MCH Rapport 17 Juni

Merge of Air France-KLM, JALImplementation Plan

Written for:

Mrs. Verschoor

Written by:

Team 4 Ams

Linnette van Chaka Renardel Andre Bobvos Sammie van Oort Daan Pels Ballegooijen de Lavalette 681503 681533 681733 573529 573530

Date:

25 May 2011

Merge of Air France-KLM, JAL

Table of Contents

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Logbook This logbook is created for future mergers, as guidance to show at what time and for what reason certain decisions are made.

IntroductionThe case that we have been assigned to is the managing of the merger between Air France/KLM and JAL, a coupling of two airlines with three different cultures involved. The goal of the merger is a stronger and more successful future together. In 2003, Air France achieved a successful takeover of KLM (Royal Dutch Airlines) so as to evade the difficult economic situation and allow for the two companies to work together. The general benefits of the merger are clear, as all three companies have their individual strengths and weaknesses, the appropriate analysis and use of these will be the secret to a smooth and successful takeover. The human aspect of the merger in terms of staff will be one of the main focus points for the team as we will try to achieve a general level of understanding, respect and professionalism providing all three businesses the opportunity to get on all levels.

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1. Current situationWe will describe the different aspects of the changes that will take place on strategic, structural and cultural levels. Furthermore we will describe the two companies separately because we first need to identify the different factors within both companies before being able to know which aspects of both companies will make or break a successful merger.

1.1 Strategy Air France/KLM and JAL

Air France/KLM“Air France-KLM is the European leader in air transport with more than 71.4 million passengers and €20.99 billion of revenues in 2009-10 (AirFranceKLM, 2011)Air France-KLM serves 244 destinations in 105 countries world-wide. It has the most extensive route network between Europe and the rest of the world, which is efficiently coordinated and balanced around the Roissy-Charles de Gaule and Amsterdam-Schiphol hubs.”

The strategy of the Air France-KLM group includes (Air France, 2011) the aspects of customers, operations, people, development and finance. These aspects are important to consider when merging with JAL. However as we, HR managers, are focusing on the human aspects, we will be focusing on our people.Concerning the people aspect, the strategy is about increasing employability through training, increasing mobility and flexibility. Air France/KLM wants to focus on customer satisfaction through the development of leadership empowerment and establishing clear and relevant objectives. For these staff trainings the group spends 200 million euros per year, this is more than is required by law. Because of the aim of KLM: to achieve profitable growth towards the company but also in social development, Air France-KLM focuses on sustainable growth. Next to having the company’s interest in mind, the company considers the people living and working in the vicinity of the airports.

JALJAL airline is the largest Asian airline industry and has several issues they feel are important to their business. A first priority is safety in every aspect of the operations. ‘This is the firm, unshakeable resolution of every staff member in any situation and our most important commitment to the customers and society’ (JAL, 2011). JAL sees it as their mission to secure safety and one of their goals is to become the world’s leading company in safety. They put great care and methodology on providing safe aircrafts.This importance for safety also comes from the fact that with a deficit of 16 Million, JAL has an unstable financial situation and JAL employees are afraid to lose their jobs. Therefore JAL cannot afford to slow down and thus will make the merger with Air France/KLM a very delicate and sensitive process where the JAL employees will be on edge with serious concerns for their job security.

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A second issue is social cultural responsibility. JAL is very active in the planning of reducing CO2 and waste materials. And also in environmental issues like minimizing noise to reduce annoyance. ‘In its capacity as a transport organization, the JAL Group exerts an impact on the environment in such ways as consuming fossil fuels and emitting noise. We recognize that dealing with the environment is a vital management issue, and our aim is one of symbiosis with the global environment while striving to reduce the environmental burden in all our business activities’. Furthermore JAL sees itself as actively contributing to world peace and prosperity. It engages its employees in volunteering activities that can help them become more aware of how they can play an important role in their communities, while the company also collaborates on projects with public organizations. On top of that JAL is pursuing happiness for all employees both physically and spiritually.

1.2 Structure Air France/KLM and JAL

Air France/KLMThe structure of Air France-KLM is more or less flat. They operate together and make joint decisions.Each airline is and stays responsible for its own commercial and operational management on a daily basis (human resources, flight and ground operations, safety, etc.) and will be responsible for the implementation of the recommendations made by the SMC (Strategic Management Committee).

Air France is bigger than KLM, as in 31 December 2009 Air France had 60,686 employees and KLM 28,700 employees.However the KLM Management Board and the Air France Executive Committee both have one member that is appointed by the other airline. Therefore influences in decision making will remain equal.Because most of the Board of Directors are chosen by employees of Air France, Air France will have an advantage.

Air France and KLM do differ in certain aspects like, the human resource policies, which are explained here.

Human resources policy AirFranceQuality Innovation Program (PIQ) includes health, quality, safety, risk management and it is meant to encourage innovation. Each employee can give suggestions in this program for a solution of a problem.

Human resources policy KLMDuring the crisis KLM kept their people. They stimulate their employees to live healthy lives. They have a specialized counselor and complaints procedures. They strive for diversity in the workforce and giving everybody equal opportunities. Furthermore they work together with the TNO research institute to be able to understand and improve working conditions.

JALThe structure of JAL is strict and hierarchical. Furthermore they are group oriented and focus on the well being of the company with a participative management style (DoingBusiness, 2004).Because of the increased competition the airline changed its structure into three departments; international passenger service, domestic passenger service, and cargo (including mail) service. In 2001 JAL merged with JAS, where 2 branches were developed an international and domestic brand. In 2006 the merger of these two branches was finalized into Japan Airlines International.This means JAL has already some experience with mergers, however not mergers with different cultures.

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1.3 Culture

With the merger of Air France and KLM, one of their major concerns was cultural differences.

According to analysts the 2003 merger showcases the acute differences between the French and Dutch companies, mostly in terms of structure and mentality. For example; the Dutch, perceived the French to be “as lazy with a showy behaviour, especially in the way they communicated.” On the other hand, the French claimed that the “the Dutch were too rigid on every single term and condition and were tough to negotiate with.” (ICMR, 2004)

Air France-KLM started to overcome and still is overcoming these cultural differences by providing mixed training courses, exchanging best practices and KLM hired an intercultural consultant.Furthermore they agreed to communicate in English rather than French or Dutch. (EU-US Second Aviation Forum, 2009)On top of that Air France was very skeptic about the merger with KLM because earlier mergers by KLM with other airlines failed (British Airways, Alitalia).However the benefits of the merger will be that revenue would rise within five years from 400 million to 550 million. Furthermore they would have economies of scale and therefore they could offer flights cheaper, because Air France and KLM had the same destinations. And they would be able to offer their customers more destinations and flights (ICMR,2004).So with the merger between AirFrance/KLM and JAL revenue probably will also rise, there economies of scale will be bigger than before and they will be able to offer customers more and cheaper flights.

Because cultural differences will have a tremendous influence on the merger being successful or not we laid out their differences according to Hofstede.

Hofstede Japan Netherlands France PDI 50 35 60 Japan and France are close together IDV 42 75 65 Netherlands and France are close together MAS 90 10 40 Japan is far off though France and Holland are

not alike as well UAI 90 50 80 The Netherlands are very low Japan and France

are high LTO 75 40 - Japan has a high LTO

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PDI (Power Distance Index)The power distance index of Japan shows that they (mostly men) are very depended on others with more power. Furthermore the people with less power are afraid to step up when disagreeing with someone. This is also why Japanese people are often afraid to look people in the eye. However in the Netherlands it is seen disrespectful to avoid eye contact, therefore this could result in a conflict if not handled well. On top of that in the Netherlands men and women are equal and the relations are more personal and informal in relation to Japan or France. Furthermore they prefer a consultative style of decision making.The company culture in Air France is leaning more towards authoritarianism, as the French prefer, expect and accept a clear hierarchy and place almost all of the available responsibility in the hands of their higher managers. Furthermore although they do not necessarily agree with it, they perpetuate it by their desire to avoid conflict with upper management.

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IDV (Individualism)The high Individualism index shows that both France and the Netherlands strongly emphasize achievements and rights and anticipate competition. Furthermore it indicates these people have relatively loose bonds with others, they are more self-reliant and look out for themselves and their close family members. Privacy is considered the cultural norm. On top of that due to the importance of the individual within the society, individual pride and respect are highly held values and degrading a person is not well received, accepted, or appreciated. (Geert Hofstede, 2011).Japan is around the world’s average with his individualism index. There emphasis is more on working to a goal with a group they want to work and live together. However as Japan scores mediocre Japanese people will be able to work in groups as well as individual. (Geert hofstede, 2011)

MAS (Masculinity)A high MAS shows the desire for assertive and competitive behavior. In France this is higher than in the Netherlands (however it is still under 50).And in the Netherlands the desire for modest behaviour is higher. This means that they find the quality of life and relations more important.

UAI (Uncertainty avoidance index)“Uncertainty avoidance indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations” (Geert Hofstede, 2003). Uncertainty Avoidance Index is the measure of a country’s ability to handle the unknown. “People with high uncertainty avoidance are very willing to perform if they are offered security in exchange” (Hofstede, 1983). Therefore Japan also has a very organized structure of organizational structure and French people value a strong hierarchy. French and Japanese people both value history and like to do things the way they have been done. Countries with high uncertainty avoidance use to avoid risks and the merger will make the people become afraid of losing their job. High uncertainty avoidance also stands in line with the difficulty of introducing new ideas and new concepts. Accepting new ideas and methods will need time in these cultures. Ways to deal with high uncertainty avoidance is for example involving local counterparts in projects. While not feeling fully in control people with high uncertainty avoidance may be less willing to make decisions when there is an element of the unknown. Everything needs to be backed up with fact and figures.

LTO (Long Term Orientation)Values associated with Long Term Orientation are persistence (perseverance), ordering relationships by status thrift, having a sense of shame. Japan has a very high LTO. This means that Japan would not speak up soon.

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1.4 The environment

The environment of these companies is scanned in order to determine the key drivers for change. These global trends and economic drivers shape the environment of these companies. The direction of the companies will be influenced by the direct environment. This considers the macro- and micro environment. The macro environmental scan will be guided by the PESTEL (Oxford university press, 2007) analysis and the micro environmental scan is guided by Porters 5 forces (Wikipedia, 2011) model. These scans will gain insight in the global and industry trends which affect the airline industry.

In the macro environment we see the following developments (The Times 100, 2011)(AVJobs, 2011);- Freedom of movement and trade; The recently freedom of movement and trade in the European

Union will lead to more competition on Europe’s travel routes. - Modern aircrafts; there is a trend in modern aircrafts because they are safer, more fuel efficient,

cheaper and easier to use then what they used to be. Therefore investing in environmentally efficient aircraft and engines, which will bring down fuel costs (which is the second largest expense in the airline industry) will be an increasing trend.

- Reducing emissions; Reducing emissions are of top priority to airline companies. Reduction of emissions will benefit their CSR policy, reducing the impact on the earth and eventually save money when aircraft are flying more efficient and clean. Noise pollution is a point of concern where companies invest millions in to reduce.

- Safety; there are ever stricter rules about what materials can be used to construct airplanes in order to comply with the strict guidelines for safety.

In the micro environment we see the following developments (Del Vecchio, 2000);

- Stronger competition: More and more national and international airlines are emerging to compete with the current ones and also current airline companies are expanding their wingspan by setting new routes to their itineraries on a consistent basis.

o Bargaining power; when merging you will have a bigger bargaining power.- Availability of substitutes: the availability of substitutes is a threat for airline companies and

therefore they need to go an extra mile to get the cheaper alternative.

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2. Desired situation

As seen in the current situation we have chosen for a distinction between Cultural, Strategic and Structural change. The merger between Air France/KLM and JAL is a rather significant change but more importantly a change that will affect all three organizations on both managerial and operational levels.

Here we will describe how the desired situation of the merger would be/look like.

Strategy

The merger of Air France KLM and JAL, as described in the Current Situation, is the joining of forces of three very different companies. Each airline has their own strengths and weaknesses, what we believe would be the ideal is to allow for the airlines to use their strengths to compensate for weaknesses, and as all three companies have different focuses this will be a very varied and exciting mix of business talents.

We would like Air France KLM to take the reins within all three companies in terms of people as employee satisfaction is very important. We will achieve this by empowering employees and motivate them with the help of trainings. Trainings will be provided (please see Interventions the Tour) by all HR managers, however we feel that the French have an edge in terms of human resource management (please see Current Situation). Air France and KLM already have a close working relationship since 2004 and we believe JAL can be integrated within that system via consistent trainings of their HR managers.

JAL has an edge in terms of safety, more so than Air France and KLM, we would like the joint airlines to reach the highest of their common potential therefore JAL’s safety policies should be inducted in the next 5-10 years. “1The best safety device in any aircraft is a well-trained crew”, we believe that consistent 2on-the-job training by JAL managers and employees could help achieve this goal and thus improve the overall safety of the merged airlines (whilst creating a bond between staff.)

With growing scrutiny on the airlines industry regarding environmental concerns we believe that Air France KLM has done an outstanding job at focusing on this delicate issue and we would like for JAL to adopt this mentality:

3“AFI KLM E&M has included Sustainable Development principles into its Quality Management Systems.As a consequence, the ISO 14001 environmental standard has become a reference for all of our activities.”

4“Sustainability is built into our operations and is a key driver in all the decisions we make.”

1 http://www.flightsafety.com/2 http://www.referenceforbusiness.com/encyclopedia/Oli-Per/On-the-Job-Training.html3 http://www.afiklmem.com/AFIKLMEM/en/g_page_standard/SustainableDevelopment/QualityManagement.html4 http://www.afiklmem.com/AFIKLMEM/en/g_page_standard/SustainableDevelopment/

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Example: representing AFI results.


We believe that if JAL will receive trainings (please see Interventions TQM and the Deming Cycle) the common goal for a more environmentally friendly airspace could be achieved.

The overall idea behind getting the three airlines to take turns in learning and teaching their norms and values (through Interventions) is to create a strong bond between both managers and employees. It is not a small task to implement such changes in company strategy (Conners and Smith,2011), but each airline will be able to demonstrate what they do best and also improve individually thus making the joint forces much stronger on common terms.

Structure

When 3 large companies, each with its own characteristics and company culture merge, a structure has to be designed where the different cultures are able to co-exist, all employees can function to their full potential to let the company flourish and employee satisfaction is as high as possible. Designing a structure to achieve these goals is a challenging task. The structure has to be designed on a hierarchical level for the company and a structure has to be designed considering the human aspects within the companies’ culture.

Considering these aspects we suggest a structure for a merge on management level. Where top management, the CEO’s and the departmental managers work closely together. By including the departmental managers, the vision and mission can be well translated to the employees, while motivating them.Nadler, Thies and Nadler (2001) state that, for effective change to take place, and in particular cultural change (part of the crucial 3 aspects along with structure and strategy), there is no substitute for the active engagement of the CEO and executive management team.France, Japan and The Netherlands have different cultures, norms and values and a hierarchical structure where they perform best in. These structures will stay as they are which means that every different culture is able to work according to their own preferred hierarchy. This means that the top management merges. The departmental managers partially merge as they are closely working with the top management and working alongside the departmental managers of the three merging companies. And the organizational structure from the assistant departmental managers down to the first line employee will stay as they are to preserve the unique company culture.

When preserving these unique company cultures by keeping the companies structure from departmental managers down the same we will ensure ideal working conditions where the employees are used to, are satisfied with and perform at their best in. The idea behind allowing all “3” companies to keep their general structure on the operational level as well as the hierarchy in each organization is key as it creates a comfort zone that the employees have already been working in; job security is of crucial importance and will undeniably affect employee productivity (Herzberg’s “Two Factor Theory” and Maslow’s “Hierarchy of Human Needs”).

In case of a top-down structure such as the organizational structure of the future state of Air-France – KLM - JAL, a centralized form of decision making will be incorporated. This is to ensure effective decision making on management level. But this is done for every individual company. Air-France, KLM and JAL will possess a management with all the crucial players in position. This means decision making will be executed by the top management of the individual companies which give instruction to the CEO’s and departmental managers of the individual companies. They, on their turn, will be in charge of decision making in their department. This tends to make the structure flat as unnecessary layers are left out to speed up effective decision making.

QualityManagement.html

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Culture

In the desired situation a good working atmosphere where employees get along needs to be created by the 3 merging companies. The three different cultures need to work alongside each other while performing at their best. To accomplish this all employees should have knowledge about the other company cultures. Furthermore, in the current situation diversity in the workforce and equal opportunities for all employees are very important in the HR of KLM. This is something to implement in the desired situation. When the separate companies teach their employees to be open towards different cultures, working habits, people and teach them about the differences they will be less resistance to change.

In change management good communication and employee input is very important. Therefore we recommend for the desired situation of the merged companies to stress transparency. This will enable good communication and when involving employees and giving them the opportunity to give feedback and recommendations it will result in employees satisfaction.

At the moment both Human Recourse departments of Air-France and KLM give employees the opportunity to give feedback. Accurate and useful feedback can only be given when information about the situation of a company is well known, this can be attained by company transparency. So to successfully enforce change management and to obtain employee satisfaction transparency in the company is a must.

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With regards to the way of communicating, there are many differences. Dutch people are very direct and straight to the point, so getting feedback should not be a problem. Whereas French people use a lot of words to explain something and Japanese are really good listeners. In the desired situation employees are able to give adequate and clear advise or feedback.

When Air-France and KLM merged teams were brought together through joint training programs and dialogue between management and unions, each airline follows its own human resources policy, given the differing legislative frameworks in France and the Netherlands. As we mentioned before the hierarchal structure for the companies from departmental managers down will stay the same, this structure will support issues in cultural differences as those employees will not have to change their working styles and therefore employee satisfaction and ultimate performances will be kept.

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InterventionsIn order to come to the desired situation, we need to overcome several aspects. Here we will discuss how we will approach the change process from beginning to the end.Furthermore we will keep in mind that Strategy and Structure will be very much dependant on the successful blend of the Culture within the merged companies as all three companies have already a clear identity, strategic ideology and operational/managerial structure. Therefore our focus is on blending the cultures successfully.

We will explain our change process on the hand of Kotter. Kotter consists of 8 steps:

1. Creating a sense of urgency2. Guiding coalition3. Creating a vision4. Communicating the vision5. Empowering people and removing barriers6. Generating short-term wins7. Don’t let up8. Make it stick

In the following text we will explain interventions in order of the Kotter model.

STEP 1: Creating Urgency

When a merger is decided on, the first thing that has to happen is that the employees within the merging companies see the necessity of this merger (Kotter,2002-Quinn,1996). Because when the people that actually have to execute the merger don’t see the urgency and mutual benefit of the merger, no change and no merger will happen at all. There are several possibilities to create this urgency and make the employees aware of the fact that this merger is the path to the future.

Team Building trainingsJAL, Air France and KLM are three very different countries and communicate differently with each other therefore we need to begin the process with an intervention what will stimulate communication by team building trainings.

Team building will facilitate a formation of a unified team with common objectives (Anderson,2010) and most of all build trust between the different cultures. It is also proven that team building improves process measures, like the decision making process and openness to others (Cummings, Worley, 2005). Furthermore a result of team building also is that the team will develop group norms. Norms and values often determine behaviour (Schnueur,2011). Therefore by developing these norms it will impact their behaviour in communication, decision making and problem solving in a team and will be able to work closer together and understand each other better.And therefore we advise you to do team building activities before, during and after the merger.

Paint Your Picture

We advise you to do an intervention similar to Kgotla at least 2 months before the merger (to make sure all employees have been heard and time for analysing is kept), dividing all employees on management level in groups of 200 people and holding these interventions in the weekends.The execution of this intervention will be;

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1. Determining the strategy used to communicate the urgency of change and who will communicate it. This will be done in the form of a presentation in combination with a workshop. These first awareness workshops will be done at every company itself with one Change Agent of the guiding coalition, the CEO and HR manager of the particularly company.

