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| KLM
Airlines
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Table of contents:
1. Abstract
2. Introduction
3. Company overview
a. Background and profile of the company
b. Managerial hierarchy and division and managerial functions
c. Competitive advantage
d. Impact of the company on the economy
e. SWOT analysis
f. Impact on local businesses
4. Conclusion and summary
5. Appendix
6. References
7. Footnotes
Abstract
The KLM is one of the leading airline companies of the world.
The paper focused on the background of the company and its
current position. Due to its experience, the company takes
the leading position in the world market. It uses new airliners
and operates worldwide. The competitive position of the company
is strong due to technical and financial potential of the
company as well as effective managerial structure. Nevertheless,
the company still has to cope with the problem of the growing
competition.
Introduction
The aviation industry plays increasingly more important role
in the contemporary world. In fact, aviation is one of the
most prospective industries since it provides extensive opportunities
for the fast transportation of goods, while passengers can
benefit not only from speed but also from a high level of
comfort as they can travel worldwide using services of various
airline companies. In such a situation, it seems to be quite
natural that the competition between airline companies is
constantly growing and becomes more and more severe. At the
same time, the competition produces a positive impact on the
development of the economy since companies offer products
and services of the high quality in order to gain a better
position in the market. On the other hand, for many companies
it is extremely difficult to preserve their competitive position
in the market. In this respect, small companies are in a particularly
disadvantaged position since they are practically unable to
compete with large multinational corporations operating in
the aviation industry. However, the position of such renowned
leaders as the KLM Royal Dutch Airlines, which is one of the
oldest airlines in the world, is also under a threat since
the competition is constantly growing stronger and to maintain
the leading position in the world market companies are forced
to develop new strategies and approaches to increase the effectiveness
of their performance and to gain a better competitive position.
In such a context, the effective management and the ability
of a company to adapt new strategies to improve its position
in the world market become crucial for the survival and further
progress and the development of the KLM Royal Dutch Airlines
is particularly noteworthy in such a context.
Company overview
a. Background and profile of the company
The KLM Royal Dutch Airlines is the oldest airline company,
which was founded in 1919 in Netherlands and it has preserved
its original name till the present epoch. Throughout its long
history the company has managed to take the leading position
in the world aviation industry and it is one of the most popular
and well-known companies in the world. Such a success of the
KLM is particularly noteworthy taking into consideration the
fact that national airlines were traditionally closed for
foreign companies and it was extremely difficult for an airline
company to enter a new market and overcome resistance of local
competitors and authorities. Nevertheless, the KLM successfully
overcame existing barriers and it became one of the first
airlines which started its operations worldwide.
At the same time, it should be said that the development of
the company was steady and its successes are the result of
the huge experience the company has got in the airline industry.
At the beginning of its existence, the company mainly focused
on the national market and by the middle of the 20th century
it was mainly oriented on the flights within European continent.
However, the company realized the importance of international
flights, especially overseas flights, which were technically
impossible at the dawn of the aviation. However, as technologies
progressed the company had got an opportunity to offer its
customers overseas flights and the KLM Royal Dutch Airlines
was one of the first companies in the world that started such
flights. In fact, the KLM was the first European continental
airline company to launch scheduled service to New York in
1946 . In actuality, it was just a beginning of the intercontinental
flights offered by the KLM to its customers. In 1958, the
company opened the first trans-polar route from Amsterdam
to Tokyo.
In such a way, the company had started the strategic market
extension since it offered a wide range of services moving
from continental airlines to intercontinental airlines. This
means that, unlike many other companies, the KLM was one of
the first companies which had overcome boundaries of the national
and continental market. Obviously, from the middle of the
20th century the development of the international and intercontinental
flights became one of the strategic directions in the development
of the company. In this respect, it is important to underline
that the development of this strategic direction became possible
to due to the progress of technologies which allowed the company
to offer new services and develop routes of a longer distance.
On the other hand, it should be said that the company was
traditionally oriented on the introduction of innovations
in its services and its technical equipment. Traditionally,
the KLM was oriented on the use of aircrafts which were the
most advanced technologically and which could offer clients
of the company the top level of comfort and safety. At this
point it is worth mentioning the fact that in 1960, the company
introduced the first Douglas DC-8 jet into its fleet. It was
a very important step in the development of the company and
its international and intercontinental operations since jets
were a totally new type of aircrafts which had considerable
advantages over conventional aircrafts the company as well
as its competitors used. In this regard, speed was one of
the major advantages of jets and, naturally, the company focused
on the acquisition of jets and creation of a large fleet of
jets for its intercontinental as well as continental flights.
