Question

The "Oneworld Airline Alliance" You will answer the following questions listed at the end of the case -

1) Companies with the Oneworld, Star, and Sky Team alliances have also engaged in major mergers and acquisitions (M&A): American and US Air (oneworld), Delta and Northwest (Sky Team), and Continental and United (Star). What are the advantages and disadvantages of M&A versus non-equity alliances in this industry?

2) Some airlines, such as Southwest, have survived as niche players without extensive international connections. Can they continue this strategy?

3) Why should an airline not be able to establish service anywhere in the world simply by demonstrating that it can and will comply with the local labor and business laws of the host country?

4) The U.S. law limiting foreign ownership of U.S. airlines to no more than 25 percent of voting shares was enacted in 1938. Is this law an anachronism, or are there valid reasons for having it today?

5) Many airlines have sometimes been no more than marginally profitable. Is this such a vital industry that governments should intervene to guarantee survival? If so, how?

Many airlines have sometimes been no more than marginally profitable. Is this such a vital industry that governments should intervene to guarantee survival? If so, how?

Answer 1

Answer 1)

M&A

Advantages & Disadvangates.

• Airlines can obtain quality staff,additional skills, and knowledge ,by merging or acquiring another airline.
• Reduce competition.
• M&A helps diversify products and services, which means that.

• Certain government regulations such as ownership requirements make impossible some M&A.

• For example; there cannot be a merger between U.S and non- U.S. carriers since the U.S.

Non-equity alliances

Advantages & Disadvangates.

• Allow representatives from each airline to jointly manage capacity, sell and promote space on flights operated by each other, divide revenues, and schedule connecting flights.

• Help cutting operating costs.

• The parties work together, which means that if one of them has financial problems, then the other parties will struggle as well.

• We define a non-equity alliance as a relationship between two or more companies, aimed at achieving a common objective by coordinating efforts, while each party retains its organizational independence and no new equity entity or corporation is created.

• Since all the parties of a joint venture has a say in the decisions concerning.

Answer 2)

such as Southwest, have survived as niche players without extensive international connections Airlines have stablished many alliances such as the Oneworld Alliance, the Trans-Atlantic Joint Venture, the AA-JAL Joint venture, Star Alliance and Skyteam in order to reduce operating costs. Another example is the fact that international alliances enables the airlines to sell and promote space on flights operated by each other, divide revenues, offer lower prices and schedule connecting flights; which they cannot do by themselves. It is important to mention that current consumers have the tendency and ability to look for better prices in flights, airlines connections that make their journeys shorter, destinations with checked luggage and so on. Thus; airlines work together in order to cut costs and be able to satisfy the passenger’s needs.

Answer 3)

An airline not be able to stablish service anywhere in the world simply by demonstrating that it can and will comply the local labor and businesses laws of the host country because

Some of them are:

• airlines are not allowed to fly on domestic routes in foreign countries lucratively.
• It is difficult for airlines to control a flight network abroad that will feed passengers intro their international flights and
• Airlines rarely can service pairs of foreign countries. Let’s illustrate the three of them with examples of the reading, concerning JAL and AA.

• JAL cannot compete on the New York to Los Angeles route nor can AA fly between Tokyo and Nagoya.

• JAL has no U.S. domestic flight to take passengers into Chicago for connections to Tokyo while AA does.

• AA cannot fly between Brazil and South Africa because those governments give landing rights on such routes only to Brazilian and South African airlines.

Answer 4)

The U.S. law limiting foreign ownership of U.S. airlines to no more than 25 percent of voting shares was enacted in 1938 because According to the reading; governments try to protect airlines because of the following reasons. First; they believe they can save money by maintaining small forces and relying on domestic airlines in times of unusual air transport needs. Then, the public sees the maintenance of national airlines and the requirement that government employees fly on those airlines as foreign-exchange savings. Also, airlines are a source of national pride, and aircraft symbolize a country’s sovereignty and technical competence. Lastly; governments want to protect airspace for security reasons Due to the previous reasons, I believe the U.S. law limiting foreign ownership of U.S. airline to no more than 25 percent of voting shares is an anachronism. Times have drastically changed since 1938. For instance; the national identification of seeing the airlines as a source of pride is no longer popular, in fact, now it only happens in some developing countries. Another example is the fact that nowadays there is no intention to protect the airspace since airlines constantly overfly foreign territories.

Answer 5)

• Many airlines have recently been no more than marginally profitable. Is this such a vital industry that governments should intervene to guarantee their survival

• Airlines are a vital industry since is the key to globalization: many imports and exports of goods depends on it, it contributes to the transportation of people (migration) and other industries rely on it such as commerce, tourism, etc.

• As mentioned before, the expenses have increased due to security implementation after 9/11 and increases in oil prices.

• So; in order to protect the industry, I believe governments should stablish subsidies (at least until the industry is fully recovered and can thrive on its own),

• Which is basically a partial financial aid to airlines that will help them cover their costs and enable them to keep functioning.