2. This guiding coalition is responsible for the execution of the change interventions and will give this presentation and workshop to all employees. These will be multiple workshops because every layer of the companies has different objectives and need to be addressed differently. This means that a presentation on management level and a presentation for on operational level will be given. Any additional presentation can be developed if necessary for other employees what need special attention.

3. These presentations will about the current situation of all three companies, why it will be necessary to merge and what will be the future prospect for the companies after the merge. It is also important to address how the employees of the company will contribute and that their effort will be crucial for the outcome of the merger. Furthermore, the design and material used in the presentation is the responsibility of the Change agent, the HR manager and the CEO.

4. After the presentation, groups of 8 will be formed with employees from different departments to have a diverse team with different perceptions.

5. The team will be given the assignment to express their feelings and opinions about this merger. They will make a symbolic painting which will reflect their opinions about the merger. This way they will actively think about the merger and will be aware of the necessity of change. They will also have to include opinions and thoughts about the future after the merger. What will the company look like?

6. Paintings will be presented in front of the groups and the groups will present their feelings and ideas about the merger. They will use the painting to visualize their ideas. Of course questions can be asked and it is good that other employees are aware of the opinions of others.

7. After the workshop the paintings will be displayed in offices and in canteens and such to remember the employees of the workshop, the merger and their thought about it.

Management Swap

In addition to the workshops, to create urgency, departmental managers will be rotated in sister companies. Every departmental manager will spent 2 days in every sister company. The manager will be guided by a manager which is in the same position as he is. This is to show that the three merging companies have different cultures and if they want the merge to be successful changes must be made and understood by all, regardless of which company they belong to. The departmental managers will be exchanged because they are able to reach all employees in the company and have a lot of influence in the change process within their respective companies, they will be the leaders of this merger and its successful implementation and communication. It is also good for the intercultural bond, because when manager A will be guided by manager B at his company, sometime later manager A will guide manager B through his company. This means that they have already met once and will start to build a relationship because they get insights in both their companies and their cultures within the companies. This will create understanding and compassion towards other companies and their cultures. When the managers return to their department, they will give a presentation about their experiences and insights they obtained. He will present to the employees of his department and can call in help from the guiding coalition. The presentation should cover several pre-determined points like positive points about the other culture, things they were really surprised about, difficulties to adjust to and problem solving etc. Finally, the employees will be given the opportunity to ask their manager questions regarding their experiences and discuss how certain aspects within the company could change for the better, keeping in mind the implementation of what the managers experienced abroad.

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STEP 2: Building the Guiding Team

The coalition will consist of the CEO’s and HR managers of Air France, KLM and JAL. They will be accompanied by two agents from the external change company to form a coalition of eight.The agents will have an advisory role. They will guide the change process, the implementations of interventions and the control on these processes. Furthermore they will manage, motivate and inspire the companies’ employees to bring this change process to the desired situation. Influences by them will gradually decrease when time passes and processes are implement. They will obviously stay to control and support to processes until completion. The CEO’s will lead by example and have a powerful position in the company. The HR managers are experts in the human aspect of the company. This is important because company cultures are fragile and have to be managed with great care. If these employees aren’t satisfied, change will not happen at all.

This diverse coalition team needs to work closely together to make good decisions for the merger. Therefore we need to pay extra attention to this.

We advise you to have extra team building activities in place one month prior to the merger.

Cultural Team Building:

The new coalition will go on a team building day twice The days will consist of group assignments, evaluations about participants and role plays and

time off for informal conversations (quality circles) Between the two days, a small homework assignment will be assigned about cultural differences

and communication The goal is that the different nationalities of the coalition will interact with each other toward a

shared goal. This will stimulate cooperation, communication and understanding During the evaluations the focus will be on cooperation, communication and overcoming different

perceptions The second day will evaluate the homework assignment and will also consist of interactive group

assignments with free time in between to make the team connect and understand each other before they will work on the merge of the three companies

When they start as a guiding coalition, they will have the experience working with each other; understand the way of communicating and understanding each other’s cultural background. They can use the experienced problems occurred in their change progress to overcome pitfalls in the companies change progress

The Tour As preparation of the change coalition the different HR managers should go ‘on tour’, going to the sister companies to represent company culture and describe their approach to work. This will be achieved through a small presentation about their company and they will answer the questions employees from the different companies have. This presentation will contain a short introduction of the sister company from where the HR manager is coming from, describing facts and figures to the employees. The presentation will also provide the employees with certain interesting features such as the description of how things are done and why they are done in that way.

In the beginning of the process the managers can learn from each other. Not only what is different or surprising about the other companies but also what is different about their own. We believe that the presentation could include a common communication “facilitator”, in this instance traditional food might be a good idea. When the managers talk about their views and values they could also present the audience with a traditional dish (appetizer) and thus make the information provided easier to digest. In turn, the audience will become the presenter and can share a dish of their own, making the give-and-take process complete. Usually people see their own culture as normal and other people’s habits as different or unusual. When the 3 different cultures make the different presentations they can also learn from each

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other what is surprising about their own culture to others, where problem areas can occur when acting a certain way and how problem solving should be approached.

The Band

This extra team building activity for the guiding coalition will band people together with music.

The day will start off with a musical performance to generate excitement Then they explore different behavioral styles based on famous recording artists. The base of this team building session comes from the fact that a lot of bands split up, because

of bad collaboration, trust and communication. And by learning to create a song together they will notice how important these aspects are. In the end the song will be sang. Because of this unusual team building session and the fact that music makes people open this

intervention is proven to be successful.

STEP 3: Get the Vision Right

The vision of a company is the very core of what it means to achieve and also what its intentions were/are when entering the market. The vision of a company is defined as the “5guiding theme that articulates the nature of the business and its intentions for the future, based upon how management believes the environment will unfold. A vision is informed, shared, competitive and enabling.”

A strong vision is important to have in order to keep a sense of urgency and help people go in the same and right direction. In order to come to a strong vision people first need to jointly set goals. However, everybody has his own opinion of what needs to be done. And people often do not know what the options are and what they would mean for them (Kotter, 2002). Furthermore we need to consider there are 4 sets of behaviors that could delay or stop the process of communicating with each other.

