Star Alliance Case Flashcards
revenue drivers for Star alliance
- passenger capacity
- -> marginal cost smaller per passenger, also just more tickets=more revenue
- load factor
- ->don’t want to send a plane half empty, same cost
- -> can depend on political social, environmental factors
- yield
Costs for Star Alliance
- labour
- fuel
- advertising
Rivalry in airline industry
- pretty high
- puts ceiling on revenue because of price competition
Bargaining power of suppliers in airline industry
- high
- more concentrated than buyers
- airlines are price takers of fuel
- aircraft expensive to acquire and maintain
bargaining power of buyers
- high
- many airlines
- rather undifferentiated product
- low switching costs
- price sensitive
Threat of substitutes
- pretty high, can squeeze profitability
- bus, car, train
- for corporate/business passengers
- ->video conferencing a substitute, pretty powerful
-affects yield since airlines can’t overcharge because of presence of substitutes
Threat of new entrants
- not that high, but still present
- entry barriers:
- ->high start-up costs (most of the time)
- ->retaliation from airlines
- ->brand recognition is important, marketing costs are high
-still are some airlines coming in (mostly discount ones)
what are the success factors of the industry
- *FILLING THE PLANES (load factor)
- -> important because of high fixed costs
- dominant brand image/brand trust
- competitive routes, consistency in schedule (on-time, no cancellations, frequent flights at good times)
generally describe a constellation/network alliance
where multiple competitors choose to cooperate
What are the benefits of a constellation/network alliance? (synergies)
- economies of scale
- ->joint purchases on fuel, office, equipment, catering
- -> get bargaining power
-joint advertising
- economies of scope (sharing resources to save money)
- ->share facilities (lounge, etc,), training programs
-code-share synchronization
- Hub-and Spoke system
- ->main airports as hubs, passengers are channeled through them
- -> can sell connecting flights to places where they don’t operate
- —->greater number/network of routes
- -> can increase load factor since cross-selling each others’ flights
- ->when an alliance controls most of gates at an airport, can create an entry barrier
what are the benefits to consumers about an airline alliance
- better customer service
- ->share lounges, rewards programs
- easier for connections
- ->gates closer together
what can loyalty programs do with regards to buyer power
decrease it because it increases switching costs
-can also make customers less price sensitive
describe Star alliance generally (membership, reach)
- started with 5 memebers
- now has 26
- 1300 destinations in 195 countries
- -> 98% of the world (wide presence)
what does the presence of other alliances imply about competition
there is group competition
What are other types of cooperation
- Interline and codeshare arrangements
- -> allowed airlines to sell seats on connecting airlines and sometimes share a flight’s code information
- –> Code sharing allowed two partner airlines to list one specific flight as their own and carry two different reservation code
- Joint ventures
- ->New, shared routes
- -> not separate entity, just sign contract and decide which routes are shared
- Some equity investment agreements
- “Connecting partners”
- ->Not complete alliance member
describe Anti-trust authorities with reagrds to airline industry
- won’t allow overseas acquisitions
- can’t share specific types of information, coordinate pricing, or share profits
what is a risk of alliances
- reputational
- -> one airline does bad, can hurt image of entire alliance
what was a. threat to airline alliances before covid
increasing popularity of long haul flights
- threatens advantage of hub and spoke style
- cost depends on fuel
describe industry consolidation with regards to airline industry
consolidation is result of having fewer players in industry
–> trend of mergers and acquisitions within domestic markets
- Anti trust didn’t like this (hurts consumers)
- industry reached saturation
- bringing in new alliance members may threaten other existing members (want to discourgae internal competition)
Covid 19 effects
- demand decreased by 50% (lockadowns, trust/confidence)
- load factor suffered due to social distancing
- had to ground many planes
- decreased revenue, increased costs (sanitary measures)
responses for covid
- ask for gov funding
- laid off employees
- retired old planes (to avoid maintenance costs)
what was the advantage of being in an alliance for covid
- can do marketing part (reassurance, trying to increase planes)
- sharing some routes
-although not much can be done in terms of saving costs, most members on their own
