De-Regulation, Liberalization, and Concentration in the Airline Industry. (Editorial)

Article excerpt

The airline industry has historically been hindered from achieving a high degree of internationalization and globalization because of restrictive domestic and international regulations. Those restrictions began to work already in the early days of flying, when nations did identify the importance of planes, airlines and infrastructure facilities as an economic growth driver and as a potential military instrument. Although during the last two decades liberalization in the US, the EU and other regions has enhanced the potential for aviation competition in the respective domestic markets, specific regulations and bilateral international agreements continue to restrict significantly the competitive scope and thrust of airlines at the international level.

According to reports of the OECD and the US Department of Transportation up to now most national or regional (in the case of the ELl) airline regulations prohibit or at least limit foreign ownership of domestic airlines. Furthermore, despite the fact that bilateral international agreements, mainly so-called "open skies" agreements, are less restrictive with respect to the number and identity of airlines and the international routes or capacities that can be provided, they still do not permit market entry from airlines headquartered in third countries; this means that--for example--a US-UK open skies agreement would not allow Alitalia to fly the route London-Rome-Chicago. Also the agreements do not allow for cabotage; even the British airline BA is not allowed to carry passengers from Chicago to Los Angeles when flying the route London-Chicago-Los Angeles. Another obstacle to a higher degree of competition is caused by the natura bottleneck "infrastructure". At many international airports, the demand for take-off and touch-down slots and for gate respectively terminal facilities exceeds the available supply level. This is especially true for rush hours. Furthermore, incumbent carriers may hold a dominant position in slots, limiting the chance for new market entry. Last but not least in some countries discriminatory arrangements benefit the incumbent flag-carrier airline when it conies to the question who gains access to airport facilities. As a result of the described changes within international airline business a strange management situation occurred at least with the beginning of the nineties. Although no full liberalization took place there was a slightly increased chance for entering new international markets. On the other side full access was--up to now--not permitted. Airline managers had to decide whether to hold on to traditional and thereby proven routines, i.e. to stay at the level of mainly pure national carriers, or to develop and employ concepts which allow for international growth and higher ROIs. Some managers turned out to be real entrepreneurs. They saw the chance to establish strategic alliances. What are the firm-specific benefits of alliances? First they are effective means to lower cost and to enhance efficiency by rationalizing the system. As a second benefit they allow to expand seamless services or--in fact--services that seem to be seamless. Code-sharing alliances offer the same advantages as true seamless connections do: no additional check-ins, greater security in the case of delays or in the case of lost luggage. In combination with frequent flyer programs alliances are therefore able to enhance demand for the allied airlines. As a third benefit alliances will reduce the degree of competition in those markets, which were previously served by the distinct alliance partners. The described benefits will even grow when airlines would begin to standardize their planes and other material. Although the game with mighty alliances began only in the mid of the nineties--the oldest, still existing, and most developed alliance is the Star Alliance, founded by Lufthansa and United Airlines in 1997--the world market has changed dramatically. According to the OECD already in 1998 the major alliances One-world (core partners: American Airlines/British Airways), Sky Team (core partners: Delta/Air France) Star Alliance (core partners: Deutsche Lufthansa/United Airlines), and "Wings" (core partners: Northwest/KLM) accounted for 57% of world traffic market share. …


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.