I was reading the news about Air France, and it struck me that it was a good example of the challenges faced by an incumbent to evolve.

The summary of the situation from Business Insider :

‘Interminable’ Air France strike enters second week
Pilots are on strike in protest at Air France’s plans to develop its low cost subsidiary Transavia France.
They fear that the airline will attempt to replace expensive Air France pilots, who can earn up to 250,000 euros in annual salary, with Transavia pilots, who are paid considerably less.
Business Insider,  22 September 2014

My thoughts in a few bullet points :
– The operating margin of Easyjet is 9%, Ryanair 16%. Air France : -1%
– Employees’ costs for Air France are 388% more than Ryanair and double those of Easyjet
– Low cost carriers have taken 30% of market share in 10 years – and it doesn’t stop (see below)
– Since it’s impossible to reshape Air France into a LCC (cost of legacy infrastructure, employment contracts, pensions, etc.) then the strategy would be to acquire/build a LCC

Market share from Low Cost Carriers in Europe - With authorisation from AIrline Leader

Market share from Low Cost Carriers in Europe – With authorisation from AIrline Leader

I’m not an aviation expert, and I don’t think anyone in an airline company will find my analysis groundbreaking. But the question is therefore why Air France and others haven’t done anything ? Remember we are not talking about a major disruption – like digital music killing CD – but about low cost competitors who start from scratch with a much lighter cost structure.

You would have thought that already in 2005, when competitors have taken 20% of market share in 5 years, a company like Air France would have felt the pain and made major changes. Still 10 years later, nothing has happened, and the latest developments show it’s unlikely to change.

My conclusion :
Changes are happening in all industries because of technology, some of them being real disruption, some of them just allowing new entrants to be cheaper
– These trends don’t appear overnight, and can be seen very clearly for anyone who wants to look
– Even if you have identified the threat, adapting to the threat can be very challenging for incumbents – because it requires more than the decision of a CEO, but a real change of culture within the company
– And large organisations in general are reluctant to change

Air France for me is the perfect example of the “Curse of the Innovator’s Dilemma”. As a smart CEO of a large incumbent, you might be very well aware of the Innovator’s Dilemma, but still can’t find a way to manage your organisation to react to it. With what’s happening with the pilot’s strike now, Air France is – unfortunately – a case study for many established industries…