The Air France - KLM Merger Story

Prior to 1997, the European civil aviation industry was highly protected and national carriers enjoyed a monopoly (in some cases a duopoly) over routes between countries.

Air traffic movement among European countries was subject to various complex rules and bilateral agreements between nations, which hindered the industry's growth.

Though there was a high demand for air travel, travellers did not have much choice and had to accept the indifferent service and high fares. Airline companies operated in a restricted environment with high government influence in the management of national carriers.

The liberalization of the European civil aviation industry (started in January 1993, with the objective of creating a single market for civil aviation) was completed in April 1997. The aim was to make airline companies profitable, generate more business for them and increase facilities available to customers. The privatisation process was slow and gradual, as production improvements and reduction in staff had to be achieved through negotiations with workers. The strict licensing norms for new entrants also acted as a major barrier for effective and fast deregulation. Once the process of liberalization was completed and state intervention decreased, the market changed for the better and became more competitive.