Airlines can also seek cost reductions through a higher level of cooperation as

Airlines can also seek cost reductions through a

This preview shows page 264 - 266 out of 269 pages.

Airlines can also seek cost reductions through a higher level of cooperation as they combine operations at common destination airports. Joint maintenance and purchasing offer potential savings. As the degree of cooperation increases through scheduling and capacity agreements, carriers give up some control and must modify their schedules and operating practices for the good of the alliance. As cooperation deepens, so does the cost of exit. A joint venture is yet another step toward full integration. At the point that carriers give up their own independent identity for that of the alliance, the partners are operating as one entity even if legally separate. Alliance branding, advertising and promotion are increasing with the big 3, but members have yet to, and perhaps will never, give up their independent airline brand. As the Alliance progresses from revenue generation to cost reduction, more cooperation is required as the airlines combine airport facilities and personnel at common destinations, and engage in joint maintenance and purchasing. Exit becomes more difficult and costly as operations become integrated; thus, it was common for early alliances to focus on revenue enhancement rather than cost reductions. Joint venture features such as joint product development tie the partners together and bring them close to operating as a single company. While the benefits may be significant, dissolution of the agreement is like ending a marriage: expensive and probably bitter. Although joint ventures between some alliance partners have been established, the global alliances have not progressed to this level of cooperation and probably never will. Passenger Benefits Alliances can potentially either benefit or harm passengers. If international travel convenience is improved at lower fares, then the consumer benefits from alliance formation and expansion. Conversely, alliances may limit competition resulting in higher prices. If an alliance reduces competition on routes by combining carriers within the alliance that previously were in competition, prices will probably rise and service may suffer as well. This result would likely benefit the alliance but passengers would suffer. Because US and EU regulators feared anticompetitive
Image of page 264
International Air Transportation and Public Policy 263 effects, American Airlines and British Airways were long refused antitrust immunity for the Atlantic routes in the oneworld alliance. Regulators believed reduced competition would lead to less service and higher fares. Alliances can also be pro-competitive. If weaker competitors form an alliance, they are better able to compete with a more dominant airline, so competition is increased. Most academic studies show consumers benefit from alliances with improvements in service including more flight frequency, shorter total trip time, easier booking and ticketing, more convenient service, and lower fares. Brueckner (2003) found that code sharing on international itineraries reduced fares by 8 to 17% while antitrust immunity reduced fares by 13 to 21%.
Image of page 265
Image of page 266

You've reached the end of your free preview.

Want to read all 269 pages?

  • Fall '16
  • Kelly Lawton
  • United Airlines, Delta Air Lines, Pan American World Airways, Cab, Douglas DC-3

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture