ConnectingwithOneWorld-AirlinesTeamMembers:HongruWangYunshengYangChengranWangZhuoranZhouShengjieLiMinLiDirectInvestmentandCollaborativeStrategiesConnectingwithOneWorldTeamQ1SignificantMergersintheIndustryDelta+NorthwestAirlines(2008)—SkyteamTheacquisitionprovedtobefruitful,catapultingDeltatothetitleoflargestairlineandgeneratingsignificantcostsavingsforboththeairlines.Q1SignificantMergersintheQ1UnitedAirlines+ContinentalAirlines(May2010)—StarAllianceThismergerusurpsDeltatobecomethenewlargestairline,positioningtheairlinesforglobalanddomesticcompetitionandimprovedserviceandperformance.Q1UnitedAirlines+ContQ1M&AAdvantage1.Costreductionandrevenueincrease2.Resourcespooling3.ServiceoptimizationQ1M&AAdvantageQ1M&ADisadvantage1.Layoffs2.Reducecompetitionsignificantlyandmarketmonopolies3.Oftenaccompaniedbyconflictrelatedtoseniorityissues,newworkrules,etc.Q1M&ADisadvantageQ1Non-EquityAllianceAdvantage1.Attainingthetechnicalefficienciesoflowerproductioncosts/betterservice2.ReachofSeamlessServiceNetworksandincreaseloadfactors3.Enhancedfrequentflyerprograms4.Shareinformation(Code-sharing)Q1Non-EquityAllianceAdvantQ1Non-equityallianceDisadvantageToobroadsettingofobjectives/IncongruentobjectivesAsymmetryofpartners,inthesizeAsymmetryofbenefitsversusexpectationsDifferingproduct/servicestandardsLackofExclusivityQ1Non-equityallianceDisadvQ2Someairlineshavesurvivedwithoutextensiveinternationalconnections.Cantheycontinuethisstrategy?Whenthereissufficienttrafficonthecitypairsthatarouteserves,thereislittleneedtohavefeederorconnectingroutesforanairlinetobeprofitable.Withouttheneedforhubstomakeconnections,someairlinescanoperateinsmallerbutcloser-to-downtownairports.Theycanavoidthecostsassociatedwiththetransferandthepaymentofovernightexpensestopassengers.Q2SomeairlineshavesurviveQ2Someairlineshavesurvivedwithoutextensiveinternationalconnections.Cantheycontinuethisstrategy?Theymaybeabletoovercomeanydisadvantagesfromsmall-scaleoperationsbytargetingtheirpromotiontoregionalandnichegroupsandbyrunninglow-costoperationsthatchargelowfares.Conventionalwisdomwouldsuggesttheycaninfactsurviveintheirpresentoperationalmodeandthatattemptstoexpandandmodifytheiroperationsmightmakethemmorevulnerable.Q2SomeairlineshavesurviveQ3Whyshouldanairlinenotbeabletoestablishserviceanywhereintheworldsimplybydemonstratingthatitcanandwillcomplywiththelocallaborandbusinesslawsofthehostcountry?ConsideringeithertheinternationalorsimplythedomesticenvironmentAmajorconsiderationiswhethereconomicinterestsintheairlineindustryarebetterservedthroughregulationviathemarket.Whyregulatedomesticairlineindustries.Q3WhyshouldanairlinenotQ3ProponentsCompetitionhasforcedcarrierstobecomeefficientorelsegooutofbusiness,insteadofbeingsubsidizedbyregulatedrouteandfarestructuresEconomiesofscaleinhandlingpassengersandcargo.OpponentsLocalinterestsareoftenill-servedbyderegulationOpponentsarguethatlocalinterestsareoftenill-servedbyderegulationsinceairlinesarefreetodiscontinueserviceandtowagepredatorypricewarsthatputcompetitorsoutofbusinessThehighbarrierstoentryintheindustryfurtherexacerbatethissituationQ3ProponentsCompetitionhas11Q3Anothermajorconsiderationdealswiththepoliticaldimensionsofthequestion.Becausemostgovernmentsseeairlinesasakeynationalindustry,theyopposegivingforeigncarriersaccesstodomesticroutesongroundsofbothnationalsecurityandconsumerwelfare.

Countriesbelievetheycansavemoneybymaintainingsmallairforcesandrelyingondomesticairlinesintimesofunusualairtransportneeds.Forexample,U.SgovernmentusedU.ScommercialcarrierstohelpcarrytroopstoandfromIraq.Aswell,airlinesareasourceofnationalpride,andaircraftsymbolizeacountry’ssovereigntyandtechnicalcompetence.Q3AnothermajorconsideratioQ4TheForeignOwnershipRestrictionsonAirlinesTheUnitedStatesandCanadarestrictforeignownershipto25%TheEUhastakenstepstoliberalizewithinEuropeandsetsa49%limitonnon-Europeanownership.InAustraliaandNewZealand,foreignersarepermittedtoacquireupto49%oftheequityofaninternationalcarrierandupto100%ofadomesticairline.Q4TheForeignOwnershipRestQ4Reasons1.WeneedUScarriersfornationalsecurityUSbelievetheycansavemoneybymaintainingsmallairforcesandrelyingondomesticairlinesintimesofunusualairtransportneeds.Argument:ItwouldbecheaperandbetteriftheUSgovernmentsimplytenderedforchartersontheopenmarketQ4ReasonsQ4Reasons2.ForeignAirlinesDon'tHavetheSameSecurityStandardsUShaveworriedaboutprotectingtheirairspaceforsecurityreasons.Argument:AUSairlineownedbyforeigninvestorsisoperatedbyUSpermanentresidentsandcitizens,andfollowingallUSstandardsandprocedures,subjecttoallUSregulationsandcontrols.Q4ReasonsQ4Reasons3.ForeignAirlinesWouldTakeAwayJobsfromAmericansThedesiretomaintainexistingjobsthreatenedbyforeigncompetitionisprobablythesinglemostimportantsourceoftoday’sprotectionistpoliciesArgument:AllUScarriershavetoemployeitherlawfullyadmittedforeignnationalsonspecialworkvisas,orUSpermanentresidents,andindeed,forsomejobs,theycanonlyemployfullUScitizensQ4Q4Reasons4.AForeignAirlinewould'cherrypick'onlytheProfitableRoutesTheforeignownedairlinewouldonlyflyonthe'easymajorroutesthatanyairlinecanmakeaprofiton‘Argument:TheownershipofanewstartupairlineagainmakesnosubstantialdifferencetotheexternalmarketplacefactorsthatinfluenceallairlinesandtheirpresentoperationsQ4ReasonsQ4Reasons5.ProfitswillbeTakenOffshoreAllowingforeignerstoownUSairlinesmeansthatthey'lltakealltheprofitsoffshoreandsomehowharmtheUSeconomyintheprocessArgument:NoUScarrierismakingsomuchprofitthattransferringsomeshareofitoffshorewouldharmtheeconomyQ4ReasonsRealityTheU.S.lawlimitingforeignownershipofU.S.airlinesisconsideredananachronismbecausepeopledesiretobenefitfrommorecompetition,lowerfares,betterservice,andnomoretaxpayerbailoutsofold,irrelevantairlinesthatshouldbeallowedtoquietlyexpireanddisappearQ4RealityQ4Q5Q5Q5Q5Q5Ifafewlargeairlinesornetworkscometodominateglobalairservice……MoreconvenienceRiskreductionLowercostQ5IfafewlargeairlinesoQ5

Ifafewlargeairlinesornetworkscometodominateglobalairservice……UnderoligopolyconditionsHighpricesPoorserviceNospecialofferQ5HighpricesQ6TheAirlineBailoutManyairlineshaverecentlybeennomorethanmarginallyprofitable.Q6TheAirlineBailoutManyQ6TheAirlineBailoutAirlineisavitalindustry.Facilitateeconomicgrowth,worldtrade,internationalinvestmentandtourismGovernmentinterventiontoguaranteetheirsurvivalAirportsandairtrafficcontrolinfrastructureEmployeetrainingforpilots,mechanics,etc.ProtectionfromforeigncompetitionCreditinstrumentstoaircarriersDeferredtaxationQ6TheAirlineBailoutAirliQ7Two-StageModelofAirlinesGameCost&RevenueSharingMethodQ7Two-StageModelofAirlineQ7ContributionApproachCost&RevenueSharingMethodThecontributionapproachisusedtoarriveataprofitsharingpercentageforeachoftheairlines.Sincethepartiesmaycontributelabour,managementandcapitaltothejointventure,itisreasonabletodividetheincomeorexpensesbasedontherelativecontributionsofeachparty.Theunderlyingprincipalisthatreturnsaretobesharedinthesameproportionasthecostsandcapitalarecontributed.Q7ContributionApproachCostQ7ValuingContributionCost&RevenueSharingMethodAvailableSeatMiles(ASMs)