Jets proved to be the most efficient aircrafts for long-distance
flights. In such a situation, it is important to underline
that the KLM Royal Dutch Airlines was one of the first companies
using jets. No wonder, KLM was the first airline to put the
higher gross-weight airliner, Boeing 747-200 B into service
in 1971 that marked the beginning of the era of wide body
jets .
In such a context, it is important to underline that the introduction
of such gross-weight airliners allowed the company to get
a strategic advantage over its major competitors since the
new airliners were more efficient as they allowed the company
increasing the number of passengers consistently. At the same
time, it is not only the number of customers that increased
substantially, but it is also the customer satisfaction that
also grew because new airliners were more comfortable, faster
and, therefore, more convenient to use for intercontinental
flights where the speed and comfort are crucial factors that
determine customers preferences, while the price, being quite
important, may be secondary compared to these two factors.
By 1980, KLM carried over 9 million passengers annually and
within a decade, by 1990 the number of passengers practically
doubled and reached 16 million passengers per year . Such
a substantial growth was determined by several factors, among
which it is possible to single out the increase of the number
of routes, for the company constantly introduced new routes,
the increase of the number and frequency of flights, and the
introduction of new airliners, such as Boeing 747-300s and
Boeing 747-400. In such a way, the company had managed to
increase substantially the number of passengers due to the
introduction of technical innovations and re-equipment and
improvement of its fleet.
The 1990s were marked by the growing focus of the company
on the quality of services offered to its customers. For instance,
in 1994 KLM was one of the first airline companies to introduce
a business class on intercontinental routes. This step allowed
the company to attract new customers due to the improvement
of the quality of its services and even higher level of comfort
and conveniences customers of KLM could benefit from during
intercontinental flights. At the same time, the 1990s were
marked by the growing competition in the market of intercontinental
flights and the focus on the quality and the introduction
of new classes, such as the business class, was a response
of the company on the growing competition. Obviously, in such
a way, the company attracted new customers and increased customers’
loyalty to KLM.
The 2000s were marked by the ongoing renovation of the fleet
of the company. To put it more precisely, in 2002 the company
announced the replacement of its old Boeings by Boeings 777-200ERs
and Airbus A-330-200s . At the same time, the company started
to accelerate its international market expansion and international
cooperation. In this regard, it is worth mentioning the merger
of KLM with Air France in 2004, though both KLM and Air France
continue to fly under distinct names preserving their uniqueness
and brand images . This merger was very important since it
allowed the company to improve its competitive position consistently
due to the increasing fleet, number of routes and, therefore,
a number of passengers. In addition, the merger opened new
markets for the company where the position of Air France was
traditionally strong.
In actuality, the merger of KLM with Air France is a part
of the current strategy of the company’s international
market extension. In this respect, it is also worth mentioning
the fact that KLM is a member of the Sky Team alliance which
also facilitates the penetration of new markets and allows
the company to maximize its performance in the markets where
it has strong positions. The membership in the airline alliance
optimizes the performance of the company since members of
the alliance, as a rule, share routes to maximize their profits
and avoid undesirable competition between members of the alliance.
In such a way, companies-members of the alliance can maximize
their profits since they can maintain the high price and minimize
costs due to the decrease of the competition, which allows
them schedule flights in accordance with their technical capabilities
and customers actual demand regardless of the position of
other companies because members of the alliance have their
own routes and schedules which do not intersect to avoid the
competition.
Today, KLM is one of the largest airlines operating worldwide.
It has a number of subsidiaries, such as KLM Cargo, KLM Engineering
and Maintenance, KLM Helicopters, and others. In such a way,
the company attempts to achieve a higher flexibility to maintain
its leading position in the highly competitive environment.
At the same time, the company maintains its orientation on
the international market expansion, which it realizes through
mergers and acquisitions as well as through its membership
in the airlines alliance.
b. Managerial hierarchy and division and managerial functions
The successful development of KLM was, to a significant extent,
determined by its effective management. At the same time,
it is important to underline that the management of the organization,
its managerial hierarchy and division changed in the course
of time respectively to the changes in the business environment
and the position of the company in the international market.
To put it more precisely, the managerial hierarchy of the
company should adapt new strategies and new forms in order
to maintain the effective performance of the organization.
It is obvious that the substantial enlargement of the company
which took place in the second half of the 20th century and
the enlargement of its operations worldwide stimulated the
change in the organizational hierarchy since the company could
not function effectively using the traditional managerial
hierarchy. In fact, today, the company tends to develop a
flexible organizational structure in order to avoid unnecessary
bureaucratization, which can produce a negative impact on
the performance of the company. This means that the company
is managed by its headquartering Amsterdam where the company’s
CEOs take the strategic decisions concerning the further development
of the company.
