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Case study in the European No-Frills Airline Industry

A 'no-frills' air travel is the one which operates with a lower cost framework than its opponents, the conventional airlines. It usually charges its customers lower costs and is less luxurious than its challengers; the frills airlines. The no-frills airline introduces additional costs like the deal of food within the aeroplanes during flights, baggage fee etc, for it to constitute on the distinctions for its reduced fares. This sort of airline may also be called a low-cost carrier and it mostly controls an individual class service. The cost to travel across continents can be as nominal as $20, taxes inclusive and there is absolutely no allocated seating arrangement no entertainment during plane tickets. No Frills Air (2007). For example, travelling to Venice from London by coach takes 15 hours and costs $246; by classic aircraft; it endures 3 hours and costs $258; while by no-frills air travel, the trip also can last for 3 time but costs only $48, in doing so, confirming this air travel type to be a cheaper option. A no-frill air travel would prefer to use at uncommon time, as slot machines at these times are cheaper in the airports. The foundation of some of the no-frill airlines started in 1990, due to the privatization of airlines. No Frills Air (2007).

A no-frills airline cartel is made up of individual low cost carriers who come together as a team, with the cause, to create an alliance or relationship. These specific airlines get together to practice what is known as 'Collusive Oligopoly'. Sloman and Garratt (2010). They don't compete amongst each other but may restrict the promotion of products, agree on certain target marketplaces to focus on etc. to ensure that market pushes do not hinder their services and procedures. There are specific factors which may lead to the breakdown of such a cartel that has lasted for five years. In this essay, I plan to discuss these factors as well as the strategies, this cartel can setup, to avoid such a malfunction.

FACTORS WHICH MAY INFLUENCE THE BREAKDOWN OF THE AIRLINE CARTEL

Low Society of Customers

The 'no frills' Airline Cartel requires the patronage of customers to make it through throughout the market. It will thrive if it's patronized by a higher populace of customers over a frequent basis. A lot more sum of money it receives from customers assures its survival and therefore keeps it in business. For the cartel, there is certainly hardly competition between members since every constituent operates at an agreed cost. Pels (2009). There's a possibility of increase in fares from time to time and customers, who might not have the ability to spend the money for rates, don't have options to choose from as regards the different airlines involved. Therefore, if the cartel is utilized by only a minority, it may breakdown from lack of funds.

Cheating / Greed among Members

The airline cartel is made up of members that formerly signed agreements to join up as affiliate marketers. The cartel develops stronger based on the honesty and collaboration of each constituent all the time. Assuming an associate becomes greedy and determines to cheat, by charging its customers its proclaimed up fees, or by offering more than what has been allocated, anonymous to the cartel as a whole, it may result in a break down of the cartel as trust will be breached, notwithstanding the effort put in by other associates. However, when other participants, discover this work, they could also be lured to increase their own prices and by the end the purchase price would be plunged, and this is also likely to lead to the break down of the cartel.

Absence of Small Target Locations

The cartel is usually made up of airlines that could somewhat avoid paying the taxes of the larger airports. They might choose to land at smaller air strips near to the main international airports. Therefore, the unavailability of extra air strips, where these smaller airlines can land can cause the breakdown of the cartel as it may well not have the ability to manage paying the fees for the larger airports which reason may influence the breakdown of the cartel. Kipp Statement (2007)

Excessively Extreme Fees

In order to replace its losses due to the little fares the cartel charges, it places heavy costs on extra baggage. Every customer is eligible for a certain baggage weight and therefore if that weight is surpassed, a no-frill airline is likely to charge a higher cost for each additional weight. Sometimes, the purchase price for the excess baggage may be higher than the purchase price for the ticket. This reoccurring action may have a tendency to discourage customers and is likely to cause a break down of the cartel if there is unavailability of enough customers.

Volcanic Ash Cloud Disruption

In May 2010, there is an outbreak of the Icelandic volcano which brought on disorderliness which affected the European air travel motion. The disruption was of little strength but it emitted a massive ash cloud in the skies which could possibly influence the machines of aeroplanes. Because of this, airlines were limited to travel to certain parts of Europe by the aviation specialists and there are declarations from it, affecting the overall economy of the European airline industry. Therefore, passengers should travel by teach, ship or street instead of by air and therefore depending about how long this endures, the cartel might breakdown because of the restrictions and insufficient adequate individuals. Mazzocchi, Hansstein and Ragona (2010)

Slot Allocation Restrictions

Low cost airlines strive to go for rewarding markets but are limited from soaring across transatlantic locations. Pels (2009). This impedes their chances to make more money, although if the restriction is taken off, their swift turn-around times might not exactly be attained which is important with regards to their strategies. If there are issues pertaining to their typical routes, the restriction may impact their break down. Also, assuming they may be allowed across transatlantic areas, slots might not be accessible at the international airports even for routes that contain frequent customer demands.

