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Transcript of Case study
Advantage is that government can protect their airlines by regulating:
Which foreign carriers have landing rights
Frequency of flights
Can deny foreign carriers to make stop overs. E.g. Japanese government restricting United Airlines from flying from Japan to Australia.
Countries agree on restrictions and rights to seak equal treatment.
Almost all the worlds’ airlines are members of The International Air Transport Association (IATA)
IATA is mainly concerned with safety standards, but sometimes also restrictions on competition.
Governmental protection of airlines Why?
Airlines are a source of national pride, showing off national flags, and symbolizing a countries technical competence.
Some nationalities favors using national products, including airlines.
In the early days airlines were subsidized to carry mail, since governments wanted to support own airlines to carry the mail.
The belief that they can save money by maintaining a small air force and use it for extraordinary transportation needs
Earlier countries also worried much about protecting their airspace for security reasons.
Obstacles to expansion Governments favours own airlines to fly lucrative domestic flights
e.g. Lufthansa can not operate on the Los Angelos to NY
Airlines being restricted to fly between pairs of foreign countries
e.g. British Airways can’t fly between Brazil and Portugal, but must ally with carriers from these countries
Because of these complications airlines seek aliances to expand their routes
Privatization of airlines has also forced airlines to seek alliances since they can’t look to the government for support.
Cost Factors Airlines have found different ways of optimizing their costs:
Using one Airline company to handle check in, to lower costs in personel, training and inventory.
Leasing equipment of the aiport such as generators, bagage-handling systems.
Common reservation systems
If traffic is low 2 airlines might agree on sharing traffic in one aircraft, instead of using two aircrafts.
Shared maintenance facilities.
Competitive factors Some airlines have made arrangements to complement their routes.
E.g Northwest handling KLM’s trafiic from Detroit to the Netherlands
Problem: costumers may worry about the change between two route codes
KLM solved this by buying an interest in Northwest, securing same route codes, and having both companies logos on the tickets
Forces the airlines to think and act different
Alliances (Also discussed in the theory lecture)
To achieve scale advantages (e.g. shared maintanence center)
To attain each others complementary ressources (booking-system, check in counters)
Alliance Management To put it straight: the airline industry is one big mess!
Complex for managers to cooperate with other airlines on one route and compete on an other.
Governments restrictions on merging with foreign airliners also add further to the ”mess”
Contracts Because of widespread use in coopetition arrangements, contracts pose an important tool.
As discussed in the theory some points to focus on in creating a contract could be:
Which company will manage which part of the operation?
What will each company’s future commitment be?
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