Question

Discuss two questions raised by the manager of route strategy of American Airlines: Why should an airline not be able to establish service anywhere in the world simply by demonstrating that it can be and will comply with the local labor and business laws of the host country? And some airlines such as Southwest and Alaska Air, have survived as niche players without going international or developing alliances with international airlines. Can they continue their strategy?

Answer 1

Q1 - Every market has its own challenges and opportunities. The challenges in the markets where the airline is curretly operating are different from those in other parts of the globe. Of course there are opportunities available in other markets, and the airlines have capabilities of complying with local labour and legal system, but these two are not the only factors that determine the success of airlines. The other factors are competition from alternative modes of transport, load factor and revenue per seat offered. The former depends on nature of terrain and development of  infrastructure while the later is related to the paying capacity of the people, which in turn relates to their demographics such as income, occupation and household size. Operations in a developing Asian country can never have the same profitability as a developed US or European route, owing to the reasons mentioned. In such cases, even if the airline expands to these regions, it is difficult to succeed owing to its adaptability. The chances of success in similar conditions are better, but even there, the factors are bound to be different and a whole new strategy is needed.

Q2 - The sirline business in known for its very high fixed and operationsl cost and an expansion decision depends on many factors, bith internal and external for an organisation. If the airline, with its current capacity and capabilities, is able to serve in a niche market and serving it successfully and profitably, an alternative to expansion is consolidation of existing routes and further improvement of services by putting in more resources to capture greater share of that market. International airline scene is dominated by some big names, and it will surely take huge effort and resources to make a place for a new entrant. The risk can be taken selectively in some similar markets, and the decision would depend on the availability of airline's resources / capabilities to do so, without comprimising on its current market position.It would not be advisbale if such a move affects its current position in any way.