However, today, it is practically impossible to manage effectively
such a huge organization as KLM since the company operates
domestic and worldwide scheduled passenger and cargo services
to more than 90 destinations and it has over 30,000 employees
. Naturally, such a large number of employees and complicated
organizational structure needs effective management. Obviously,
the effective management may be achieved only through the
minimization of a bureaucratization of the organizational
hierarchy. The latter is achieved through the provision of
KLM’s subsidiaries and its units located worldwide with
a higher degree of autonomy. In fact, the company tends to
introduce liberal management strategies which target at the
higher autonomy of the company’s units and employees.
In practice, this means that the subsidiaries and units of
the company function autonomously and take decisions concerning
the regular and routine performance relatively independently
from the headquarter of the entire company. Instead, the headquarter
of the company and CEOs are not involved in the process of
taking decisions concerning routing, technical questions.
In fact, CEOs of the company are working on the problem of
the strategic development of the company. In other words,
they define the basic directions of the development of the
company, strategic goals and ways of their achievement, set
tasks which their subordinates should achieve. The subsidiaries
and various units of the company, on the lower level of the
managerial hierarchy, get the strategic directions and goals
which they have to achieve and work on the fulfillment of
tasks set by CEOs. In such a situation, the technical way
in which the strategic goals are achieved is mainly the prerogative
of subsidiaries and units of the company and their managerial
staff, which does not concern top executives of the company.
As a result, the managerial hierarchy allows the company to
function effectively since decisions are taking fast and the
managerial hierarchy is flexible enough to provide the personnel
with a high degree of autonomy, which allows various units
of the company operating in different countries and different
environment to use methods and techniques which contribute
to the achievement of strategic goals set by CEOs of KLM.
c. Competitive advantage
In spite of the growing competition in the airline market,
KLM still maintains its leading position. To a significant
extent, its high competitiveness is determined by the extensive
experience the company has got in the course of its development.
In this respect, it is important to underline that the company
is the oldest airline company in the world and, what it more
important, it has preserved its original name since the date
of its foundation. In such a way, customers view the company
as a reliable airline company which delivers its services
for almost a century. Such a permanence, therefore, contributes
to the formation of the positive public image of the company
and increases the popularity of the brand since customers
readily prefer services of the company which they are confident
in and which they can trust because this company has a long
history and its reliability proves to be beyond a doubt.
In such a context, KLM has a strategic competitive advantage
compared to new airline companies which just attempt to enter
the market and which brands are not very popular and renowned.
Today, the popularity of brand may be one of the determinant
factors which define the customer loyalty to the company.
In fact, the brand is an important asset that constitute a
considerable part of its market value and the popularity of
the brand, a priori, puts the company into an advantageous
position compared to its major competitors
Furthermore, the company has a large and modern fleet which
allows the company to provide its customers with services
of the high quality and, what is more, the use of new and
modern airliners increases the safety of flights, which is
one of the major and determinant factors that define the customers’
choice of an airline company. In such a context, KLM is one
of the world’s leaders since it uses the most technologically
advanced airliners.
Finally, the existence of various subsidiaries makes the company
more flexible compared to its competitors because it is not
focused on intercontinental flights entirely, for instance,
but it also offers a number of services which brings the company
considerable benefits and which are unaffordable for many
of its competitors, who are specialized on specific segments
of the market.
d. Impact of the company on the economy
KLM, being a large multinational corporation, produces a significant
impact on the development of the economy, but, it is important
to underline that, in the contemporary business environment,
KLM affects the economy not only on the national, but also
international level. What is meant here is the fact that the
company contributes to the development of the infrastructure
in countries where it operates since the normal functioning
of the company heavily relies on the local infrastructure.
Obviously, the companies airliners need modern airports with
the essential infrastructure and their creation naturally
stimulates the economic growth in the area because it means
the creation of new job places in the area. In addition, the
company can contribute to the development of tourism since
it can facilitate the delivery of a large number of passengers
in a short period of time. At the same time, as a cargo carrier,
KLM can develop the local business and revive economic cooperation
between countries and regions of the world.
e. SWOT analysis
In order to adequately assess the competitive position and
potential of KLM, it is necessary to analyze in details its
marketing position and SWOT analysis is a very effective tool
to achieve this goal. In this respect, it should be said that
KLM, being one of the world’s leaders of the airline
industry, still has both strength and weaknesses which affect
its performance consistently and it is very important for
the company to overcome existing problems and minimize possible
threats to realize its full potential and opportunities.
