Airline industry Airline hubs are specific airports that airline companies use as transfer spots to get to their desired destination. For example for the airline company Lufthansa their hub is in frankfurt, germany. This means that most of the air traffic from lufthansa that comes from a place not in europe flies to frankfurt germany then to the desired destination in europe. It also means that when a person is flying part of the way to europe using an airline that isn’t lufthansa but is going to fly the rest of their trip using Lufthansa, they will fly into Frankfurt airport. When airline companies have hubs they also store many of their planes and resources in the hub. Building hubs and using the spoke-hub transportation model, which is when an airline organizes their air traffic in spokes in which the outlying points are connected to the central hub. Airlines may operate banks of flights at their hubs, in which several flights arrive and depart within short periods of time. The banks may be known as “peaks” of activity at the hubs and the non-banks as “valleys”.
Banking allows for short connection times for passengers. There are also airlines that have secondary hubs which is when an airline exceeds capacity for their primary hub so they open a secondary hub to have more customers. Also a secondary hub can expand the airlines geographical reach. was popularized after deregulation of the airline industry in the late 70’s.Mergers are the combining of two companies into one larger company. An example of this is when disney and pixar merged to make Disney-Pixar.
The purpose for most mergers are to expand their operations to increase longevity. For Disney-Pixar, Disney was making good movies but pixar was making the best animated movies at the time so they merged to increase the life of both companies by covering both live action and animated children movies. Another reason for a merger would be to take out the main competition.
The Disney pixar merger is also an example of this. With the only main competitors in the children movie business to disney were dreamworks illumination and pixar, merging with pixar was beneficial for both because they took out a rival along with forming a super competitor. An example of mergers in the airline world was the American Airlines, US airways merger.
The point of that merger was putting two competitors together to form a super company that could compete with Delta and United who both had very large mergers in the ten years before the Us Airways American Airlines merger.An airline alliance is an aviation industry arrangement between two or more airlines agreeing to cooperate on a substantial level. Alliances may provide marketing branding to facilitate travelers making inter-airline codeshare connections within countries. This branding may involve unified aircraft liveries of member aircraft. Airline alliances tend to lead to many airline companies sharing aircrafts and branding for flights. Many alliances include both companies selling tickets to the flight to get more profits. Alliances can lead to cost reduction from sharing of sales offices, maintenance facilities, operational facilities, e.g.
catering or computer systems. operational staff, e.g. ground handling personnel, at check-in and boarding desks. investments and purchases, e.g. in order to negotiate extra volume discounts. Traveler benefits can include: lower prices due to lowered operational costs for a given route.
more departure times to choose from on a given route. more destinations within easy reach. shorter travel times as a result of optimised transfers. a wider range of airport lounges shared with alliance members, fast track access on all alliance members if having frequent flyer status, faster mileage rewards by earning miles for a single account on several different carriers. round-the-world tickets, enabling travelers to fly over the world for a relatively low price. Airline alliances may also create disadvantages for the traveler, such as: Higher prices when competition is erased on a certain route.
Less frequent flights: for instance, if two airlines separately fly three and two times a day respectively on a shared route, their alliance might fly less than 5 (3+2) times a day on the same route. This might be especially true between hub cities for each airline. e.g., flights between Detroit Metropolitan Wayne County Airport (a Delta Air Lines fortress hub) and Amsterdam Airport Schiphol (a KLM fortress hub).The US airline industry is manned by Delta, Southwest Airlines, United, and American Airlines.
Each of these airlines bring in more than 85 million customers. All of these companies bring in more than 20 billion dollars of revenue. All of these top dog companies have come to the top by mergers, alliances and having hubs which every airline on this list except southwest. United has 9 hubs including ones in Guam and Japan. American airlines have 9 hubs but no international hubs.
Southwest do not have any hubs but have 10 operating bases. Operation bases a hat a atng bases). Delta have 13 hubs notably in france japan and the netherlands. All of the top dog companies except southwest participate in alliances. The three biggest airline alliances are skyteam headed by delta and contain many regional airlines like air france, vietnam airlines and 3 chinese airlines, Star alliance headed by united airlines and regional airlines like lufthansa, and the oneworld alliances headed by american airlines and regional airlines like qatar airways and british airways.
While Star alliance is the strongest of the alliances skyteam isn’t that far behind and one world is too far behind skyteam.C. How I narrowed the topic I was very interested in how when I visit Hartsfield Jackson there are significantly more gates than the rest of the airlines. I learned that Delta had more gates because Hartsfield Jackson was their hub. When looking at how hubs affect how the airports run like how delta dominates Hartsfield jackson airport i wanted to investigate how one airline company having their own wing on an airport can affect the business of others in that airport especially how it affects the smaller airlines and money flow.
