Essay on Collusion Between British Airways and Virgin

‘A Tale of Two Airlines’ written by Christopher Elliot explores the realm of no-frill discount airline carries which are both highly successful while using completely separate tactics. While Elliot does a decent job of providing backing evidence for each point made in his “argument” he never really takes a defiant stance against one airline carrier or the other. In the following paragraphs I will analyze both his arguments against Southwest airlines and Spirit Airlines and try to give my interpretation on how his arguments could have been improved as a whole.

At the present time, the airline industry faces many cost pressures. The industry has made remarkable achievements in improving its efficiency. But cost pressures continue, from record high fuel prices to unjustified increases in charges from monopolistic airports, to further taxes imposed by governments (industryspotlight.org.uk). Higher costs inevitably lead to higher prices for airline passengers. Aviation is vital part of the United Kingdom. It is not only crucial in sponsoring almost 1 million jobs and £50 billion of GDP, providing around £8.7 billion in taxes to the Treasury of the country, but aviation is also fundamental to the success of economic benefits from air transport in the United Kingdom (Roberts-Hughes, 2014). Aviation supports exports, services, manufacturing, foreign direct investment and of course tourism. This sector gives us opportunity for the holidays and visits of family and friend in different parts of a country and also around the world.

The “ Battle Of The Air” has been used to describe current situation in the airline industry. The emergence of “ No Frills “ discount carriers such as Air Asia, Mahlindo, Firefly have threatened the survival of the traditional giants such as MAS, SIA, Thai Airways in the APAC regions and even the Big Boys across the continents such as United, Delta, Continental, Luftansa, Emirates and US Airway ( Myron J.Smith, 2012 ) face competition

Some governments provide subsidies that provide an unfair advantage and prices lower than market conditions which affects the functioning of airline industries directly and Global

Overall, the five forces model suggests that the overall intensity of competition in the airline industry is likely to be severe. Back in the early 1980 's competition was very intense. During the late 1980 's the monopolization of major routes by a few major carriers, the limited availability of free landing spots at major hubs and the emergence of limited brand loyalty and tacit price agreements have all helped reduce the intensity of competition. However, as already mentioned, slumping demand in the early 1990 's plunged the industry once more into a severe price war. Airline travel is a commodity-type product, with limited potential for differentiation.

The risk of entry into the airline industry by potential competitors is low due to the “liberalization of market access, a result of globalization. According to the IATA (International Air Transport Association), about 1,300 new airlines were established in the last 40 years,” (Cederholm, 2016). The cost structure of businesses in an industry is a determinant of rivalry. In the Airlines Industry, fixed costs are high, because before the organization can make any sales, they must invest in air crafts, fuel and service employees. These items come attached with hefty price tags. Industries that require such enormous amounts of start-up capital as predicted by many analysts

Porter’s five forces are competition from substitutes, from new entrants, from established rivals, the bargaining power of suppliers and bargaining power of buyers (Porter, 2008, p. 2). By its nature, flying to a destination faces few substitute competitors. The bargaining power of suppliers such as labor unions and fuel run high within the legacy carriers (Whitelegg, 2003, p. 247). The bargaining power of buyers, the people who purchase airline tickets, drives all carriers in the industry (Mertens & Vowles, 2012, p. 67). Competition from established rivals diminishes as mergers and alliances form (Porter, 2008, p. 13). The

his case article summarizes two case series. Each case series includes three subcases and has an associated teaching note. These six short cases introduce many of the concepts that underlie the practice of airline revenue

1. There are a few trends in the US airline industry. One is consolidation, wherein existing players merge in an attempt to lower their costs and generate operating synergies. The most recent major merger was the United Continental merger, which is still an ongoing affair, but has created the largest airline in the United States by market share (Martin, 2012). Another trend is towards low-cost carriers. In the US, Southwest has been a long-running success and JetBlue a strong new competitor, but in other countries this business model has proven exceptionally successful. The third major trend is the upward trend in jet fuel prices, and the increasing importance that this puts on hedging fuel prices and capacity management (Hinton, 2011).

At the onset of the airline industry in the United States, major network airlines were the sole providers of air travel. This multifaceted industry was a difficult industry to break into as a consequence of “sophisticated customer segmentation, hub-and spoke models and costly information systems for reservations, fare wars and intense competition” (Thompson 2008). Shrinkage in airline ticket prices augmented the demand for airline travel. Many markets were simply deserted or over-looked by major network airlines; this is a region a fresh “second tier of service providers” could enter into. This endeavor proved to provide a consumer savings of billions per year. Thus in June of 1971, after a tumultuous battle with other Texas-based

Oligopoly Behavior in the Airline Industry. Case Analysis This case illustrates the pricing behavior of firms that are oligopoly whose market is characterized by the relative few participating firms offering differentiated or standardized products or services. Such firms in an oligopoly have market power derived from barriers of entry that wards off potential participants. As seen in the case, it is clear that because there are a small number of US Airlines firms competing with each other, their behavior is mutually interdependent – thus, the strategies and decisions by one airline management affect managements of the other airlines whose subsequent decisions then affect the first airline. In the airline industry, such oligopolistic

A drop in fares has been the best result of the Airline Deregulation Act of 1978. It has been the impetus for the increase in the number of flights, which in turn has spurred a drive for greater safety in airlines. But with the current airline market, this development has given us one negative. Since ticket prices have dropped to new lows, the realities of an industry which operates on such economies of scale dictates that only a few competitors have the capacity to operate within the market. This is not the desired effect of either political side on this issue, but it is an economic necessity with the environment that has been created, very similar to that of public utilities and phone companies.

British Airways (BA) is a company that encountered several difficulties back in the 1970’s and 1980’s. The poor performances of the organization, was leading the company to failure. BA was offering a service that even though it accomplished the mission of the company, was not providing customer satisfaction. The organization was not taking into consideration the needs of the costumer and was not providing an acceptable customer service experience. “Productivity at BA in the 1970s was strikingly bad, especially in contrast to other leading foreign airlines” (Jick, Peiperl, 2010, p.28). Due to numerous changes, the company increased their revenues and became a respectful and well know organization.

Considering, the above conditions, the need to analyse the concept of ‘Predatory Pricing’ being played by the two competing airlines as a strategy to deter or even drive away Schnell Air from the market is essential. ‘Predatory Pricing’ is a key strategy that can be employed by an incumbent firm either to protect or to extend its market share against competitive attacks by smaller scale competitors and potential entrants or is used to drive out smaller rivals. These strategies have in common the intention of reducing the expected level of profits that actual and potential rivals can expect to earn in the present and future. After rivals exit, the predator firm presumably will raise prices to levels consistent with its market power. The predatory firm loses substantially more than its rival does; the incumbent must accommodate all demand, while its rival is free

Nowadays, the commercial competition has surpassed the limits of the previous era in which dominant markets are protecting their set market shares. Mega commercial activity back then was completely regulated by the government. The United States has privatized a lot of sectors related to energy, telecommunication, and transportation sectors. In response, the USA introduced the deregulations in the aviation industry to increase the competition in the aviation market.