Class Activity 19

The One-world Airline Alliance

QUESTIONS

1) Companies within One-world, Star and Sky Team alliances have also engaged
in major mergers and acquisitions (M&A): Frontier and USAIR (Star), Delta and
Northwest (SkyTeam), and Continental and United (Star). What are the
advantages of M&A versus non-equity alliances in the industry?
Mergers and acquisitions may be difficult in light of significant government regulation.
Additionally, there may be practical issues as well when dealing with entities, including
labor unions and organizations. There may also be problems associated with pay
systems and corporate culture. The advantage of non-equity alliances is that it allows
organizations to maintain a level of autonomy and independence.

2) Some airlines, such as Southwest, have survived as niche players without

extensive international connections. Can they continue this strategy?
Southwest is one of the very few airlines that are consistently profitable. There are
several reasons for this profitability and their model has been widely copied by other
low fare carriers, particularly in Europe. Recently Southwest has announced some
codeshare agreements with WestJet of Canada and Volaris of Mexico. The
implementation of these agreements has yet to be completed. This does show that
even a niche player like Southwest recognizes the benefits of alliances.

3) Why 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?

 There are numerous laws of each country which prohibits/creates entry barriers
to setup a business
 Airline business has a national security component too and thus needs
additional approvals(which are difficult to obtain and have made so on purpose)
 Huge capital expenses to setup a new geography could add of strain on working
capital
 Operational issues are local and would need a strong and experienced local
team to ensure its’ wheels running
 The margin for error is minimal as a single case of airline disaster, it could end
up with millions as payout thereby crippling the whole firm

4) The U.S. law limiting foreign ownership of U.S. airlines to no more than 25
percent of voting shares was enacted in 1938. Is this law an anachronism, or are
their valid reasons for having it today?
  Domestic competition :  Allowing greater access to foreign capital would allow
U.S. airlines to enhance their domestic competitive position i.e allowing access
additional sources of capital will give them more avenues in which to seek
capital. Investors have different risk profiles, motivations and financial goals so
restricting U.S. airlines only to seeking major capital investments from domestic
sources artificially eliminates a large segment of the world’s capital markets.
Having fewer sources to which airlines can turn for investment. capital places
capital providers in an improved bargaining position with fewer competitors,
which one expects that they would take advantage of. The airlines could use
capital received to retire debt, consolidate, improve service or avoid bankruptcy
thus improving their domestic competitive positions.
 National Security : he national security concern traces its roots back to the Air
Commerce Act of 1926.139 Although U.S. commercial airlines no longer provide
a reserve corp of pilots, they still make up a significant portion of the nations
reserve airlift capacity via the Civil Reserve Air Fleet (CRAF) program. By
participating in CRAF, U.S. airlines under contract commit aircraft and crews to
be made available to the Department of Defense (DOD) for use during a national
emergency. Although the argument may have some merit, there is nothing
preventing a change in the foreign ownership and control provisions from
including requirements that an airline must participate in CRAF as a condition
for acquiring or establishing a U.S. citizen airline.
 Employment :  The impact of increased foreign investment on employment
would also be felt as the investment will stimulate domestic aviation and
increase employment in the U.S
 Passenger safety: In theory, it might be more difficult to get companies owned
by foreigners to adhere to the high safety standards the U.S. government
imposes. But in a competitive market like the U.S., the incentives to maintain
airplanes, hire qualified staff, and operate planes safely are the same for all
competitors, regardless of ownership.

5) What will be the consequences if a few large airlines or networks dominate

global air service?
There are always tradeoffs when the level of competition is reduced. Some see
consolidation as a very negative thing. The case outlines the criticism voiced by Sir
Richard Branson, founder of Virgin Atlantic and U.S. congressman James Oberstar. Both
see a reduction of competition as a bad thing for consumers. Fewer options might
actually make the global travel experience more straightforward. The question is always
what it will do to the availability of flights and pricing. Airlines want to fly only
profitable legs and consumers want flexibility and good value. The flip side of the coin
was also discussed in the case. Increased traffic as a result of this consolidation might
actually justify new routes and increased competition.

6) Many airlines have recently been no more than marginally profitable. Is this
such a vital industry that governments should intervene to guarantee their
survival? If so, how?
Industry bailouts have been prevalent in 2008 and 2009. From financial
institutions to the auto industry. Post 9/11, President Bush signed into law
the Air Transportation Safety and Stabilization Act that compensated airlines
for mandatory grounding of flights. This was a one-time bailout based on
extraordinary circumstances. The question is should the government bail
out the industry due to underlying profitability concerns? Individual airlines
have been allowed to fail and consolidation has occurred in the airline
industry without government intervention. An underlying economic pressure
is the price of fuel and Southwest’s hedging programs have allowed it to be
profitable when others have been in the red. Now that the economy is
showing some signs of recovery, the political pressure has increased for
less government intervention in the economy.

7) What methods could the three joint-venture partners use to divide revenue and
expenses on the North Atlantic routes?
In addition to codesharing, these partners can coordinate the addition of new flights and
new destinations without antitrust restrictions. Flights can be scheduled at less
competitive times that will improve their capacity utilization and decrease the overall
cost per passenger carried. In addition to increasing revenues, the joint venture
partners can spread costs for ground services such as check-in and baggage handling.
Consolidation of maintenance and reservations systems has also resulted in cost
savings. Improved utilization of costly shared gates can also reduce the cost model,
improving profitability

II. Please answer the 5 following questions, this section must have a
pharagraph of 400 words minimum:

1) Search in internet and find the rules to export avocado to the State of California.
Avocados imported into the United States must meet the following
minimum requirements prior to importation, such as grade requirements
which avocados must grade at least U.S. No. 2, as such grade is
defined in the U.S. standards for Florida Avocados. Such as meeting
the maturity requirements, of color and their Avocado varieties, which
change to any shade of red or purple when mature, except for the
Linda variety, may be imported if any portion of the skin of the fruit has
changed to the normal color for that variety when mature, or if the fruit
meets the following minimum weight or diameter. Avocado importers
should arrange for inspection and certification at least one day prior to
entry at Port inspection offices and at least two days prior to entry at
the Field Operations Section.

2) Search in internet and find the rules to export berries to London in UK.

3) Search in internet and find the rules to import Gouda Cheese from Holland.

4) Search in internet and find the rules to import Red Wine from France.
When you are importing wine from France, there is no customs
clearance payable, nor any taxes. This is because of the EU agreement
on the free movement of goods. If you are importing the wine for
commercial purposes, there is however an Excise Tax that is payable on
the wines. This is a special tax that is placed on the import or certain
items into the UK (such as alcohol and tobacco).The amount of Excise
tax you will need to pay depends on a number of factors, including the
alcohol percentage of the wine, the type of wine (sparkling has a higher
Excise duty) as well as other factors. It is important to check the Excise
duty payable on the HMRC website before you decide to import wine
from France, as the costs can be quite significant.

5) Visit www.alibaba.com and www.europages.com compare and contrast these

Web sites.

Bibliography

 Importing Avocados. (n.d.). Retrieved October 19, 2020, from

https://www.ams.usda.gov/rules-regulations/section8e/avocados