Cambridge International as and a level Economics Ebook

SELF-ASSESSMENT TASK 
7.12
Airline alliances
The international airline business is a particularly good 
example of an oligopoly. It has moved from an industry 
where, 20 years ago, individual carriers competed with 
each other on particular routes to one where groups of 
airlines compete with each other on a network basis. 
These groups are known as alliances. Three alliances 
cover most of the world’s airlines. Their market shares of 
the global scheduled air market are indicated in
 Table 7.5 
along with their full members in 2012.
Continental Airlines is the latest big addition to the 
Star Alliance. A long drawn-out merger with United 
Airlines eventually went ahead in 2010. It has not been 
without its problems. The way the new battleground 
is shaping up, since the US and the EU entered into an 
‘open skies’ agreement in 2009, is that Star Alliance 
members compete with SkyTeam and both compete with 
Oneworld. But is this really in the best interests of the 
airlines and their passengers?
Read the feature below and then answer the questions that follow.
1
Explain the possible benefi ts to an airline of 
becoming a member of an alliance.
2
Explain the possible benefi ts to passengers of airline 
alliances.
3
Th
e US Department of Justice remains concerned 
about the anti-competitive behaviour of airline 
alliances. Comment on this concern.
Oneworld: 23%
British Airways, American 
Airlines, Cathay Pacific, 
Qantas, JAL Japan Airlines, 
Finnair, Iberia plus six others 
SkyTeam: 21% 
Air France, KLM, Aeroflot, 
China Airlines, Delta Airlines, 
Alitalia, Czech Airlines plus 12 
others
Star Alliance: 29%
Luft hansa, Swiss, Singapore 
Airlines, Air Canada, United, 
US Airways, Air New Zealand, 
Thai, TAP plus 19 others
Table 7.5
■ 
Small firms may simply be the big firms of tomorrow. 
Although the number of small firms is high, only a very 
small percentage of them ever grow to become big 
businesses.
■
There are particular obstacles to the growth of small 
firms. Probably the largest of these is access to 
borrowed capital because of the perceived risk on the