These behaviors are: complacency (driven by false pride or arrogance) self-protection (driven by fear or panic) ‘you can’t make me move’ deviance (driven by anger) pessimistic (leads to constant hesitation) (Kotter, 2002)

Therefore it is important to know how the company/everybody will see themselves in 10 years, in these 7 aspects, in order to create a strong vision (Boonstra, 2010):

Sales turnover: what might be their revenue in 10 years time Employees: how many employees they would have Customer: how many customers they would have Businesses: what core products or services they would offer Competitors: who our major competitors would be Beliefs: what we would have to believe about ourselves to be successful Action steps: what the key actions necessary to achieve this option would be

When increasing the difficulty of a goal, people will increase their effort in achieving that goal, what will lead to higher performance. So making/having challenging goals would benefit the productivity of the company. Furthermore the goals need to be specific, realistic and measurable in order for them to work as efficient as possible (Cummings, 2009). An example would be:

GOAL: Increase efficiency of cleaning the inside of a jet before take-off; 60 minutes

5 http://marketing.about.com/od/marketingglossary/g/visiondef.htm

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1. Inform the employees of the goal2. Discuss with them what their approach would be and whether they think it is realistic3. Agree on terms regarding the goal with employees4. Allow a pilot and supervise it5. Evaluate the performance and give feedback to employees6. Provide the employees with further advice on how or what to improve (if anything)7. Allow for questions 8. Consistently follow up on measurement and evaluations of goal (60 minutes to clean the inside of

the jet) i.e.: on a weekly basis9. Potentially motivate employees to perform better with financial or non-financial motivators (i.e.:

monetary bonus if the jet is cleaned under 60 minutes for a straight 4 weeks)

STEP 4: Communicate for Buy-In

Communicating Challenging Messages

Managers have to prepare literature from a book of their choice, relevant to the managerial skills required in their given field.

Workshops will then be arranged for the managers to put the theory into practice. In groups of 10 the managers will do role plays. This can be done cross culturally too (tied in with the Management Swap) to also overcome the hurdle of talking to different cultures. In the role plays the managers will get a situation which they have to discuss with an employee. Examples of situations would be how to fire an employee according to company standards; how would this be done differently by a Japanese HR manager at JAL, or an HR manager at Air France.

For all employees to feel involved with the changes employees should be given the opportunity to give feedback and advice (for employees to do so effectively and efficiently workshops in giving feedback can be given.)

Questions & Answers

As preparation a Q&A team needs to be formed. This team will hold meetings and role plays were they discuss possible questions employees may have about the merge. In the role plays half the team represents the employees and the other half takes their own role. The employees should ask every possible question they can think of regarding the merger. For the discussion topics like lay-offs, the change processes, leading/hierarchy and the decision making, should be handled. All the questions need to be documented and good answers should be prepared. The answers should be short, clear, informative, and accurate.

Competitive Engagement

To empower and involve employees in the change process, a competition can be created. It is about good ideas to improve the change processes. All employees from the three different companies can, individually or as a team, enrol in the competition. The challenge is to come up with a good, feasible and manageable idea to improve the change process. Entering in the competition can be done in the fourth stage of the change process. During 3 weeks enrolment is possible, when the enrolment is closed, the entered teams and individuals have 2 months to hand in their proposals. All proposals will be judged by the guiding coalition. They will choose five proposals per company. These winners go and compete with each other. The proposals will be presented to a jury. Afterwards the other teams and the jury can ask questions, the team/person defending their proposal/s. The jury during the presentations will be formed by the CEO’s of the companies and the competition should be hosted on neutral grounds. Make it an attractive destination as an extra motivator for enrolling (i.e.: an exotic holiday destination.) The first round of the competition will be held in the companies and the finals will be on an attractive location.

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Note: Language barriers will be overcome by instant translator tools (earpieces), thus allowing any employee for the three airlines to participate without having to speak a/the common language.

STEP 5: Empower action

TMS (Training Management Skills)

In teams of 10 or more team leader workshops will be given about how to give proper feedback. First the theory will be shortly explained. The key of giving feedback is OIE (Observation Interpretation Effect). First it must be explained what happened in an objective way, (i.e.: this morning you started work at 9.10h) then the employee should state how he/she interpreted the observation, how it was experienced by the observer (i.e.: it looks like you don’t care people are waiting for you) and last the effect should be stated, how it affects others (i.e.: people are unwilling to wait for you). When the feedback is still unclear the employees should have examples of various different events to support or oppose the statements made.

After the explanation role plays between the employees are held. First let them practice in teams of two, one giving feedback and the other receiving it, switch roles and partners and do it over again. To finish, every employee has to give one point of positive feedback and a point of improvement about the handling and organization of the workshop. Let the others observe the one that is giving feedback, the observers can then give their feedback to the person providing the feedback following the interaction. It should be a circle where everybody gets to experience the different roles (feedback giving, feedback receiving, and also evaluative audience.)

STEP 6: Create Short-Term wins

Reward Systems

One way to provide a collective possibility for job enlargement in all three companies would be to observe the French and their unique approach to their employees. Training is taken very seriously in Air France as service quality and productivity are heavily emphasized, so why not adopt that strategy in both KLM and JAL and combine it with financial motivators?

1. Each employee will have a certain amount of time (depending on the skill) to learn and master a new skill that is relevant to their current job

2. If they can perform this new skill to the level of being equal or better than the specialists themselves they can acquire a monetary bonus.

3. If two tasks are mastered, the bonus is doubled, and then tripled etc.

4. The idea behind such job enlargement strategy is to carefully balance the fact that employees will be doing more yet rewarding only the ones who truly strive to surpass themselves. Aside from providing the companies with multi-skilled employees, it will also allow employees to potentially switch jobs, internally (within the mother airline) or externally (in another sister airline.)

The Reward Exchange

Every 3 months, the employee/s who has achieved the highest productivity/or the employee of the month (criteria can be very diverse!) within his/her department will be allowed to choose which sister company they would like to work in on exchange (1 month, 2 months etc.) They will be replaced by another

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employee from one of the two sister companies thus creating a circle of rotating employees within all three companies. Once an employee has returned from their exchange (if at all! Some employees may be performing better on foreign grounds!), they can share and educate their fellow employees regarding what they have learned during their visit and potentially implement certain changes.

STEP 7: Don’t let up

Total Quality Management Tool

In order to form a profitable cooperation it is crucial to have the same quality objectives. We recommend that they should focus on:

JAL being ISO 14 001 certified and maintaining it when obtained. Keeping Air-France KLM ISO 14001 certified. Keeping JAL and Air France-KLM ISO 9000 certified Putting special focus on the ISO 9001:2000 since it’s used to create maximum customer

satisfaction.

The Deming Cycle (PDSA cycle) (VectorStudy.com, 2008) accessed on 19 June 23, 2011 http://www.vectorstudy.com/management_theories/deming_cycle.htm

The Deming cycle, or PDSA cycle, is a continuous quality improvement model consisting of a logical sequence of four repetitive steps for continuous improvement and learning:

Plan: What we are going to do. In this step we assess where we are, where we need to be, why this is important, and plan how to close the gap. Identify some potential solutions.

