One World Alliance and Antitrust Laws Case Study

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Alliance

Why would large airlines want to join alliances such as One World, Star, or Sky Team? What are the potential advantages and disadvantages?

The main reason why large carriers want to join alliances is because it helps them to: increase their competitive position. These primary advantages are what have been fueling the push for a number of airlines to embrace this model. The way this improves their operations, is to reduce the total amounts of competition on different routes. This enables one carrier (who is the most profitable) to offer these services to consumers. These alliances help all airlines to benefit from this arrangement by reducing costs and competition on key routes. (Hauptman, 2008) (Wensveen, 2011)

The biggest disadvantages are that these organizations could form a trust. This is when the airlines will use strategic alliances in order to increase fares. When this happens, it means that there will be less competition and greater profit margins at the expense of consumers.
In this aspect, the industry is consolidating by creating these types of entities. (Hauptman, 2008) (Wensveen, 2011)

Why do you think Virgin Atlantic refuses to join an airline alliance?

The main reason why Virgin Atlantic refuses to join is because it will hurt their business model. As the company has a history of flying on those routes which are the most in demand and have the lowest costs. If they were to join such an arrangement, these advantages will be negated for the company. This will hurt their profit margins and competitive position. (Hauptman, 2008) (Wensveen, 2011)

Moreover, management will not have as much flexibility in creating strategies to address issues such as high fuel costs (i.e. hedging). Under this kind of alliance, these activities are reduced. This is because it will hurt their partners' profit margins and competitive position. It at this point when executives will….....

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