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Analysis on the Network Economy of the Strategic Alliance of Airlines

by:CNS     2021-07-09
Analysis of the network economy of airline strategic alliances 2021-06-20 09:32:08 After the alliances between airlines with complementary routes are formed, for partner airlines, it is often possible to expand the size of the airlines at the same time. Increasing the density of transportation volume improves economic efficiency, that is, transportation companies make full use of both the density economy and the size economy at the same time, that is, the economies of scale and scope are used at the same time. Generally speaking, airline alliances can influence the market demand and cost structure of airlines. Air transportation can provide a variety of air transportation products due to different starting and ending points. This special multi-product industry makes it difficult to separate the economies of scale and scope, and makes them jointly constitute the network economy of the air transportation industry through a crossover method. The network economy of the air transportation industry is further embodied through its density economy and size economy. . The airline alliance can realize the network economy. After the airline alliance, the route network has been effectively expanded, thereby expanding the size. While the size is expanding, the traffic density on the route is also increasing. Therefore, the airline alliance can make full use of the density economy and the size economy at the same time, that is, simultaneously use the economies of scale and scope to save air transportation costs. The following cases of airline alliances can fully illustrate the realization of the alliance's network economy. For example, Northwest Airlines and Royal Dutch Airlines reached code sharing. After the alliance, 88 U.S. cities and 30 European and Middle Eastern cities were connected. Their market share increased from 7% before code sharing in 1990 to 11.5 in 1994. %. Look at the smaller airline Midland Airways. In the past few years, the company has reached 8 code-sharing agreements with airlines including United Airlines and American Airlines. In 1994, these eight partner airlines added 100,000 passengers to Midland Airways, most of which were taken from British Airways. Since code sharing with United Airlines in April 1992, Midland Airlines has net added 2,072 passengers per month. In contrast, the two previously had intermodal transportation, but only increased by 151 per month. Travelers. With the increase in traffic volume, the passenger load factor has also increased, and the unit operating cost can be reduced without adding new capacity. After Air France signed a code-sharing agreement with Delta Air Lines in October 1996, this alone increased Air France’s revenue by 700 million francs (approximately US$100 million) and reduced 300 million francs in a year. expenditure. In 2000, Delta Air Lines, Air France, Korean Air, and Aeromexico jointly formed the SkyTeam alliance. After Korean Air joined the alliance, its annual revenue increased by more than 100 million U.S. dollars; and Delta Air Lines in the first half of 2002 International business income also increased by 23% compared with the same period last year, which is the result of the continuous strengthening of cooperation within the alliance. After KLM joined SkyTeam in 2004, its route network expanded from 130 destinations around the world to 736. Relevant research pointed out that the North Atlantic market revenue brought to Northwest Airlines by the sharing with KLM accounted for all of its market. 1/3 of the income. After China Southern Airlines joined SkyTeam, SkyTeam has 333 employees, 83 employees and 2,531 aircraft. It operates more than 16,409 daily flights. With the continuous addition of new members, China Southern Airlines can now reach 169 countries and regions. SkyTeam's global route network of 961 destinations and 14,500 flights fully demonstrates the alliance's tremendous advantages in occupying the market and expanding the route network. As of the end of 2010, China Southern Airlines had good cost control and a compound growth rate of 68% in net profit. The airline alliance uses economies of scale, density and scope to reduce the unit transportation cost of partner airlines. Joint use of airport facilities and ground staff, cooperation in advertising and promotion activities, joint procurement of jet fuel and aviation materials, joint development of computer information systems and software, joint baggage transfer and passenger boarding, these measures enable alliance airlines to achieve economies of scale . In addition, the expansion of the common route network and the mutual feed of passengers have enabled alliance airlines to increase the density of transportation, so they can increase the frequency of flights or choose large aircraft to fly, thereby reducing the transportation cost of unit products. At the same time, the airlines of the alliance connect their route networks to provide efficient transit services and transport products between new origins and destinations, thereby realizing economies of scope. As the connectivity of flights is improved, the risk of passengers' luggage loss and flight delays is minimized, thus increasing the quantity and quality of connected services. If the content of the alliance includes the alliance of frequent flyer programs, consumers will take advantage of the convenience brought by frequent flyer programs to travel to more places. These advantages of airline alliances will generate more passenger sources, thereby reducing the cost of unit transportation of products through the economy of network density. Air alliances can show indirect network effects in many aspects. For example, the improvement of the convenience of transportation conditions by air alliances will attract more foreign investors to invest in the region, bringing more business opportunities to the local area, and thus provide the air alliance in the local area. The development provides more passenger and cargo demand. The increase in demand can increase the value of the alliance network and increase the utility of all network users.
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