Swissair's response to global airline deregulation and competition

Swissair's Alliances

Issues and Key Issue

In my opinion, there are several issues, the most important ones having been emphasized at the end of the case study. First of all, the creation, with the Maastricht Treaty signed in 1992, of the common market in Europe, corroborated with the fact that Switzerland is not member of the EU, would be leading to the renegotiation of the Aviation Service Agreements (ASA) to which Swissair is part. Additionally, the common market would mean a much larger market than the Swiss: 350 million compared to 7 million and we may assume that the support from the European Commission and Council of Europe, coordinating bodies of the EU would have been much stronger.

A second issues that needed to worry Swissair is obviously related to deregulation, but not only on the European level, but globally. Global deregulation affects Swissair especially in terms of prices. Until now, Swissair had been strongly relying on its premium strategy and on the fact that it was able to charge extra while giving the impression of better services. Deregulation means a serious and dramatic price competition, especially if we consider the costs involved in the airline industry as well. This may, in my opinion, be considered the key issue.

Finally, a third issue may be considered the alliance strategy that Swissair has been adopting. In my opinion, two such alliances are relevant. The European Quality Alliance, for once, allowed Swissair to maintain its premium levels, while splitting some of the fixed costs, including maintenance and purchase, with some of the other European companies that sold at premium levels. The alliance with Delta and Singapore International Airlines was the second important alliance, equivalent with the presence on the European and Asian markets.

2. Why is the Key Issue Key?

The key issue is key mainly because a business is judged depending on its profitability, according to the fact that the primary goal is profit maximization. The fact that Swissair's price policy may be seriously affected because of the market deregulation may seriously influence Swissair's activity, as it is clear that it needs to make some changes in order to adapt. These changes include, for example, adopting a new long-term strategy where Swissair will no longer be associated with quality. This needs to be considered as well.

4. Recommendation- best solution

In my opinion, the alliance alternative solution provides the best option for Swissair to be adopted in the future as well. Indeed, as we have seen from the case study, at least on some airports, the alliance had generated revenue boosts. Even more so, the alliance strategy would be an answer even for the common market problem. The EQA include both members from the European Union (Finnair), but also non-EU members (SAS included the Norwegian and Swedish carriers, which were not, at that time, EU members). So, strong alliances may be an optimal solution in Swissair's case.