course material

1. Should Coastal Flight Airlines expand into Europe by forming an
Management short responseA low-cost carrier (LCC) is an airline that often foregoes
traditional airline services—such as few or no food and beverages—in an effort to keep
flights low cost. Many times an LCC also relies on a single aircraft type to keep costs low.
Classified as an LCC, Coastal Flight Airlines has been incredibly successful in carving out a
segment of the US airline market for price-sensitive consumers belonging to both the
business and leisure travel segments. Despite being among the largest US domestic airlines
by passenger count, Coastal Flight Airlines currently has no international flights. Coastal
Flight’s three predominant competitors—American Airlines, Delta Airlines, and United
Airlines—each belong to one of the three major international airline alliances (American
Airlines—OneWorld, Delta Airlines—SkyTeam, and United Airlines—Star Alliance).In short,
an airline alliance is a partnership among airlines where resources may be shared.1 These
alliances have enabled Coastal Flight’s competitors to partner with some of the largest
worldwide carriers operating predominantly outside of the United States. In Europe, this
includes Lufthansa through Star Alliance, Air France through SkyTeam, British Airways
through OneWorld, and KLM through SkyTeam. For the most part, the phenomenon of
airline alliances in both the United States and Europe has not expanded to include the major
low-cost carriers and ultra-low-cost-carriers (ULCCs) present in the region. In Europe, this
includes companies such as Ryanair and EasyJet, who are the top two largest airlines based
on number of passengers.2 In the United States, LCCs/ULCCs have also been excluded from
the major alliances. In addition to Coastal Flight Airlines, neither Spirit Airlines (3 percent
market share) nor Frontier Airlines (2 percent market share) belong to a major alliance.3
The rationale for this decision is multifaceted but could be due in part to differing quality
standards between LCCs, ULCCs, and traditional carriers.Unlike its peers in the LCC/ULCC
space, Coastal Flight Airlines has consistently recognized unions and prioritized
relationships with its employees. Coastal Flight has managed to maintain a company culture
centralized on the concept of putting employees first. This is exhibited by the fact that
Coastal Flight has never resorted to layoffs or furloughs to manage its budget.
Approximately 50 percent of Coastal’s operating budget is related to salaries and wages,
and benefits are Coastal Flight’s largest expense. Furthermore, Coastal Flight’s leadership is
very pro-union, with the major unions including the Coastal Flight Airlines Pilots’
Association, Transportation Workers of America, and the International Association of
Machinists and Aerospace Workers. In contrast to Coastal Flight, Ryanair’s leadership has
consistently shunned unions and has created strife between itself and its employees based

2. on this stance.4 It may be worth considering whether these corporate culture differences
are reconcilable or not, and what degree of effort and financial cost may be required to
mediate the differences.One of Coastal Flight’s strategies has been to rely on a single aircraft
supplier—Boeing. Advantages of this method include discounts on bulk purchases of
aircraft, operational efficiency on maintenance and part replacement, and pilot training,
among others. Coastal Flight has historically elected not to diversify its fleet with Airbus
models. In the context of an airline alliance, this is a factor that should be considered as it
may complicate or further contribute to economies of scale depending on the composition
of alliance partner fleets. For example, while Ryanair has historically been heavily reliant on
Boeing, EasyJet procures their aircraft predominantly from Airbus. While other suppliers do
exist for aircraft, Boeing and Airbus account for a vast majority of market share. This
duopoly is only somewhat challenged in the regional airliner space by the Brazilian firm
Embraer and Canadian firm Bombardier.Coastal Flight is well-known for their utilization of
point-to-point routes to minimize turnaround time at the gate. A point-to-point system is
characterized as flying into and out of two cities directly and stands in contrast to the “hub-
and-spoke” model, which implies an airline has a central hub with connecting flights
(spokes) going into and out of the hub.5 The point-to-point method has been one aspect of
Coastal Flight’s service offering that is appreciated by its consumers. The method employed
by potential alliance partners in Europe is another aspect worth considering, as it may align
or misalign with Coastal Flight’s service-offering style in the United States.The impact of
cultural disparities between Coastal Flight Airline’s home country, the United States, and
continental Europe is yet another aspect worth considering. Take, for example, France. A
comparative analysis of the United States and France along Hofstede’s cultural dimensions
indicates that the two countries have differences when it comes to the dimensions of power
distance, masculinity, uncertainty avoidance, long-term orientation, and indulgence.6 These
notable differences may impact which service offerings are provided by Coastal Flight in a
number of ways. For example, France’s high score on power distance indicates a strong bias
toward hierarchy in French society. Coastal Flight’s current ticket offerings in the United
States do not include a first-class option. The existing “fly first” fare, Coastal Flight’s closest
equivalent to first class, does not include a first-class lounge or additional seat room, but it
does give the buyer advanced boarding privileges as well as refund flexibility, same-day
changes, and more reward points. Will the current “fly first” service offering be enough to
satisfy the gap in power distance expectations among French consumers, or is an
adjustment needed in order to successfully enter a market like France?The impact of
COVID-19 on international travel dramatically reduced the feasibility of international
expansion in the airline industry. However, increasing vaccination rates coupled with the
recent announcement of a November 2021 repealing of the US–Europe travel ban once
again ignites the debate of whether Coastal Flight should seek to increase their international
offerings to Europe by means of an international LCC/ULCC alliance.Should Coastal Flight
seek to join an alliance, additional questions arise around the extent of the alliance.
Common alliance activities include code sharing, shared ground facilities, joint marketing,
maintenance, purchasing, and procurement, and virtual mergers of IT systems. However, a
more comprehensive alliance leads to increased interdependability between companies,

3. which may be viewed as a heightened risk factor. Due to the nature of the industry,
governmental regulations around alliances, joint ventures, and mergers can be quite
restrictive and should also be accounted for while undergoing the decision-making
process.Many airlines seeking to expand their US–EU operations have elected to pursue the
route of a joint venture. It is important to keep in mind that joint ventures do not eliminate
all legal risk. An example from American Airlines and Qantas in 2015 illustrates that the US
Department of Transportation may push back against virtual mergers that would reduce
competition and consumer choice, without producing sufficient offsetting public benefits.7
Due to the size of both Coastal Flight Airlines and Ryanair/EasyJet, any proposed joint
venture between them may come under similar scrutiny from government bodies in both
the United States and Europe.So, what is Coastal Flight’s next move? Link to
articleQuestions to answer:Should Coastal Flight Airlines expand into Europe by forming an
international airline alliance with major low-cost and ultra-low-cost carriers in the
region?What identification criteria should Coastal Flight use when deciding what airline
would be best for forming an alliance?How does the formation of an alliance with European
LCCs/ULCCs mitigate some of Coastal Flight’s current risks, and how does it generate new
risks?How might the service offerings provided by Coastal Flight Airlines change as a result
of the new alliance?