Do: Try out or test the solutions. These can be pilot versions. Check: To see if the countermeasures you tried out had the

effect you hoped for, and make sure that there are no negative consequences associated with them. Assess if you have accomplished your objective.

Act: On what you have learned. If you have accomplished your objective, put controls into place so that the issue never comes back again. If you have not accomplished your objective, go through the cycle again, starting with the Plan step.

This cycle is a four-step management process that is typically used in businesses. Frequently, a particular project will define sub-objectives, run thorough the PDCA cycle one or more times to accomplish the sub-objective, then define the next objective and go through the cycle again. Thus, many projects end up "turning the wheel" many times before completion. In ongoing management activities, we find a similar use of the cycle.What we have to avoid is the: "Ready, Fire, Aim" scenario, where people jump to the solution without identifying the problem and assessing if their proposed solution fixes it, or even results in another problem. The Act step makes sure we don't have to fix it again in a couple of years.

We would recommend using this Deming Cycle in an operational level lower down in the organization. The Deming Cycle's application was intended for quality control purposes and proposed continuous improvement of quality. This simple cycle works well in this application, but it is debatable that it should be applied to major organizational improvement. Therefore we recommend training departmental managers and assistant managers in using this Deming Cycle. This is also a great opportunity to involve other employees in the process of development.

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http://www.vectorstudy.com/management_theories/deming_cycle.htm


STEP 8: Make Change Stick

Quality Circles

6A quality circle is a group of 6-12 employees doing similar work who voluntarily meet together on a regular basis to identify improvements in their respective work areas using proven techniques for analyzing and solving work related problems coming in the way of achieving and sustaining excellence leading to mutual uplifting of employees as well as the organization.

In order for employees to be able to upkeep the changes that have taken place during the merger, the implementation of quality circles may be a great way to achieve just that.(why? Because a quality circles does blablabla fits to our goal blabla) The employees can discuss amongst themselves, allowing their own initiative to be the spark, to meet up and discuss issues regarding the work they are doing.Some activities that could be used:

Brainstorming Mind Mapping Fish Diagrams

The employees should be given the freedom to discuss matters in the way they prefer; this will be radically different with employees from different departments. Quality Circles is an intervention that plays on the motivation and initiative of each individual employee and thus allows for genuine and honest interactive sessions to further improve and maintain the changes that have been implemented in the company.

Managers in turn, should be supportive of both the process of quality circles and of its outcomes which can further be discussed in employee-manager talks; the general idea is to allow the employees to better themselves through this process and keep improving consistently instead of falling back.

6 http://www.mahapwd.com/isoandqualitycircle/qc.htm

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Air France-KLM. (2011) http://www.airfranceklm-finance.com/air-france-klm-group.html, accessed on 12th of May 2011.Anderson, D., Ackerman, L. (2010) Beyond change management, Pfeiffer, San FranciscoAvJobs.com. (2011) http://www.avjobs.com/history/airlines-and-the-environment.asp, accessed on 9th

May 2011.Boonstra, J. (2010) Leiders in cultuurverandering, van Gorcum, Assen.Buyck, C. (2005) Interview Airfrance-KLM Group, http://atwonline.com/it-distribution/article/interview-

air-france-klm-group-0309, 1 April, accessed on 9th of May 2011.Conners, R., Smith, T. (2011) Change the culture, change the game, Portfolio Penguin, United States of America.Cummings, T., Worley, C. (2009) Organization Development & Change, Cengage Learning, Mason.David, J. (2004) Business Travel News, Air France-KLM Melding Sales Platforms,Vol. 21, Issue 10, 6

July,Database Hospitality &Tourism Complete (EBSCOhost)Del Vecchio, J. (2000) http://www.fool.com/research/2000/features000309.htm, 9th of March, accessed

on 9th of May 2011.Doing Business in Japan. (2004) h ttp://www.rikkinyman.com/training/japanese_business/org_structure.htm , accessed on 24th of May 2011.Envision. (2009)

http://www.envisionsoftware.com/articles/Maslows_Needs_Hierarchy.html#Physiological_Needs, 10th of April, accessed on 12th of May 2011.

EU-US Second Aviation Forum. (2009) http://ec.europa.eu/transport/air/events/doc/eu_us_labour_forum/miriam_kartman.pdf, accessed 12 May 2011

Fishman, N. and L. Kavanaugh (1989). 'Searching for your missing quality link', Journal for Quality and Participation, 12, pp. 28–32. Hofstede, G. (2011) (http://www.geert-hofstede.com/hofstede_japan.shtml), accessed on 11th of May 2011.Hofstede, G. (1983). The Cultural Relativity of Organizational Practices and Theories. Journal of International Business Studies, 14, 75-89. ICMR. (2004) http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/BSTR124.htm,

accessed on 10th of May 2011.Jal. (2011) http://www.jal.com, accessed on 12th of may 2011.Janik, K. (2003/2004) Managing cross-cultural mergers the role of management style Case Air France –

KLM, http://www.du.se/PageFiles/5051/Janik%20thesis.pdf, accessed on 12th of May 2011.Knowledge@Wharton. (2003), http://knowledge.wharton.upenn.edu/article.cfm?articleid=866, 22

October, accessed 9th of May.Kotter, J.P. (2002) The heart of change, The Harvard Business School Press, Boston, MassachusettsMaurer, R. (2010) Beyond the Wall of Resistance, Bard Press, Austin, Texas.Mumford, M. D., G. M. Scott, B. Gaddis and J. M. Strange (2002). 'Leading creative people: Orchestrating expertise and relationships', Leadership Quarterly, 13, pp. 705–750. Nadler, D. A., P. K. Thies and M. B. Nadler (2001). 'Culture Change in the Strategic enterprise: Lessons from the Field'. In: C. L. Cooper, S. Carwright and P. C. Earley, The International Handbook of Organizational Culture and Climate. John Wiley & Sons Ltd, Chichester.National Defense University. (2011), http://www.au.af.mil/au/awc/awcgate/ndu/strat-ldr-dm/pt4ch16.html, accessed on 24th May 2011.Oxford University Press. (2007)

http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm, accessed on 9th of May 2011.

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Schein, E. H. (1992). Organizational Culture and Leadership: A Dynamic View, 2nd edn. Jossey-Bass, San Francisco.Schnueur, J. (2011) How to blend company cultures in a merger, Entrepreneur, April 2011.Shaoul, J. (2003) AirFrance/KLM merger heralds further rationalisations and job cuts,

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KLM_schrapt_banen_en_dividend__.html, accessed on 10th of May 2011.The McKinsey 7S Framework, Ensuring that all parts of your organization work in harmony,

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accessed on 9th May 2011.Wikipedia the free encyclopedia. (2011) http://en.wikipedia.org/wiki/Porter_five_forces_analysis, accessed

on 9th May 2011.

