Even as the airlines of some of the developed economies were facing exceedingly difficult times since the beginning of this century, the aviation business in the developing nations was witnessing a boom with more routes being covered and more players entering the market. However, in spite of the booming business in developing economies the global airline industry lost $35 bn since the beginning of the millennium, according to International Air Transport Association (IATA), with North American airlines leading the way. Against this backdrop, when Air France and the Netherlands' KLM joined hands to form Air France-KLM in May 2004, it attracted a lot of skepticism; understandably so, because at that point of time KLM, pioneer of the business class, was making losses while Air France (AF) wasn't. Questions were also raised on the grounds of the modalities of the merger; since it is said that the two entities would function separately even after the merger.
However, skeptics were proved wrong when the merged entities reported profits within one year of the merger, thanks to the synergies exploited using their strong market presence, complementary assets and `dual hubs' -in Paris and Amsterdam.
s saw the merger not as a restructuring exercise but as a response to strong competition in the airline industry. The deal created largest air transport in Europe in terms of passenger-kilometers and world's largest group in terms of operating revenue (about 19.2 bn), overtaking British Airways and Germany's Lufthansa. The separate legal entity status was retained by the two owing to a bilateral aviation agreement between the two countries to which the airlines belong.
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