Acommonindustrymeasurementofairlineoutputthatreferstooneaircraftseatflownonemile,whetheroccupiedornot.Anaircraftwith100passengerseats,flownadistanceof100miles,generates10,000availableseatmiles.RevenuePassengerMiles(RPMs)

Thisisthebasicmeasureofairlinepassengertraffic.Itreflectshowmanyofanairline'savailableseatswereactuallysold.Forexample,if200passengersfly500milesonaflight,thisgenerates100,000RPMs.CostperAvailableSeatMile(CASM)

Measureofunitcostintheairlineindustry.CASMiscalculatedbytakingallofanairline’soperatingexpensesanddividingitbythetotalnumberofavailableseatmilesproduced.UnitCostperUnitofOutput

Ameasurementthatgaugestotaloperatingcostsinrelationtooutput/results.Q7ValuingContributionCostQ7ProsandConsCost&RevenueSharingMethodConsolidatedcontractingAlignedschedulesShortertraveltimesduetobettertransferoptionsBeneficialfor“l(fā)owcapacity”marketsTwo-sideeffectonmaximizeprofitQ7ProsandConsCost&ReveThanksforYourAttention!ThanksforYourAttention!演講完畢，謝謝觀看！演講完畢，謝謝觀看！ConnectingwithOneWorld-AirlinesTeamMembers:HongruWangYunshengYangChengranWangZhuoranZhouShengjieLiMinLiDirectInvestmentandCollaborativeStrategiesConnectingwithOneWorldTeamQ1SignificantMergersintheIndustryDelta+NorthwestAirlines(2008)—SkyteamTheacquisitionprovedtobefruitful,catapultingDeltatothetitleoflargestairlineandgeneratingsignificantcostsavingsforboththeairlines.Q1SignificantMergersintheQ1UnitedAirlines+ContinentalAirlines(May2010)—StarAllianceThismergerusurpsDeltatobecomethenewlargestairline,positioningtheairlinesforglobalanddomesticcompetitionandimprovedserviceandperformance.Q1UnitedAirlines+ContQ1M&AAdvantage1.Costreductionandrevenueincrease2.Resourcespooling3.ServiceoptimizationQ1M&AAdvantageQ1M&ADisadvantage1.Layoffs2.Reducecompetitionsignificantlyandmarketmonopolies3.Oftenaccompaniedbyconflictrelatedtoseniorityissues,newworkrules,etc.Q1M&ADisadvantageQ1Non-EquityAllianceAdvantage1.Attainingthetechnicalefficienciesoflowerproductioncosts/betterservice2.ReachofSeamlessServiceNetworksandincreaseloadfactors3.Enhancedfrequentflyerprograms4.Shareinformation(Code-sharing)Q1Non-EquityAllianceAdvantQ1Non-equityallianceDisadvantageToobroadsettingofobjectives/IncongruentobjectivesAsymmetryofpartners,inthesizeAsymmetryofbenefitsversusexpectationsDifferingproduct/servicestandardsLackofExclusivityQ1Non-equityallianceDisadvQ2Someairlineshavesurvivedwithoutextensiveinternationalconnections.Cantheycontinuethisstrategy?Whenthereissufficienttrafficonthecitypairsthatarouteserves,thereislittleneedtohavefeederorconnectingroutesforanairlinetobeprofitable.Withouttheneedforhubstomakeconnections,someairlinescanoperateinsmallerbutcloser-to-downtownairports.Theycanavoidthecostsassociatedwiththetransferandthepaymentofovernightexpensestopassengers.Q2SomeairlineshavesurviveQ2Someairlineshavesurvivedwithoutextensiveinternationalconnections.Cantheycontinuethisstrategy?Theymaybeabletoovercomeanydisadvantagesfromsmall-scaleoperationsbytargetingtheirpromotiontoregionalandnichegroupsandbyrunninglow-costoperationsthatchargelowfares.Conventionalwisdomwouldsuggesttheycaninfactsurviveintheirpresentoperationalmodeandthatattemptstoexpandandmodifytheiroperationsmightmakethemmorevulnerable.Q2SomeairlineshavesurviveQ3Whyshouldanairlinenotbeabletoestablishserviceanywhereintheworldsimplybydemonstratingthatitcanandwillcomplywiththelocallaborandbusinesslawsofthehostcountry?ConsideringeithertheinternationalorsimplythedomesticenvironmentAmajorconsiderationiswhethereconomicinterestsintheairlineindustryarebetterservedthroughregulationviathemarket.Whyregulatedomesticairlineindustries.Q3WhyshouldanairlinenotQ3ProponentsCompetitionhasforcedcarrierstobecomeefficientorelsegooutofbusiness,insteadofbeingsubsidizedbyregulatedrouteandfarestructuresEconomiesofscaleinhandlingpassengersandcargo.OpponentsLocalinterestsareoftenill-servedbyderegulationOpponentsarguethatlocalinterestsareoftenill-servedbyderegulationsinceairlinesarefreetodiscontinueserviceandtowagepredatorypricewarsthatputcompetitorsoutofbusinessThehighbarrierstoentryintheindustryfurtherexacerbatethissituationQ3ProponentsCompetitionhas42Q3Anothermajorconsiderationdealswiththepoliticaldimensionsofthequestion.Becausemostgovernmentsseeairlinesasakeynationalindustry,theyopposegivingforeigncarriersaccesstodomesticroutesongroundsofbothnationalsecurityandconsumerwelfare.