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Appendix 1: Explanation KotterCreating a sense of urgencyCreating a sense of urgency is needed because without it, ‘large-scale change can become an exercise in pushing a gigantic boulder up a very tall mountain’ (Kotter, 2002). By ‘ aiming for the heart’ and connecting with your employees to their deepest values, leaders will be able to understand their people and will be able to create urgency.There are several ways of creating urgency according to Boonstra, these are (Boonstra, 2010):

1. Creation of tension between current & desired situation by imaging a strong vision2. Setting goals about profit, revenue, productivity, customer satisfaction that are unachievable

when they keep on working the same3. Discussing company problems4. Making weaknesses in comparison with competition visible and discussing them

However not all of these communication tools are applicable for Japan, as Japanese people tend to ‘smile’ even when they are not happy, therefore communicating, like discussing, will be difficult. Therefore we need to communicate clearly that change is necessary because of the improvement of business by ‘highlighting’ the opportunities mentioned in the business.

This can be shown by the help of a gallery;; showing employees how the world will look like without merging and showing how it could look like in 10years.

The guiding coalitionThe guiding team needs to consist of people with expertise, leadership skills, their credibility will be of high importance and they will need to have power in their companies.It is important that the team develops a level of trust in one another and that the people are encouraged to work as a team.Team building for this coalition needs to happen quickly. Off-site activities will be most effective for this.

Creating a vision The vision of a company is the very core of what it means to achieve and also what its intentions were/are when entering the market. The vision of a company is defined as the “7guiding theme that articulates the nature of the business and its intentions for the future, based upon how management believes the environment will unfold. A vision is informed, shared, competitive and enabling.” A strong vision is important to have in order to keep the sense of urgency and help people go in the same and right direction. In order to come to a strong vision people first need to jointly set goals.However everybody has his own opinion of what needs to be done. And people often do not know what the options are and what they would mean for them (Kotter, 2002). Furthermore we need to consider there are 4 sets of behavior what could delay or stop the process of communicating with each other. These behaviors are complacency (driven by false pride or arrogance), self-protection (driven by fear or panic), ‘you can’t make me move’ deviance (driven by anger), and pessimistic (leads to constant hesitation) (Kotter, 2002)

Therefore it is important to know how the company/everybody will see themselves in 10 years, in these 7 aspects, in order to create a strong vision (Boonstra, 2010);Sales turnover; what might be their revenue in 10 years timeEmployees; how many employees they would haveCustomer; how many customers they would haveBusinesses; what core products or services they would offerCompetitors; who our major competitors would be

7 http://marketing.about.com/od/marketingglossary/g/visiondef.htm

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Beliefs; what we would have to believe about ourselves to be successfulAction steps; what the key actions necessary to achieve this option would be

When increasing the difficulty of a goal, people will increase their effort in achieving that goal, what will lead to higher performance. So making/having challenging goals would benefit the productivity of the company. Furthermore the goals need to be specific, realistic, measurable in order for them to work as efficient as possible (Cummings, 2009).

Communicating the visionThe vision itself is a key guideline; however, it is the proper and appropriate communication of the vision within the business environment (workplace) what truly brings it to life. "8Where there is no vision, the people perish” a good leader must have the ability to communicate the vision to his/her employees through actions and everyday reminders what the vision is and what it stands for. “9James O’Toole, author of Leadership from A to Z , describes this communication in broad terms, “The task of leadership is to communicate clearly and repeatedly the organization’s vision…all with the intent of helping every person involved understand what work needs to be done and why as well as what part the individual plays in the overall effort.” Communicate the vision often, in both subtle and dramatic ways. Tie the day’s events back to the vision, underscoring its relevance. From internal memos, presentations, or posters, the vision serves as a reminder to the team of their purpose within the business and goals (ShortTerm/LongTerm).”

One way of communicating the vision is holding regularly meetings. These meetings is giving the leader/s an opportunity to revise and/or remind the vision of the company to employees and receive feedback.

Empowering people and removing barriersEmpowering people can only be done when structural barriers, skills barriers, systems and supervisors barriers are removed.In the human resource area changes and removing barriers can be most effective. The Human Resource Department could realign incentives and performance appraisals to support the change and encourage risk-taking and non-traditional ideas. Furthermore up-to-date information systems could speed up feedback processes and gathering/finding information will also be quicker.Furthermore resistance of managers will need to be handled by honest dialogue, otherwise the process will be slowed down dramatically.

Generating short term winsResearch shows that companies that generate short-term wins by 14 and 26 months after the beginning of the change are much more likely to complete the transformation. The job of the guiding coalition is generating these short-term wins by identifying improvents than ca happen between 6 and 18 months.To be successful the short-term wins need to be visible and unambiguous. These short-term wins can increase the sense of urgency and optimism and will also boost morale and motivation. Furthermore they will help to fine tune the vision and the strategy.If short-term wins would not happen, this would be a warning sign of that the guiding coalition doesn’t have enough expertise.

Don’t let upWhen these short-term wins are generated credibility is increased, therefore changes in systems, structures, policies are able to happen that do not fit the vision.And because of this credibility employees would be more likely to help to implement the vision. And to encourage the employees even more employees will be hired, promoted and developed to implement the vision and guiding new projects.

8 http://findarticles.com/p/articles/mi_m1038/is_n1_v37/ai_14922906/9 http://www.writingassist.com/resources/articles/creating-vision/

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Make it stickOnce the organization has been educated and trained well enough for its employees to function successfully within their respective positions, the management team of the business is left with the tricky task of making sure what they have been preaching sticks and is maintained on the floor at all times. The initial investment of trainings and workshops provide the base for what the managers need to build on, now the company must invest in keeping these teachings up on a daily basis and there are a few ways in which this can be achieved in a business setting:According to Maurer (Maurer, 2010) there are a series of factors that influence just how well a company can keep change alive. If each and every employee at least considers themselves for just a moment in the context of a man/woman who embraces change in the following manner, the company will be a much better fit for the change in question already.

1. Being a champion for change2. Everybody needs to participate3. Listen to your colleagues;this will allow you to identify and resolve the individual or collective

issue/s raised and improve the change process.4. Be aware of politics involved, so be diplomatic and do not be afraid to take a little risk for the

greater good5. Protect the Process

The above processes and actions are more individual ones that apply to each and every person within the firm according to Maurer, but if taught well during training sessions and followed up on in everyday working life, these changes may very well provide the boost needed to make the actual change happen as a whole within the joint airlines.

