The American airlines assert that the Gulf giants have obtained $42 billion grant and are now taking advantage of these by charging lower fares and operating with lower cargo thus attracting customers onto their services (Bilotkach, Rupp, and Pai 10). Delta Company has been the most vocal of three American airlines and how they have distorted the competitive background in America and Europe. The conflict involving three biggest airlines in the US and the emerging Gulf hub airlines has intensified after it emerged that American Airlines, Delta Air Lines and United Airlines agents met with envoys from the EU to talk about the unfair government grants that are offering them unfair advantage. This latest convention enhances further the efforts of the US airlines to attempt to obstruct the expansion of Emirates Airline, Etihad Airways and Qatar Airways in their home market. The US airlines has submitted of a huge document to the government, urging an analysis of US open skies air pacts with both Qatar and the United Arab Emirates (Bilotkach, et al., 11). The US shifting their interests to Europe is planned to inspire support from Air France and Lufthansa, which have openly protested about the same issue. In addition, the German market has very restraining air service pacts with the UAE and Qatar, which has restrained the development of Gulf Airlines in their home markets.
These conflicts are largely attributable to threat of substitutes, entry barriers, and the market bargaining power. Competition in the airline business is intense and driven by a flimsy product. This means that there are immense complexities facing sustainable product delineation, high exit obstructions, market volatilities and elevated marginal costs related with the industry business (Czipura, and Dominique 58).
Deregulation has generated a wave of co-operative pacts or unions among airlines. These are essentially designed to attain fleet rationalization, growth and rationalization of network formation, better utilization of cost-side economies of scale and lessening of costs through dual procurement and joint marketing. As a rule, both in America and in the EU, foreigners are not allowed to own an airline. Alliances allow airlines to acquire the efficiencies and benefits usually linked with unions and acquisitions (Czipura, and Dominique 60). Airline unions can also present benefits to the customer by offering flawless travel and services between a broader variety of city pairs, lessening the time taken to travel and joint lounges.
The effect of airline mergers on competition relies upon the nature of the joined networks (Cavalcante 254). Specifically an alliance can drastically lessen competition on interconnected non-stop routes and overlapping linking routes where the joined airlines were once major opponents. Even in a case whereby the two networks do not interconnect in their individual markets, the alliance can have severe anti-competitive impacts by abolishing competition on the hub-to-hub route connecting the networks.
Additionally, mergers of airlines operating on the same network may in future increase demand for the network together and raise the market influence of the network, particularly at its hub. This involves the risk of providing new competitors into the network’s markets to the disadvantage of both global and domestic competition. A prospective problem for airlines to operate in an open international market background would be that they might be exposed to the competition policies of diverse constituencies. For instance, unions between airlines operating via the Atlantic are exposed to the competition policies of both the Europe and the US (Preston, Lee, and Hooper 48). The major issue is that two or more competition authorities could make contradictory or disjointed decisions regarding the business. Nonetheless, this is a moderately common problem in numerous international industries, and appropriate mechanisms exist to handle the matter (Preston, et al., 49). Additionally, this kind of co-operation also results to a certain convergence in how various policies are applied.
More liberalization of global air transport, and specifically between the EU and the US, should hence not be restricted upon the formation of a general synchronized set of competition laws. Co-operation among airlines can smooth the progress of the healthy reformation of air transport globally, lead to enhancement in the quality of customer services, and enhance cost control (Casanueva et al., 89). The European commission takes technically a favorable attitude towards collaboration among different airlines. However, it must be ensured that healthy competition on every market is sustained and that the mergers do not discard prospects for genuine competition from new entrants on the main routes. In relation to worldwide alliances, especially transatlantic alliances, it is important that more steps be taken to open-air transport services connecting the European Union, US and other countries. Additionally, the technical framework for examining such global alliances should be made simpler and more efficient. At the same time, associations between the individual authorities, which are in charge of competition enforcement, should be reinforced with a purpose of avoiding contradictory resolutions and remedies and to improve convergent application of the competition rules.
Bilotkach, Volodymyr, Nicholas G. Rupp, and Vivek Pai. “Value of a platform to a seller: Case of American Airlines and online travel agencies.” Available at SSRN 2335687 (2013).
Casanueva, Cristóbal, et al. “Airline alliances: Mobilizing network resources.” Tourism Management 44 (2014): 88-98.
Cavalcante, Cayami SC. “Price effects of airline alliances: design and modelling.” Journal of Transport Literature 7.2 (2013): 253-267.
Czipura , Christian , and Dominique R. Jolly . “Global Airline Alliances: Sparking Profitability for a Troubled Industry.” Journal of Business Strategy 2007: 57–64. Web
Preston, Holly, David S. Lee, and Paul D. Hooper. “The inclusion of the aviation sector within the European Union’s Emissions Trading Scheme: What are the prospects for a more sustainable aviation industry?.” Environmental Development 2 (2012): 48-56.