One World Alliance and Antitrust Laws

¶ … 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 have greater restrictions placed upon them. (Hauptman, 2008) (Wensveen, 2011)

So you think the government should have a role in overseeing these alliances? Is it good for competition for the government to keep intervening?

The government plays a central role in regulating the industry. This is because the standards they impose will ensure that consumers are treated fairly. Moreover, they can ensure that everyone is following the highest safety practices. This improves reliability and the experience for everyone. (Hauptman, 2008) (Wensveen, 2011)

It is beneficial for the government to intervene up to a certain extent. This means that officials can determine if certain practices are hurting consumers or if any kind of regulations are being ignored. This ensures that there is a focus on promoting competition and maintaining the highest standards for improving safety. When this happens, the public will have more confidence about utilizing this form of transportation more frequently. (Hauptman, 2008) (Wensveen, 2011)

Does it make sense to have several government departments involved in antitrust regulations?

Yes. This is because each department has the ability to determine if a particular problem will result from a possible merger. These insights can help to focus the discussion by looking at contrasting aspects of the issue. When this happens, the government can create a policy that is taking these different views into account. This will ensure that the interests of the general public are always at the forefront. (Hauptman, 2008) (Wensveen, 2011)