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Appendix 2: TheoriesWhy Kotter

In our implementation plan we will use the theory of John P. Kotter as a red threat through our story. Furthermore we will use the theories of Quinn, Boonstra, Maurer and Conners and Smith to add to the theory of Kotter making our implementation plan well-founded. Here we will shortly describe the theories of Quinn, Boonstra, Maurer and Conners and Smith.

Kotter uses an 8 steps theory, beginning with creating urgency. Quinn also addresses this topic and examines in this theory what can happen when you do not create it and Boonstra, who is viewing change from a cultural perspective, for example, has tools for communicating this to the rest of the company.

Boonstra’s tools of communication in creating urgency are;1. Creation of tention between current & desired situation by imaging a strong vision2. Setting goals about profit, revenue, productivity, customer satisfaction that are unachievable

when they keep on working the same3. Stimulating people to regularly talk with unsatisfied customers4. Discussing company problems5. Making weaknesses in comparison with competition visible and discussing them

To go deeper into Quinn, his theory points out which aspects we need to pay attention on and perhaps need to intervene when wanting to change; like fear, trust issues, understanding etc.

Maurer talks about; why changes fail, and how to change successfully and what disrupts these changes. Resistance is one of the main aspects in his theory that needs to be overcome. ‘When you learn why people resist, we can move on’, he says. And every company that wants to change will come across resistance. There are 3 types of resistance:

1. I don’t get it, 2. I don’t like it,3. I don’t like you (no confidence and/or trust in you)

In order to succeed you need to overcome these 3. Therefore Maurer will be helpful in overcoming these.Furthermore he gives suggestions in how to achieve certain things in order to be successful, which you could use when thinking of interventions.

Conners and Smith’s theory, like Boonstra, also starts off from a cultural point of view. According to them when you change the culture you can change the organization, starting with clarifying the results, including the vision (the desired situation).Furthermore when letting people experience ‘why’ we should change, it will foster beliefs, than the beliefs will influence actions and then eventually this will produce results.An experience that will trigger this will be an experience like a meaningful event leading to immediate insight, needing no interpretation.

After explaining what the other theories are about we can now tell you why we chose for Kotter as a red threat through our implementation plan instead of Quinn, Boonstra, Conners and Smith and Maurer. We believe that every change process is different and to rest the whole change process on one theory is to limited. In order to apply and add as much theories as possible to the change process between Air-France-KLM and JAL we chose Kotter, because he explains his theory in short key-terms, not focused on a particular aspect like culture (as Boonstra and Conners and Smith do) but as a general theory and therefore it is easy to add and apply other theories to it and make a well-fitted implementation plan for all companies.

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In every step of Kotter we can find changes that need to be made and interventions that need to be made to come to these changes. Here we will describe these 8 steps with their changes.

Why Hofstede

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Appendix 3: External EnvironmentThe environment of these companies is scanned in order to determine the key drivers for change. These global trends and economic drivers shape the environment of these companies. The direction of the companies will be influenced by the direct environment. This considers the macro- and micro environment. The macro environmental scan will be guided by the PESTEL (oxford university press, 2007) analysis and the micro environmental scan is guided by Porters 5 forces (Wikipedia, 2011) model. These scans will gain insight in the global and industry trends which affect the airline industry.

3.1 Macro

environmentThe macro environment will be scanned by identifying the influences for each factor that affects the airline industry including Jal & Air France - KLM. (The Times 100, 2011)(AVJobs, 2011)

Political factors: Recently the freedom of movement and trade in the European Union will lead to more competition on Europe’s travel routes.

Economic factors: Current lower interest rates mean that people have more disposable income to spend of long distance flights for example.

Social factors: The boom in popularity for foreign travel and for air travel itself.

Technological factors: Modern aircraft are safer, more fuel efficient, cheaper and easier to use then what they used to be. These developments are still rapidly increasing. Investing in environmentally efficient aircraft and engines, which bring down fuel costs, which is the second largest expense. This is only exceeded by labor.

Environmental factors: reducing emissions are of top priority to airline companies. Reduction of emissions will benefit their CSR policy, reducing the impact on the earth and eventually save money when aircraft are flying more efficient and clean. Noise pollution is a point of concern where companies invest millions in to reduce.

Legal factors: There are ever stricter rules about what materials can be used to construct airplanes in order to comply with the strict guidelines for safety. But this does increase costs.

3.2 Micro environment The micro environment of the airline industry that includes Air France – KLM and Jal, will be scanned by using the 5 Forces of Porter. Each force is briefly addressed and explained what the implications are on the airline industry. (Del Vecchio, 2000)

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PESTEL Model 5 Forces Model

http://upload.wikimedia.org/wikipedia/commons/6/66/Porters_five_forces.PNG%00%E5%A1%B9%EF%92%81%E1%B4%BB%E4%A1%BF%E2%B2%AF%E5%B6%82%E8%97%84%E6%8C%A7%00%00%EA%AE%A5


Threat of Entry The threat of new entrants presents the possibility that new firms will enter the industry and diminish industry returns by passing along value to buyers in the form of lower prices and raising the cost of competition.

More and more national and international airlines are emerging to compete with the current ones and also current airline companies are expanding their wingspan by setting new routes to their itineraries on a consistent basis.

Bargaining Power of Suppliers Factors relating to the bargaining power of suppliers include the threat of forward integration and the concentration of suppliers in the industry. Suppliers are concentrated within the airline industry. Boeing and Airbus supply most commercial fixed-wing air carriers.

Concentrated suppliers mean less wiggle room for airline companies to bargain for lower prices for their planes and thus makes it very difficult to expand or even enter the within the market unless substantial capital is at disposal.

Bargaining Power of BuyersIf significant buyer power exists, industry returns can accrue to buyers in the form of lower prices. Buyer power is determined by switching costs, the relative volume of purchases, the standardization of the product, elasticity of demand, brand identity, and quality of service.

Bargaining power of buyers is determined by the price elasticity of demand, and as air travel is an expensive commodity, the price elasticity will be high. This can cause a price war between airline companies and thus be an advantage for larger companies (predatory pricing).

Availability of Substitutes The fourth factor affecting industry competition is the availability of substitutes. The relative price of substitutes and the buyer propensity to substitute have effects on the industry.

The threat of substitutes has to do with time, money, personal preference, and convenience in the air travel industry. As the economic crisis has shown us, people and companies have become very much price aware and will go the extra mile to get the cheaper alternative.

Competitive Rivalry The final factor is competitive rivalry. Intensely competitive industries generally earn low returns because the cost of competition is high or buyers are receiving the benefits of lower prices.

Industry growth is moderate and grounded planes do not make revenue. It’s easier to get in than out of the industry and thus ROI is not as favourable as in other industries. This combination of factors results in very harsh competition and the movement of shares is unavoidably slow and difficult.

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MCH Rapport 17 Juni