Ineffective Coordination

Cartel members, during the finalisation of the initial agreement, agree on a scheduled to be paid seasonally with a certain time. The cartel needs these cash to market its functionality and to ensure that the relationship is being run successfully. However, if the cartel is not properly coordinated plus some users are unprofessional, with the intention of cutting corners, may avoid paying these dues when expected or even in any way and thus, may lead to the failing of the cartel. Levenstein and Suslow (2006)

EU Commission's Involvement

No-frills airline cartels are made for various reasons. A number of the reasons may be beneficial to the market and industry as a whole while some may be illegal. For example, the European Commission recently fined lots of airlines for creating a cartel with the aim of slashing prices of air cargo transfer. They were 13 in number, some of that are English Airways, Cathy pacific and Air France-KLM. The full total fine to be paid amidst the parties involved is 800 million Euros. To this end, this no-frill air travel cartel may be in this situation and may eventually breakdown if its insurance policies are illegal. Information KF (2010)

It can be done to steer clear of the breakdown of a cartel by mapping out strategies that will act as a guide to aid the average person members work as a team to improve the standards of the cartel all together.

STRATEGIES YOU CAN USE TO PREVENT It has the BREAKDOWN

Value For Money Guarantee

Since the low cost airlines fee a lot less than the traditional airlines, some customers will normally relate the no-frills airlines' low priced for low quality and will not trust the services they render. To this end, the cartel should endeavour to invest in the quality of their service to be able to provide satisfaction with their customers; this will automatically instil allegiance and self-assurance. When customers are satisfied, they will continually patronize the no-frills air travel cartel and thus, will permit them stay in business. Forgas, Molliner and Sanchez (2010)

Integrity Between Cartel Members

The Cartel should instil credibility within the relationship. Constituents attended together for a typical cause and really should not amuse deceit. Shanley says that 'Economic reasoning would suggest a person eager to sacrifice home interest to make a public good, would also sacrifice self interest to avoid destroying that same general public good' (2007:523). Therefore, the cartel should formulate credible reasons to back up its decision making and procedures, otherwise it may finish up like today's cartel that the European Union has fined.

Cost Saving

Excess costs and fees should be prevented as frequently as it can be. Mismanagement of air traffic stream shouldn't be overlooked and in just as much as airlines would prefer to be accessible at airports during hurry hour, aircrafts can even be offered at the times when the airport terminal fees and taxes are nominal. Burnis (2006)

Competition with Frill Airlines

The benefits of a unique approach can help the cartel stand strong. For instance, launching a product or service on-board, that no-frills airlines are originally not known to provide, it could or might not be an existing service rendered by the frills airlines, but something to make it visible, to be able to get additional earnings from customers. An example can be supplying a souvenir to customers for his or her loyalty and patronage or mailing gratitude text messages to customers after flights. Forysth et al (2005)

Effective Communication among Members

An operational treatment should be developed whereby; correspondence and functional conveyance of information is properly handed across users. Each member should be motivated to confirm receipt of information all the time and a thorough insight of the topic matter being reviewed. Lack of information can make members unhappy and it is also important to boost the frame of mind of each member because, less effort will be added and less revenue will be produced when an internet affiliate is not satisfied with the initiatives of the cartel. Lee (2010). There should be a charges for parties that do not stick to these rules and incentives for users that exceed targets placed and performance expectations.

Harmony in Decision Making

The cartel can succeed if there is an accord in its decision making process. A agent of each constituent should be present throughout a decision making process. Image resolution of key issues must be favourable across board, in order to promote membership devotion.

CONCLUSION

In the article above, I've analytically and vigorously explained the factors that could cause the break down of a five year old cartel and also strategies this cartel can accept, in order for it to avoid this malfunction. Cartels generally are not known to previous for too many years and they require solid ways of ensure that they previous as long as they ought to. In establishing these strategies, it's important for the cartel to consider the previous performance of its competition and make suppositions based on it.

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