Virgin Australia and Skywest Code Share and Alliances - Essay Example

Virgin Australia and Skywest Code Share and Alliances Student’s Name Course/Number Instructor’s Name Table of Contents Introduction 3 Background 4 Virgin Australia’s alliances and code share arrangements 5 Types of Virginia Australia Alliances 5 Marketing Alliance 6 Integrated Alliances 6 Code Sharing 6 Interline Agreements 6 Evaluation of Virgin Australia Alliances and code share arrangements 7 Virginia Australia and Sky West Alliance 7 Purpose and objectives of airline alliances 7 Impact of code and non-code share services on Virgin Australia 8 Market 8 Counterfactual 9 Enhanced Products and Services 9 Promotion of Competition 9 Cost Savings and efficiency improvement 10 Shared tangible and intangible resources 10 Advantages and disadvantages of code sharing 11 Greater Network Access 11 Seamless Travel 11 Priority Status 11 Lounge Access 12 Frequent Flier Program (FFP) 12 Disadvantages of code sharing 12 Time consumption 12 Reversibility 13 Differing in goals 13 Purchases by rivals 13 Conclusion 13 References 14 Introduction Strategic alliances both local and overseas are necessitated by forces in the global market for efficiency and responsiveness. This in return makes firms to enjoy market advantages (Brueckner 2001, p 1478). The same is evident in the airline industry. Airlines enter into collaborative relationships with their partners to enable them offer what most clients want and realize improved efficiencies in their operations. There are prohibitions on full cross border mergers and hence alliances allow substantial integration and cooperation where antitrust immunity (ATI) is granted by the involved governments. However, alliances are constantly involved in regulatory disputes. This has led the regulators to impose remedial measures as a response t the harmful effects of alliances. If an alliance is thought to hinder entry in capacity constrained markets, the rule is that the airlines should give up slots, give access to feeder traffic or provide frequent flier programmes. Code share agreements enable partners in coordination of destinations they may not physically serve. It involves two airlines which share same codes of identification on airline schedules. According to (Hanson et al. 2011) the major driving forces for alliances of airlines include: cost reduction, gain a larger market and network spread, reduce duopolistic route competition as well as circumvent nationality rules in the bilateral agreements. This paper seeks to analyze the impact of airline alliance to the operations of Virgin Australia and Skywest airlines, their objectives as they enter in to the alliances as well as the benefits accrued by both the airlines and their customers. Background Virgin Australia is owned by Virgin Blue Group which has been in operations since August 2000.Virgin Australia started its operation with two aircrafts which flew one route with 200 employees. Today, it is headed by Sir Richard Branson as the chairman. It flies Boeing 777-300ER with 33 Business Class lie – flat beds, 40 premium economy club seats and 228 economy eats. The employee capacity has grown to 50,000 (Borghetti & Narayan 2012). In the year 2012, Virgin Australia launched a business class across its domestic network and was awarded ‘Best Airline and staff service’ in the 2012 skytrax world awards.It also revealed in the same year a design for a new airbus A330-200 as well as new inflight entertainment which included Samsung Galaxy Tab 10.1 and Wi fi steaming technology were announced. Virgin Australia is currently operating 93 aircraft on 3000 flights weekly to 48 destinations both in Australia and internationally. Some of the alliances has partnered with include: Delta Airlines, Etihad Airways, Air New Zealand, Airlines PNG, Hawaiian Airlines, Singapore Airlines and Skywest Airlines (Borghetti & Narayan 2012). Skywest on the other hand has been operational for 50 years.It flies 16 destinations.The airline boasts of 810,000 clients annually with its fleet consisting of Fokker 50 turboprops and 100 jet aircraft.Skywest is a member of the customer loyalty program of Virgin Australia allowing its customers earn velocity points on sky west domestic network. At no extra cost the airline offers quality meals, spacious legroom and an inflight bar. Virgin Australia’s alliances and code share arrangements Airline alliances objective is classified in to two; supply and demand. The supply side aims at reducing costs and increasing efficiency. They therefore combine partner operations and in return reduce unit production costs and improve on resource utilization which includes sharing of facility, labor as well as joint purchasing and rationalization (Brueckner 2001, 1490). The demand side aims at accessing new markets, increased marketing power and benefiting from traffic feed. Table (1) shows how the alliance objectives are. Strategy Benefits Demand side Code sharing Block spacing Franchising Fare coordination Schedule coordination FFP coordination International Hubbing Economies of scope and density Market strength Supply side Sharing of facility and labour Capacity rationalization Non core activities Purchasing jointly Economies of integration and scope (Brueckner 2001) Types of Virginia Australia Alliances The diversity of any alliance is related to how much cohesion exists between the alliance partners. The level of cohesion is shown in: Scope network Commitment of carriers in the alliance which are non operating Marketing mix integration Airline product integration Alliance equity The types of airline alliances include; Marketing Alliance This offers consumers broader networks, seamless travel as well as expanded loyalty programs. This form of alliance has the independent airlines retaining