Why alliance and Merger
• Economic Considerations- Economy of Scale• Regulatory Considerations- Airline ownerships• Operational Considerations• Network coverage
Hench strategic alliance is the answers
Types of Alliance and Agreement• Prorate Agreement- Revenue sharing from multi-sector service with more than
one carrier (Multilateral prorate for multiple carriers)- Generally divided on the basis of general cargo rate under
45kg- Calculated in proportion of rate for the sector it operated
to the sum of the whole length - Special method may be used (such as great circle distance)- What is great circle distance?
• Codeshare- Airline designator code on a flight
flown by another carrier (Operating carrier)
- Non-operating airline can market the service as its own
- The operating carrier either get a net rate or a commission
- Advantage: No need to fly the route that cannot sustain on its own
- Highly popular among passenger carriers
Block space agreement
• Buying an agreed capacity/space on the flight of another airline
• A subset of code-sharing• Hard-block• Soft-blockCAPACITY SWOP- Reciprocal block space agreement (Bilateral)
Joint Venture
• Pooling agreements• Sharing revenues and costs with pre-arranged
agreements.• Has to be approved by the anti-trust authority.• The aim is to increase revenue and reduce
costs. HOW?
Revenue Enhancement
• Improve access to more destinations (Esp, the restricted markets)
• Increase access to smaller destinations (which can’t be sustained on its own)
• Access to slot-constraint airports• Coordinated feeder traffic with min connecting times• Price-leadership on member’s hub-to-hub markets• User-friendly booking system for inter-carrier
shipments
Revenue Enhancement
- The deeper the level of integration of the alliance, the better revenue enhancement potential (Aiming for Seamless experience)
Cost Reduction
• Reducing duplications in sales, distribution, admins
• Network rationalisation• Co-ordination of slots/fleet• Joint airport services – sharing facilities• Joint operation systems (IT)• Joint Purchasing (i.e. Chinese buying Airbuses,
Lion Air, Air Asia)
WOW Alliance
• Found in 2000• Original members: - Lufthansa Cargo (Left 2009)- SAS Cargo (Current Member)- Singapore Airlines Cargo (Current Member)- JAL Cargo (Left 2010 after shutting down its cargo
operations)
- Not as successful as passenger airline alliance
Mergers and Acquisitions
• Popular, particularly in the US mainline• Quick way to expand its network and size• To put a jigsaw in the missing link • Could be within one country or trans border (e.g. Air
France/KLM, Lufthansa-Swiss/Austrian)• Subject to antitrust, politics, labour issues.• It has become a major trend in recent development
in airline industry• Exercise: Which airlines should merge together?
Price-Fixing Scandal• Cartel activity within the industry• Price-fixing • Example: TG was fined 7.5 m AUD by the Australian court along
with 13 other carriers
• Airlines/transport business are prone to fare war. Very hard to differentiate its products.
• Therefore, secretly to set an agreed price is the way to avoid price war in the market (Which is illegal)
• Exercise: Report the cases of Price-Fixing in the cargo industry.