Oneworld There Will Be a Few Different

OneWorld There will be a few different consequences of a few large airlines or networks dominating global air service -- some good for consumers and some bad. Some of the advantages that have emerged thus far include better coordination of connections to improve service, and different tactics to improve marketing such as code-sharing. These changes are generally beneficial to both the customers and to the airlines as well. The reason these changes are beneficial is in part because the formation of these networks has been driven by competitive demands.

The airline industry is in a state of monopolistic competition, but with a commoditized base service. Airlines are seeking ways to differentiate without competing on price or altering the base service. For the foreseeable future, these networks are likely to result in improved operating profits for airlines and improved services for consumers, as the airlines are still in a state of intense competition. Should a handful of networks come to dominate world markets, the industry would shift towards an oligopoly state.

Under oligopoly conditions, the companies would be able to increase prices and standardize service among the different networks. Such actions could be the result of collusion, but more likely the result of passive transition towards an industry mean. For consumers, choice would decline, as would service standards. Prices would increase, because the industry no longer has a high level of competition. This is why antitrust authorities examine these arrangements -- they want to ensure that the competition level remains high so that these tie-ups are beneficial to consumers.

At some point, they will become detrimental. However, it should not be expected that oligopoly conditions could exist in the long-run. There are few barriers to entry for airlines. One would think that the high cost of aircraft and difficulty in turning profits would be high barriers to entry, but new airlines are common and several recent new entrants have been successful. Without strong barriers to entry, there will always be room for new entrants to break up the oligopoly.

Indeed, twenty years ago when most countries were primarily served by flag carriers only, oligopoly conditions existed. The result was the rise of discount airlines, taking advantage of domestic protections and any deregulation that happened to occur. Today discount airlines are thriving in many parts of the world and the oligopoly conditions that once seemed to exist are gone in most countries. It should be noted that even if a small group of networks came to dominate the airline industry, the impact would mostly be felt on transoceanic routes.

There are substitutes available on overland routes and the closer the destinations are the greater the substitution effect. One can, after all, drive from Los Angeles to Albuquerque or take the train from Munich to Milan. The degree to which the decline of competition would impact consumers will be related, therefore, to the availability of substitutes. Without viable substitutes, prices on transoceanic routes would increase to the point of maximum profit, which is not likely the point of maximum demand.

Government intervention in some cases would be required in order to.