First of all, it should be said that KLM has a number of strengths
which contribute to the stable and successful functioning
of the company. KLM has an effective organizational structure
which provides the company with the essential flexibility,
which is one of the major competitive advantages of the company
in the contemporary business environment. Furthermore, the
company has a huge experience that contributes to the stable
performance of the company because it does not really need
to develop absolutely new strategies or approaches, instead,
it just improves the existing ones and using its experience
it can easily apply the most effective strategies that allow
the company to take a better competitive position or enter
new markets.
On the other hand, there are certain weaknesses which the
company has to overcome. Firstly, its extensive growth inevitably
provokes the growing complexity of the relationship within
the company. The growing organizational hierarchy raises the
problem of the effective control over the performance of all
units of the company. Top executives of KLM cannot totally
control the functioning of the entire company, since they
are focused on the strategic development of the company and
control over its subsidiaries and units located in different
parts of the world, while technical questions are the prerogative
of subsidiaries, units and their managers. Anyway, the growth
of the company inevitably decreases the flexibility of the
company. Furthermore, the policy of mergers and acquisitions,
including the merger with Air France raises the problem of
the restructuring of the company and integration of new units
into the organizational structure. Obviously, the merger with
such large companies can cause serious internal problems because
of the difference in the managerial style and functions within
Air France and KLM. In addition, such mergers can lead to
the loss of highly qualified professional, who may prefer
to change an employer in face of the uncertainty of their
position in the merged company.
Nevertheless, in spite of existing weaknesses, the company
still has large opportunities for the further market extension
and development. To put it more precisely, the leading position
of the company in the world market and the popularity of its
brand opens large opportunities for the penetration into new
markets. In this respect, the use of the strategy of mergers
and acquisitions may be very effective. Furthermore, the company
can increase the number of its passengers through the use
of new airliners, which have larger capacity. At the same
time, the growing demand on cargo carriers’ services
open new opportunities for KLM as a major cargo carrier. Also,
the company can develop its subsidiaries, including KL Helicopters,
KLM Cityhopper to take new niches of the market.
However, it is important to remember about the existence of
serious threats to the position of the company. In this respect,
the threat of the growing competition is one of the major
threats to the future position of the company in the market.
Also, the problem of safety of flights, especially after September
11, slows down the growth of the number of passengers and
cargo flights. In such a context, the company faces a threat
of the increase of costs on the improvement of safety of flights
and quality of its services
f. Impact on local businesses
Basically, KLM stimulates the development of the economy since
it revives economic cooperation, facilitates transportation,
etc. At the same time, it contributes to the development of
local businesses since to provide effective services it needs
to use services and products of local companies. For instance,
to supply passengers with specific dishes during long-distance
flights, the company can use services of some local suppliers.
On the other hand, KLM produces a depressing impact on the
development of the local airline companies, which are unable
to compete with such giants as KLM. In fact, local airline
companies cannot afford the competition with KLM because the
latter can provide services of the high quality at a relatively
lower price, compared to minor companies operating on the
local level.
Conclusion and summary
Thus, taking into account all above mentioned, it is possible
to conclude that KLM is a successful company with a long history.
Its current position on the world market is stable, while
the brand of the company is tremendously popular among customers.
In such a situation, the company naturally benefits from its
popularity to develop customers’ loyalty, which gives
it a strategic competitive advantage. Moreover, the company
is traditionally oriented on the provision of high quality
services and the use of modern and comfortable airliners,
which are economically efficient. This is why KLM manages
to main to maintain the leading position in the world market,
regardless of the growing competition.
Appendix:
SWOT analysis
Strengths:
KLM has an effective organizational structure
Flexibility of the organizational structure
A huge experience which contributes to the stable performance
of the Weaknesses:
Extensive growth inevitably provokes the growing complexity
of the relationship within the company.
The growing organizational hierarchy raises the problem of
the effective control over the performance of all units of
the company.
The policy of mergers and acquisitions raises the problem
of the restructuring of the company and integration of new
units into the organizational structure.
Opportunities:
Opportunities for the penetration into new markets.
The company can increase the number of its passengers through
the use of new airliners, which have larger capacity
The growing demand on cargo carriers’ services open
new opportunities for KLM as a major cargo carrier.
The company can develop its subsidiaries, including KL Helicopters,
KLM Cityhopper to take new niches of the market.
Threats:
The threat of the growing competition.
The problem of safety of flights slows down the growth of
the number of passengers and cargo flights.
The company faces a threat of the increase of costs on the
improvement of safety of flights and quality of its services
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Calder, S. (2002). No Frills: The Truth behind the Low Cost
Revolution. LA: Touchstone.
Littman, T. (2002). “Evaluating Transportation Equity.”
World Transport and Practice, 8:2.
Stewart, E. (2004). The Perspectives of Airlines. Oxford:
Oxford University Press.
Williams, G. (2005). The History of Aviation. London: Routeldege.
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