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Air Freight VI:
Air Cargo Alliance and Merger
Dr Narudh Chermakara
MAY 16
Why alliance and Merger
• Economic Considerations
- Economy of Scale
• Regulatory Considerations
- Airline ownerships
• Operational Considerations
• Network coverage
Hench strategic alliance is the answers
Types of Alliance and Agreement
• Prorate Agreement
- Revenue sharing from multi-sector service with more
than one carrier (Multilateral prorate for multiple
carriers)
- Generally divided on the basis of general cargo rate
under 45kg
- Calculated in proportion of rate for the sector it
operated to the sum of the whole length
- Special method may be used (such as great circle
distance)
- What is great circle distance?
• Codeshare
- Airline designator code on a
flight flown by another carrier
(Operating carrier)
- Non-operating airline can
market the service as its own
- The operating carrier either
get a net rate or a commission
- Advantage: No need to fly the
route that cannot sustain on
its own
- Highly popular among
passenger carriers
Block space agreement
• Buying an agreed capacity/space on the flight
of another airline
• A subset of code-sharing
• Hard-block
• Soft-block
CAPACITY SWOP
- Reciprocal block space agreement (Bilateral)
Joint Venture
• Pooling agreements
• Sharing revenues and costs with pre-arranged
agreements.
• Has to be approved by the anti-trust authority.
• The aim is to increase revenue and reduce
costs. HOW?
Revenue Enhancement
• Improve access to more destinations (Esp, the
restricted markets)
• Increase access to smaller destinations (which can’t be
sustained on its own)
• Access to slot-constraint airports
• Coordinated feeder traffic with min connecting times
• Price-leadership on member’s hub-to-hub markets
• User-friendly booking system for inter-carrier
shipments
Revenue Enhancement
- The deeper the level of integration of the
alliance, the better revenue enhancement
potential (Aiming for Seamless experience)
Cost Reduction
• Reducing duplications in sales, distribution,
admins
• Network rationalisation
• Co-ordination of slots/fleet
• Joint airport services – sharing facilities
• Joint operation systems (IT)
• Joint Purchasing (i.e. Chinese buying Airbuses,
Lion Air, Air Asia)
Air Cargo Alliance
• Similar to Star/Oneworld/Skyteam alliances
WOW Alliance
• Found in 2000
• Original members:
- Lufthansa Cargo (Left 2009)
- SAS Cargo (Current Member)
- Singapore Airlines Cargo (Current Member)
- JAL Cargo (Left 2010 after shutting down its cargo
operations)
- Not as successful as passenger airline alliance
SkyTeam Cargo
Mergers and Acquisitions (US Airlines)
Mergers and Acquisitions
• Popular, particularly in the US mainline
• Quick way to expand its network and size
• To put a jigsaw in the missing link
• Could be within one country or trans border (e.g.
Air France/KLM, Lufthansa-Swiss/Austrian)
• Subject to antitrust, politics, labour issues.
• It has become a major trend in recent
development in airline industry
• Exercise: Which airlines should merge together?
Price-Fixing Scandal
• Cartel activity within the industry
• Price-fixing
• Example: TG was fined 7.5 m AUD by the Australian court
along with 13 other carriers
• Airlines/transport business are prone to fare war. Very hard
to differentiate its products.
• Therefore, secretly to set an agreed price is the way to
avoid price war in the market (Which is illegal)
• Exercise: Report the cases of Price-Fixing in the cargo
industry.

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Air freight course 6

  • 1. Air Freight VI: Air Cargo Alliance and Merger Dr Narudh Chermakara MAY 16
  • 2. Why alliance and Merger • Economic Considerations - Economy of Scale • Regulatory Considerations - Airline ownerships • Operational Considerations • Network coverage Hench strategic alliance is the answers
  • 3. Types of Alliance and Agreement • Prorate Agreement - Revenue sharing from multi-sector service with more than one carrier (Multilateral prorate for multiple carriers) - Generally divided on the basis of general cargo rate under 45kg - Calculated in proportion of rate for the sector it operated to the sum of the whole length - Special method may be used (such as great circle distance) - What is great circle distance?
  • 4. • Codeshare - Airline designator code on a flight flown by another carrier (Operating carrier) - Non-operating airline can market the service as its own - The operating carrier either get a net rate or a commission - Advantage: No need to fly the route that cannot sustain on its own - Highly popular among passenger carriers
  • 5.
  • 6. Block space agreement • Buying an agreed capacity/space on the flight of another airline • A subset of code-sharing • Hard-block • Soft-block CAPACITY SWOP - Reciprocal block space agreement (Bilateral)
  • 7. Joint Venture • Pooling agreements • Sharing revenues and costs with pre-arranged agreements. • Has to be approved by the anti-trust authority. • The aim is to increase revenue and reduce costs. HOW?
  • 8. Revenue Enhancement • Improve access to more destinations (Esp, the restricted markets) • Increase access to smaller destinations (which can’t be sustained on its own) • Access to slot-constraint airports • Coordinated feeder traffic with min connecting times • Price-leadership on member’s hub-to-hub markets • User-friendly booking system for inter-carrier shipments
  • 9. Revenue Enhancement - The deeper the level of integration of the alliance, the better revenue enhancement potential (Aiming for Seamless experience)
  • 10. Cost Reduction • Reducing duplications in sales, distribution, admins • Network rationalisation • Co-ordination of slots/fleet • Joint airport services – sharing facilities • Joint operation systems (IT) • Joint Purchasing (i.e. Chinese buying Airbuses, Lion Air, Air Asia)
  • 11. Air Cargo Alliance • Similar to Star/Oneworld/Skyteam alliances
  • 12. WOW Alliance • Found in 2000 • Original members: - Lufthansa Cargo (Left 2009) - SAS Cargo (Current Member) - Singapore Airlines Cargo (Current Member) - JAL Cargo (Left 2010 after shutting down its cargo operations) - Not as successful as passenger airline alliance
  • 14. Mergers and Acquisitions (US Airlines)
  • 15. Mergers and Acquisitions • Popular, particularly in the US mainline • Quick way to expand its network and size • To put a jigsaw in the missing link • Could be within one country or trans border (e.g. Air France/KLM, Lufthansa-Swiss/Austrian) • Subject to antitrust, politics, labour issues. • It has become a major trend in recent development in airline industry • Exercise: Which airlines should merge together?
  • 16. Price-Fixing Scandal • Cartel activity within the industry • Price-fixing • Example: TG was fined 7.5 m AUD by the Australian court along with 13 other carriers • Airlines/transport business are prone to fare war. Very hard to differentiate its products. • Therefore, secretly to set an agreed price is the way to avoid price war in the market (Which is illegal) • Exercise: Report the cases of Price-Fixing in the cargo industry.