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Connecting with One World - AirlinesTeam Members: Hongru Wang Yunsheng Yang Chengran Wang Zhuoran Zhou Shengjie Li Min LiDirect Investment and Collaborative Strategies公司公司LOGO与名称与名称 Q1Significant Mergers in the IndustryDelta + Northwest Airlines (2008)Sky team The acquisition proved to be fruitful, catapulting Delta to the title of largest airline and generating significant cost savings for both the airlines.公司公司LOGO与名称与名称 Q1 United Airlines + Continental Airlines (May 2010)Star Alliance This merger usurps Delta to become the new largest airline, positioning the airlines for global and domestic competition and improved service and performance.公司公司LOGO与名称与名称 Q1M&A Advantage1. Cost reduction and revenue increase2. Resources pooling3. Service optimization公司公司LOGO与名称与名称 Q1M&A Disadvantage1. Layoffs 2. Reduce competition significantly and market monopolies3. Often accompanied by conflict related to seniority issues, new work rules, etc.公司公司LOGO与名称与名称 Q1Non-Equity Alliance Advantage1. Attaining the technical efficiencies of lower production costs/ better service2. Reach of Seamless Service Networks and increase load factors3. Enhanced frequent flyer programs4. Share information (Code-sharing)公司公司LOGO与名称与名称 Q1Non-equity alliance Disadvantage 1. Too broad setting of objectives/ Incongruent objectives 2. Asymmetry of partners, in the size3. Asymmetry of benefits versus expectations4. Differing product/ service standards5. Lack of Exclusivity公司公司LOGO与名称与名称 Q2Some airlines have survived without extensive international connections. Can they continue this strategy? When there is sufficient traffic on the city pairs that a route serves, there is little need to have feeder or connecting routes for an airline to be profitable. Without the need for hubs to make connections, some airlines can operate in smaller but closer-to-downtown airports. They can avoid the costs associated with the transfer and the payment of overnight expenses to passengers. 公司公司LOGO与名称与名称 Q2Some airlines have survived without extensive international connections. Can they continue this strategy? They may be able to overcome any disadvantages from small-scale operations by targeting their promotion to regional and niche groups and by running low-cost operations that charge low fares. Conventional wisdom would suggest they can in fact survive in their present operational mode and that attempts to expand and modify their operations might make them more vulnerable.公司公司LOGO与名称与名称 Q3Why 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?Considering either the international or simply the domestic environmentA major consideration is whether economic interests in the airline industry are better served through regulation via the market. Why regulate Why regulate domestic airline domestic airline industries.industries.公司公司LOGO与名称与名称 Q3Proponents Competition has forced carriers to become efficient or else go out of business, instead of being subsidized by regulated route and fare structures Economies of scale in handling passengers and cargo.Opponents Local interests are often ill-served by deregulation Opponents argue that local interests are often ill-served by deregulation since airlines are free to discontinue service and to wage predatory price wars that put competitors out of business The high barriers to entry in the industry further exacerbate this situation公司公司LOGO与名称与名称 Q3Another major consideration deals with the political dimensions of the question. Because most governments see airlines as a key national industry, they oppose giving foreign carriers access to domestic routes on grounds of both national security and consumer welfare. 1.Countries believe they can save money by maintaining small air forces and relying on domestic airlines in times of unusual air transport needs. For example, U.S government used U.S commercial carriers to help carry troops to and from Iraq.2.As well, airlines are a source of national pride, and aircraft symbolize a countrys sovereignty and technical competence.公司公司LOGO与名称与名称 Q4The Foreign Ownership Restrictions on Airlines The United States and Canada restrict foreign ownership to 25% The EU has taken steps to liberalize within Europe and sets a 49% limit on non-European ownership. In Australia and New Zealand, foreigners are permitted to acquire up to 49% of the equity of an international carrier and up to 100% of a domestic airline. 公司公司LOGO与名称与名称 Q4Reasons1. We need US carriers for national securityUS believe they can save money by maintaining small air forces and relying on domestic airlines in times of unusual air transport needs. Argument:It would be cheaper and better if the US government simply tendered for charters on the open market公司公司LOGO与名称与名称 Q4Reasons2. Foreign Airlines Dont Have the Same Security StandardsUS have worried about protecting their airspace for security reasons. Argument:A US airline owned by foreign investors is operated by US permanent residents and citizens, and following all US standards and procedures, subject to all US regulations and controls.公司公司LOGO与名称与名称 Q4Reasons3. Foreign Airlines Would Take Away Jobs from AmericansThe desire to maintain existing jobs threatened by foreign competition is probably the single most important source of todays protectionist policies Argument:All US carriers have to employ either lawfully admitted foreign nationals on special work visas, or US permanent residents, and indeed, for some jobs, they can only employ full US citizens公司公司LOGO与名称与名称 Q4Reasons4. A Foreign Airline would cherry pick only the Profitable RoutesThe foreign owned airline would only fly on the easy major routes that any airline can make a profit on Argument:The ownership of a new startup airline again makes no substantial difference to the external marketplace factors that influence all airlines and their present operations公司公司LOGO与名称与名称 Q4Reasons5. Profits will be Taken OffshoreAllowing foreigners to own US airlines means that theyll take all the profits offshore and somehow harm the US economy in the process Argument:No US carrier is making so much profit that transferring some share of it offshore would harm the economy公司公司LOGO与名称与名称RealityThe U.S. law limiting foreign ownership of U.S. airlines is considered an anachronism because people desire to benefit from more competition, lower fares, better service, and no more taxpayer bailouts of old, irrelevant airlines that should be allowed to quietly expire and disappear Q4公司公司LOGO与名称与名称 Q5公司公司LOGO与名称与名称 Q5公司公司LOGO与名称与名称 Q5 If a few large airlines or networks come to dominate global air service More convenience Risk reduction Lower cost 公司公司LOGO与名称与名称 Q5 If a few large airlines or networks come to dominate global air service Under oligopoly conditions High prices Poor service No special offer公司公司LOGO与名称与名称 Q6 The Airline BailoutMany airlines have recently been no more than marginally profitable.公司公司LOGO与名称与名称 Q6 The Airline BailoutAirline is a vital industry.lFacilitate economic growth, world trade, international investment and tourismGovernment intervention to guarantee their survivallAirports and air traffic control infrastructurelEmployee training for pilots, mechanics, etc.lProtection from foreign competitionlCredit instruments to air carrierslDeferred taxation公司公司LOGO与名称与名称 Q7Two-Stage Model of Airlines Game Cost & Revenue Sharing Method 公司公司LOGO与名称与名称 Q7Contribution Approach Cost & Revenue Sharing Method The contribution approach is used to arrive at a profit sharing percentage for each of the airlines. Since the parties may contribute labour, management and capital to the joint venture, it is reasonable to divide the income or expenses based on the relative contributions of each party. The underlying principal is that returns are to be shared in the same proportion as the costs and capital are contributed.公司公司LOGO与名称与名称 Q7Valuing Contribution Cost & Revenue Sharing Method Available Seat Miles (ASMs)A common industry measurement of airline output that refers to one aircraft seat flown one mile, whether occupied or not. An aircraft with 100 passenger seats, flown a distance of 100 miles, generates 10,000 available seat miles.Revenue Passenger Miles (RPMs)This is the basic measure of airline passenger traffic. It reflects how many of an airlines available seats were actually sold. For example, if 200 passengers fly 500 miles on a flight, this generates 100,000 RPMs.Cost per Available Seat Mile (CASM) Measure of unit cost in the airline industry. CASM is calculated by taking all of an airlines operating expenses and dividing it by the total number of available seat miles produced.Unit Cost per Unit of OutputA measurement that gauges total operating costs in relation to output/results.公司公司LOGO与名称与名称 Q7Pros and Cons Cost & Revenue Sharing Method Consolidated contracting Aligned schedules Shorter travel times due to better transfer options Beneficial for “low capacity” markets Two-side effect on maximize profitThanks for Your Attention!
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