Alliances in the Airline Industry
Throughout the years there has been an increase in strategic alliance formation in order to combat a number of factors creating uncertainty in the market and to share knowledge and know-how. The formation of alliances has also occurred in the Airline industry; this report discussed how these alliances gain economies of scales and synergies. The deregulation of the airline industry has open doors to more competition sand to further agreements such as the “open skies”, these agreements allows airlines to serve consumers more efficiently by offering extensive domestic, continental and intercontinental service networks.
Through the formation of alliances, airlines have created economies of scale through extensive use of a …show more content…
Increased reliance on hub-and-spoke networks have increased a number of stops made on a single journey. Since a number of accidents happen in the takeoffs and landing a margin of safety will be dramatically reduced. In order to reduce ticket price margins, because of a fierce competition in the industry airlines will try to cut operational costs and overlook safety concerns. Instead of investing capital in making customers journey safe airlines shift its concentration on maximizing profits through economies of scale (Rose, 1992).
Deregulation has increased a level of competition and the volume of traffic in the airports which will have a negative effect on environment. The UK alone accounts for 40% of transatlantic aviation. According to the European Commission, after signing ‘Open skies’ agreement between EU and US additional 26 million passengers will fly over a period of 5 years which lead to 3.5 tones of extra CO2 emissions annually. In March 2008 Heathrow will open terminal 5 serving around 30 million passengers every year. It will completely undermine EU’s intentions to effectively deal with issues concerning climate change (The Independent, 2007). The European Commission’s aim is to cut overall greenhouse emissions of about 30% by 2020. Consumers began to identify Airline alliances will have to adopt policies set out by the European Commission and cut emissions to