. At the same time, other flag carriers such as Alitalia, Italy's flag carrier, was treading in troubled waters, with high debt equity ratios. New airspaces had opened up for Air France-KLM in the growing markets of Africa, Asia and South America. Wishing to reach higher altitudes with competing European airlines, Air France-KLM decided to merge with Alitalia, giving it a helping hand in the process of its turnaround. However, the political and social forces were not open to this idea of letting go Alitalia, the pride and competitive advantage of Italy, though it was loss making for years together. Meanwhile, Gulf carriers, with their brand new fleet, positioned themselves as the hub-of-the-world, were searching for an opportunity to enter Europe and gain a share in the busy mature and lucrative airspace. Competition from low cost carriers such as Ryanair and EasyJet also increased. At the same time, Air France seems to be in trouble because of its own increasing debts. The case discusses the challenges of AF-KLM in this situation. Will they be able to restructure and compete effectively with Gulf airlines such as Emirates and Etihad? In the meantime the alliance with AF-KLM and Alitalia failed and Etihad got ownership of Alitalia with 49% stake.

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