The merger of Air France and KLM occurred in 2004
On 30 September 2003, Air France and Netherlands-based KLM Royal Dutch Airlines announced the merger of the two airlines, the new company to be known as Air France-KLM. The merger became reality on 5 May 2004. At that point former Air France shareholders owned 81% of the new firm (44% owned by the French state, 37% by private shareholders), former KLM shareholders the rest. The decision of the Jean-Pierre Raffarin government to reduce the French state's shareholding in the former Air France group from 54.4% to 44% of the newly created Air France-KLM Group effectively privatised the new airline. In December 2004 the state sold 18.4% of its equity in Air France-KLM. The state's shareholding in Air France-KLM subsequently fell to just under 20%.

Air France-KLM became the largest airline in the world in terms of operating revenues, and third-largest (largest in Europe) in passenger kilometres. Although owned by a single company, Air France and KLM continued to fly under their own brand names. Air France-KLM remained part of the SkyTeam alliance, which then included Aeroflot, Delta Air Lines, Aeroméxico, Korean Air, Czech Airlines, Alitalia, Northwest Airlines, China Southern Airlines, Air Europa, Continental Airlines, and Saudi Arabian Airlines. As of March 2004, Air France employed 71,654 people. As of March 2007, the airline employed 102,422 personnel.

According to Air France-KLM, the company's principal activities became:

Passenger transport: first European airline with 25.5% of market share (November 2004) and largest airline in the world in terms of operating revenue.
Freight transport: largest company for international freight transportation without integration. With integration, Air France-KLM is third worldwide behind FedEx Express and UPS Airlines.
Airplane maintenance and repair: largest multi-services operator.
Open skies venture
On 17 October 2007, the creation of a profit and revenue-sharing transatlantic joint venture between Air France-KLM and Delta Air Lines was announced during a press conference at Air France-KLM's headquarters. The venture became effective on 29 March 2008. It aimed to exploit transatlantic opportunities to capture a major share of long-haul business traffic from London Heathrow Airport, which opened to unrestricted competition on that day as a result of the "Open Skies" pact between the EU and USA. It was envisaged that Air France and Delta would begin nine daily round trips between London-Heathrow and destinations in the USA, including a daily London (Heathrow) to Los Angeles service by Air France. Once the new Air France-Delta venture received antitrust immunity, it was to be extended to the other two transatlantic SkyTeam partners, enabling all four partners to codeshare flights as well as to share revenue and profit. The new transatlantic joint venture marks the Air France-KLM Group's second major expansion in the London market, following the launch of CityJet-operated short-haul services from London City Airport that have been aimed at business travellers in the City's financial services industry. However, the daily London (Heathrow) to Los Angeles service was not as successful as hoped, and was discontinued in November 2008.

Recent developments
On 12 January 2012, Air France-KLM announced their three-year transformation plan, called Transform 2015, to restore profitability. This plan works by restoring competitiveness through cost-cutting, restructuring the short- and medium-haul operations and rapidly reducing debt. The main objective of this plan is to turn Air France-KLM back into a world player by 2015. Air France has been losing 700 million euros a year. As the financial results of recent quarters demonstrate, the long-haul operations, also subject to increasing competition, cannot alone offset these losses.

On 22 February 2012, Air France released their plan for summer schedule. Because of the uncertain economic environment, Air France-KLM has set a limit of 1.4% maximum increase in capacity from 25 March 2012 – 28 October 2012.

On 21 June 2012, Air France-KLM had announced its decision to cut just under 10% of the total 53,000 workforce (about 5,000 jobs) by the end of next year in an attempt to restore profitability by 1,700 jobs natural turnover and the rest by voluntary redundancies, so hopefully no compulsory redundancies.

At the beginning of July 2012, it was announced that Air France-KLM found partners for the new African start-up airline Air Cemac, which was co-founded by six countries in Central Africa to replace the former Air Afrique. But several problems and two partners, who decided to back out, delayed the implementation of the project. Following its launch, Air Cemac announced it would commence operations in 2013.

As of August 2012, the Transform 2015 plan was accepted by ground staff and pilot unions but rejected by cabin crew unions.

In September 2013, Air France introduced a brand new Economy product along with an improved Premium Economy seat and service. It is expected that the new improvements would be fitted on aircraft from June 2014 onwards.

In October 2013, Air France-KLM announced they were writing off the 25% stake in Alitalia, as it was hesitant the struggling carrier would obtain the 300 million euros in financing. The group has denied Alitalia of additional funds as it is currently struggling to restructure itself to profitability with the Transform 2015 plan.

In December 2013, Air France announced that Cityjet no longer meets the short haul needs of the group and is in the process of closing a deal with German firm Intro Aviation by the end of Q1 of 2014.

On 4 February 2014, the new Business product was unveiled, featuring a fully flat bed from Zodiac Aerospace. The seat will be fitted on Boeing 777 aircraft from June 2014 onwards.

In September 2014, Air France announced it would sell a 3 percent stake in travel technology company Amadeus IT Group for a fee of $438 million.

Flying monkeys to laboratories
PETA has criticized Air France for being what it calls “the only major airline in the world that still transports primates destined for experiments.”  Trough ads, protests and e-mails, phone calls and social media postings from supporters, PETA says it forced Air France to cancel a shipment of monkeys from Mauritius to Washington in 2012.  PETA says animals suffer in laboratories where they’re “caged, poisoned, cut into and killed."  Dr. Jane Goodall, Peter Gabriel, James Cromwell and others have criticized Air France’s monkey shipments.  Air France has said the transport of monkeys to laboratories is legal and that they stand by the practice. In a statement released to the press, the Airline explained, "Primates travel to private research laboratories as well as public research laboratories. This highly supervised activity is paramount in the development of research and medicine in France and Europe. As such, Air France management has received numerous letters of support from various public or private research institutes." The European Animal Research Association and other organizations in support of animal research have expressed support for Air France.