This can be shown on multiple airports where a single company controls most of the terminals. An example would be how united has a hub in San Francisco. When Investigating I found that there is a correlation between hubs and market share, meaning that if you have a hub you have a larger market share. D. How does airline mergers, hubs and alliances affect the economy of the airline industry?Airline Mergers, alliances and hubs help certain airlines abuse the economy by alienating smaller airlines, setting up a monopoly on prices and and control a larger part of the economy.Airline Mergers, alliances and hubs help certain airlines abuse the market by alienating smaller airlines.
When big airlines like delta or united have hubs it really hurts small airlines. This happens because at hubs like delta at hartsfield jackson delta has more concourses at the airport than any other airline along with their own terminal leading to more flights in and out and more passengers. Because of the hubs most passengers have to fly the certain airlines that have the hub because they have more market power meaning that they(delta) has the most influence on flights out of delta because they have their own terminal and can dictate a majority of the flights going out of hartsfield jackson. Along with that, If you have a large share of the market and can survive on low margins, lowering your price makes it more difficult for your competitors to compete if they can’t make a profit at those lower prices. It can also prevent new competitors from entering the market, as they will have startup costs that increase their overhead and lower their profit margins at a time when they have low sales volumes. Because of this partial monopoly on the hubs there can never be perfect competition between airlines which would be ideal for smaller airlines.
Perfect competition is a market structure in which the following five criteria are met: 1) All firms sell an identical product; 2) All firms are price takers – they cannot control the market price of their product; 3) All firms have a relatively small market share; 4) Buyers have complete information about the product being sold and the prices charged by each firm; and 5) The industry is characterized by freedom of entry and exit. This leads to a faux/partial monopoly of the people who have hubs at the airport. At the hartsfield jackson i got the data of passengers going through the airport and because hartsfield jackson is a hub of delta, delta had about 73.5% of the passengers travelling in and out of hartsfield jackson which was 63.5% higher than the second most used airline southwest which has an operating base in atlanta. Southwest also has a hub in Atlanta but While at chicago o’hare which is a hub for united and american airlines and those two had about 60% of the passengers.
All of the top ten busiest airports in the us have some airline have a hub. Considering that, it is safe to that many of the smaller airlines in the US lose business to airlines that have hubs. Because of that it is harder for smaller airlines to compete price wise with larger airlines because they don’t have the business to support the price cuts. Alliances and mergers play into an oligopoly of the market in a hub. On of the main reasons for an alliance is codeshare which is what airlines do where 2 or more airlines in a codeshare agreement share the same flights each airline publishes and markets the flight under its own airline designator and flight number as part of its published timetable or schedule. This happens domestically but it happens the most internationally. This leads to profit for both companies in the arrangement. This and alliances lead to airports where there are hubs with the hub airline has an alliance lads to that alliance holding a large portion of the market at that airport.
For example at hartsfield jackson th skyteam alliance which includes delta has 74.5% of the flights. While the rest of the alliance only contributed about one percent of the passenger th alliance has 4 of the top 6 international fliers out of hartsfield. So when at an airport on group owns 3 quarters of the passengers along with the fact that the the biggest alliance’s own about 80% and add southwest and that’s about 90%. Airline Mergers, alliances and hubs help certain airlines abuse the industry by control a larger part of the market. The problem with alliances and how they intertwined with hubs is that when alliances have an airline that has a hub at that airport than that alliance controls a large part of that airport markt. And most of the alliance founders in the north american market have hubs in all major airports.Looking at the operation statistics again you can see that all the alliances have about 80% of the passengers and skyteam hs 75%.
Businesses who own the largest part of the market by principal get the most profits but because of that the smaller airlines who don’t own more than 1% of the passengers will struggle. With airline mgrs they usually lead to less competition. In 2013 the department of justice fought to block american airlines and us airways from merging because it would lead to thm own in around 20% of the overall NA airline market which would be the biggest by about 4% and would lad slowly to on monopoly. The merger ending up happening but they had to give up their landing slots on their biggest airports so as to lead to more competition at airports. But they still had 77% of the market at philly. Airline Mergers, alliances and hubs help certain airlines abuse the economy by setting up a monopoly on prices. Because of mergers and alliances thr is a unity in the airline industry.
Because of this thr is a lack of competition. When the merger between american and us airways th year of 2013 the fars ros from 4%below the national average to 11% above. When consolidation happens this lads to lss competitors. So with the airline industry after the largest 9 airlines consolidated through mergers this left the four aforementioned big dogs. So with the big airlines thy fin no nd to compete because ach airline has the hub airports. At 40 of the 100 largest US airports on airline has the majority of the market share.
At 93 of the top 100, one or two airlines control a majority of the seats. Overall in the last 10 years domestic fares have risen 10%.I decided to look at how the percent difference between the average us domestic fars and the average hartsfield jackson airport fares compared to the market share of dlta at the airport.
This is what I found.