Air France – Written Case Analysis
Background & Key Issues
Air France, which came into existence with the merger of five French airlines in 1933, seventy-five years later it had become one of the most efficient in entire Europe. It was able to
provide the largest number of connections within t...
Air France, which came into existence with the merger of five French airlines in 1933, seventy-
five years later it had become one of the most efficient in the entire Europe. It was able to
provide largest number of connections within the shortest time span. It had also started its
flight to United States after World War II. In 2004, it conglomerated with the Netherland-based
KLM and created the SkyTeam global alliance. Hence, Air France was growing and expanding at
great pace. By the end of 2006-07 fiscal year, Air France-KLM continued to see growth. The
global economy grew by 4.9 percent whereas the airline traffic increased by 6.6 percent.
Air France was a big client for a media solutions provider firm, Media Contacts. The main aim of
Media Contacts here was to optimize the performance and increase the rate of advertisement
for Air France with respect to the dollars spent on the search engine marketing campaigns. Now
was the time when the search engine marketing was catching up the heat and the revenue
because of it was also increasing. So, here the key issue for Media Contacts was to suggest an
optimized search engine which could increase their revenue which they were targeting right
now. This can be seconded as even the consumers were going online for research and booking
their tickets. There was an increase of 263 percentages between 1996 and 2005 in the number
of people going online to research and book the tickets.
There were many big search engines which were famous and each had their one or the other
advantage. The search engines included Google, MSN, Yahoo and Kayak. Media Contacts felt
that there might be a case where each search engine might be able to target a particular type of
people and cater customers from different background. Hence, the issue that Media Contacts
faced was to use one or more of the above mentioned search engines and tries to increase the
revenue as much as possible for Air France.
Most of the budget was spent on Google adwords. After that came Yahoo. MSN had he highest
cost per click in the Stated whereas Overture was at the opposite end. Other key issue which Air
France faced was to reduce the air fare prices as there were competitors in that market and
they had to do the same to be or remain at the top. They also had to decide whether or not to
increase their budget after branding. Also the use of Kayak is a must. The use of metasearch for
the brand building and converting the clicks into sale is also very important. These are the major
things or issues which need to be kept in mind.
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The Airlines industry is dominated by several big companies; American Airlines is the biggest
airline worldwide. The Sky-Team Global Alliance is a major player in Europe; the industry is not
very profitable due to heavy competition and heavy Churning. The average airline industry
ROIC(Return on investment change) is about 5,9 %, this average in particular in US industry is
about 14.9%.
The Airline traffic growth is continually increasing and is more than global economic growth in a
year, there was about 50% more Increase in demand for air travel between the years 2000 and
2006. The airline industry has been plagued with low returns, bankruptcies, and ever-
fluctuating demand. But in 2006 airline profitability finally improved. After six challenging years
and $42 billion in losses, airlines came within $500 million—0.1 percent of revenue—of what
industry analysts considered breaking even. Furthermore, operating profit for the industry
reached $13 billion in 2006, more than double the amount generated previous year. At just over
3 % of revenues, this was still far from ideal industry profit levels.
The landscape for airlines industry is a competitive one, the driving factors being – becoming
Low Cost Airlines (in order to show price differentiation) results in prices decrease, which in-
turn would lead to price competition rather than service competition?!, also the suppliers in this
industry are very powerful, mainly dominated by Boeing and Airbus. Also the Pilots Unions is a
highly qualified workforce, the lobbying in this industry is highly Intensive, Government policies
on this industry is also not very supportive, as most of the revenue that is generated would have
to be given off as either taxes or some other investments. Very important barriers to entry, as
the initial investments and the exiting barrier is very high as a result of which the Industry
becomes highly competitive and less service oriented.
The modern day Internet has a very big impact on the industry; internet is also a very
appropriate medium for airline industry which makes the industry omnipresent. Internet also
acts as a fast multitude of advertising tools and possibilities, due to obsolescence of travel
agents, which is a major shift of focus in terms of distribution, now Direct Distribution Channel
enables the shift in bargaining power to consumers, there is a sudden and high emergence of
different kinds of online flight sales platforms, which in-turn gave rise to travel aggregators and
travel booking alternatives like -Kayak, Orbitz and Expedia.
SWOT Analysis
SWOT Analysis – Air France
Strengths
The alliance of the two airlines(Two of Europe’s oldest airlines) made it possible to cater
to a large number of international passengers flying to 225 destinations in 109 countries.
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