their fares, schedules and services. They may however compete with each other on the same routes (Gudmundsson & Rhodes 2001). Integrated Alliances The integration includes fares, schedules, levels of services, yield and capacity management. Code Sharing This can occur in both the integrated and marketing alliances and outside the alliances. In a code sharing agreement, carriers are allowed to brand themselves by selling their tickets on flights operated by other airline. Even though the flights are maintained, scheduled and staffed by the owner of the carrier, it is listed on multiple carriers’ schedules (Vowles 2000). This in return allows the sale of seats for the multiple carriers through their independent ticketing system with each carrier using a unique designer code and the number of the flight in reference to the same flight (Wensveen 2011). Interline Agreements These are arrangements between carriers which are designed to facilitate travelling of passengers on itineraries involving multiple carriers. The ticketing or the reservation system is used in this alliance where the customers are allowed in one transaction to purchase separate flights from multiple carriers with one ticket (Ito et al. 2006). Evaluation of Virgin Australia Alliances and code share arrangements Virginia Australia and Sky West Alliance The two airlines have come together to market jointly, tender as well as contract with their customers. They jointly provide integrated travel which comprises a full suite of charter air transport services both local and international regular public transport. Purpose and objectives of airline alliances For specificity, the airlines coordinate: Joint bidding, tendering and contracting Jointly price and prepare flight schedules Marketing and selling jointly Access to lounge and frequent flyer program Airport operations and handling Comparing it to Virgin Australia, Skywest airlines has its operations in Singapore.It is perth – basic regional airline providing RPT, charter and freight services with an international service to Bali.It offers 350 services weekly with 22 aircrafts which are designed for regional sectors servicing (Hall 2011). Under the current agreement, customers earn and redeem velocity points on sky west operated RPT services. They also have a codeshare agreement where Virgin Australia has its code on several services operated by sky west as clearly shown in table 2 below Table 2: Code shared routes for Virgin Australia and Skywest Origin Destination Perth – (PER) Kalgoorlie – (KGI) Albany – (ALH) Esperance – (EPR) Geraldton – (GET) Kununurra – (KNX) Learmonth (LEA) Busselton – (BQB) Port Hedland (PHE) via GET Broome – (BME) Kununurra – (KNX) Learmonth – LEA Perth – (PER) Port Hedland – (PHE) Albany – (ALH) Besselton – BQB) Kalgoorlie – (KGI) Melbourne – (MEL) Darwin – (DRW) Broome – (BME) Kununurra – (KNX) (Hall 2011) Impact of code and non-code share services on Virgin Australia Code sharing will strengthen the parties as they endeavor to improve and provide competitive price packages for the corporate customers and employees. The alliance between virgin Australia and skywest offers competition to Qantas which is the sole provider of full suite services to corporate clients (Hanson et al. 2011). Virgin Australia therefore benefits from a greater share of corporate contracts and as a result of this, they will expand on their services, add more frequencies and new routes. Evaluation of the effectiveness of Virgin Australia’s alliances is the effect it has to the customer benefits accrued as a result of the alliance. This is measured with: Market The alliances tend to offer total solutions to corporate customers and their employees as well as the general public due to the increased supply of air transport services and ancillary products. The general public prefers regular service offering as they choose the timing, service offer and the corresponding cost which best meets their needs while he corporate clients seek volume discounts and large traffic volumes which fit their business needs. Therefore, the public and the corporate market segments are distinct specific to their independent needs (Brueckner and Whalen 2000). Counterfactual This is the effect of the future arrangements of the alliances which have an effect to the public. Enhanced Products and Services The alliances result in product and services enhancement by integration of their charter and RPT networks. Coordination of schedules ensures better connections which minimizes travel time for the customers and allows passengers from the alliance access Virgin Australia’s lounges, earn velocity credits, advanced seat selection, priority while boarding and fare credit. The ground service and integrated air package attracts more corporate customers which results to expansion of opportunities by additional frequencies and new routes (Brueckner 2001). Promotion of Competition Virgin Australia alliances will compete with Qantas which is the only airline which offers full suite of RPT and integrated charter services and this will lead to low prices as a result of this competition and improvement in service and product quality like enhancement of airport lounge and frequent flier programs. Cost Savings and efficiency improvement It is an expectation that alliances lead to lower prices because the customers are able to get discounts from bundled services than the prices they would get if handled separately with the airlines. Also, synergies by sharing resources reduce costs involved as well as contracting and airport facilities costs. The removal of double marginalization because of the alliances guarantees lower fares (Borghetti & Narayan 2012). Double marginalization happens when suppliers of complimentary products design a price which aims at maximization of