The European Union And Airlines Essay

1346 words - 5 pages

The European Union and Airlines

Situation:
Throughout the time one of the most regulated industries has been the airline industry. The creation of the European Union (EU) had allowed for the airlines from those countries to fly among each other’s with fewer regulations. This deregulation has propelled a wave of changes for the carriers based on these countries. One of these changes is the proliferation of strategic alliances as the globalization of this market increases. These alliances are created with the purpose of lowering costs by reducing the number of aircrafts in service, sharing maintenance staff and buying together bigger quantities of supplies like fuel.
A study shows that in 1995 only a third of the intercontinental alliances in 1992 were still in service. One of the most successful international alliances is the one between KLM Royal Dutch Airlines and Northwest Airlines. After creating the alliance with Northwest, KLM was able to reduce costs by increasing the percentage of travelers on their flights. What made this alliance possible was a treaty signed in 1992, that allow for airlines companies from the United States and Netherlands to fly into each other’s markets. In this alliance the two airlines have code sharing; one can book seats in the others flights. Based on the opinions of experts, KLM and Northwest need to launch a market campaign so the general public perceives them as one company. As well to standardize service on each carrier so the passengers feel comfortable flying either one.
The second of the alliance is the proposed between American Airlines and British Airways. This alliance provoked a lot of controversy. This alliance faces a great number of regulatory obstacles; given the fact this alliance would create the biggest airline alliance. It will have to be approved by regulatory agencies in EU and the United States. Not only this, but also the United States and United Kingdom would have to sign an open-sky treaty before the alliance gets approved. Another of the obstacle is that the competition commissioner for the EU said that BA had to give 353 airport slots and these slots had to be given for free to the other carriers. The chairman for Virgin Atlantic, Mr. Richard Branson, is opposed to this alliance, because he sees it as anticompetitive and monopolistic in nature. He also mentions that the United States negotiate deals that are mainly beneficial to US carriers. The US domestic market is 40 percent of the worlds flying. We can continue to grow and compete elsewhere, but there is a large chunk closed to us. No doubt it’s important. Edmond Rose; Manger Government Affairs for Virgin Atlantic Airways. (Global air deals grounded, 06/09/2000). The air transportation industry in the United States accounts for approximately $75 billion of the gross domestic product.
The third alliance discussed is the one composed of United Airlines, Air Canada, SAS, Lufthansa and Thai Airlines. In...

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