Abstract
The KLM is one of the leading airline companies of the world. The research 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.
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Company overview
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.
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.
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.
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.
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
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
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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. |
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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 |
References:
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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