profits without integrating the impact of the prices and demand to their competitors Shared tangible and intangible resources Tangible resources are the physical and financial assets owned by the individual airlines. The alliance partners leverage on their individual capabilities to improve on their efficiencies. If one of the partners posses an aeroplane with specific cargo purposes, the other partners are able to benefit from this existing resource (Blair and Wallman 2003, p450). Alliance partners will benefit from tangible resources such as: take off and landing slots, pilots, cabin crew as well as the planes which the airlines operate. Intangible resources include technology, culture and reputation which alliance partners can benefit from each other. According to Blair and Wallman (2003), intangibles are those non physical factors which are used in the production and provision of goods and services and are expected to generate future benefits from their use. Alliances may therefore benefit from such intangibles as; brand names, preventive maintenance programs,, logos and trademarks, human capital categories, quality certificates as well as airports certification. Advantages and disadvantages of airline code sharing Advantages and disadvantages of code sharing The major benefits of alliances are: greater network access, seamless travel, transferable priority status, extended lounge access and enhanced frequent-flier program Greater Network Access Because of extensive networks they are able to attract passengers. When product and service packages are assembled through networks, customer loyalty and retention is enhanced which add value to Virginia Australia. More so, travelers get itinerary choices from alliances (Gudmundsson & Rhodes 200, p211). Seamless Travel Travelers desire seamless travel when being transferred from one airline to another. This is possible with code sharing where a designator code is attached to a service offered by another airline. With the code share flight options, customers are guaranteed quick transfers and client check in procedures. Alliances help reduce the risks associated with missing connections and convenience of the seamless transfers (Vowles 2000, p280). The alliance network helps those who change their plans in the last moment to transfer routes and schedules. This offers flexibility for last minute changes to flights. Priority Status The preferential treatment accorded to customers in one airline is extended with the alliance. This involves priority check in, baggage handling waitlist reservation and airport standby. Therefore, customers have extended benefits and priorities from various airlines (Wensveen 2011). Lounge Access With the alliances, there is emphasis on reciprocal access to partner lounges of which prior to formation of alliances he priority consumer could only have the facilities of the airline which was flying as compared to now where the customers are able to access greater number of lounges(Vowles 2000, p278). Frequent Flier Program (FFP) The FFP were not transferrable for single airlines but with alliances, customers are able to eliminate the need to register to multiple flier programs by having frequent flier points within the alliance and with the extended network, redemption of pint could be done with any alliance partner for various destinations (Wensveen 2011). As much as the consumers benefit from the alliances, operators also accrue benefits such as; access to a larger market enabling an airline to overcome route access restrictions and ownership of airlines which is imposed by the national government. Another benefit to the operators is reduction in cost and economies of scale, density and scope (Borghetti & Narayan 2012). They are able to coordinate schedules and prices to optimize their returns. Finally, the operators are able to reshape the industrial structure and raise barriers against new entrants. Disadvantages of code sharing Time consumption Due to inclusion of various parties in decision making, it takes time for the parties to arrive at a consensus therefore consuming a lot of time before arriving at a conclusion. Reversibility The fact that the alliance is reversible hence making the partners to limit their contribution into the alliance in attempts to retain their identity even after the alliance has been disbanded (Brueckner 2001). Differing in goals Before the formation of the alliance, the individual airlines were operating on achieving their set goals and there is a likelihood that the same may carried in to the partnership and a consensus should be arrived at what the overall goal of the alliance should be (Hall 2011). Purchases by rivals Partners might be purchased by a rival and this leads to unhealthy competition in the market. The consequences of such rivalry are that they work to bring down each other which may result to driving companies out of business (Borghetti & Narayan 2012). Conclusion Airline alliances is now a dominant feature in the airline industry as many customers demand a ‘from anywhere to anywhere’ service which Is practically impossible for an independent airline to perform effectively. By way of an alliance, there are significant economies of density that the two airlines accrue by merging their networks. The alliances have equally led to consumer benefits as well on interlining of trips both on low fares and improved service delivery. Virgin Australia and skywest airlines have benefited from the alliance because they are able to offer quality service by putting their ticket codes on connected flights operated by each other offering seamless services, well coordinated schedules, proximity of gates for connections, access to lounges and provision of frequent flier programmes. 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