Countriesbelievetheycansavemoneybymaintainingsmallairforcesandrelyingondomesticairlinesintimesofunusualairtransportneeds.Forexample,U.SgovernmentusedU.ScommercialcarrierstohelpcarrytroopstoandfromIraq.Aswell,airlinesareasourceofnationalpride,andaircraftsymbolizeacountry’ssovereigntyandtechnicalcompetence.Q3AnothermajorconsideratioQ4TheForeignOwnershipRestrictionsonAirlinesTheUnitedStatesandCanadarestrictforeignownershipto25%TheEUhastakenstepstoliberalizewithinEuropeandsetsa49%limitonnon-Europeanownership.InAustraliaandNewZealand,foreignersarepermittedtoacquireupto49%oftheequityofaninternationalcarrierandupto100%ofadomesticairline.Q4TheForeignOwnershipRestQ4Reasons1.WeneedUScarriersfornationalsecurityUSbelievetheycansavemoneybymaintainingsmallairforcesandrelyingondomesticairlinesintimesofunusualairtransportneeds.Argument:ItwouldbecheaperandbetteriftheUSgovernmentsimplytenderedforchartersontheopenmarketQ4ReasonsQ4Reasons2.ForeignAirlinesDon'tHavetheSameSecurityStandardsUShaveworriedaboutprotectingtheirairspaceforsecurityreasons.Argument:AUSairlineownedbyforeigninvestorsisoperatedbyUSpermanentresidentsandcitizens,andfollowingallUSstandardsandprocedures,subjecttoallUSregulationsandcontrols.Q4ReasonsQ4Reasons3.ForeignAirlinesWouldTakeAwayJobsfromAmericansThedesiretomaintainexistingjobsthreatenedbyforeigncompetitionisprobablythesinglemostimportantsourceoftoday’sprotectionistpoliciesArgument:AllUScarriershavetoemployeitherlawfullyadmittedforeignnationalsonspecialworkvisas,orUSpermanentresidents,andindeed,forsomejobs,theycanonlyemployfullUScitizensQ4Q4Reasons4.AForeignAirlinewould'cherrypick'onlytheProfitableRoutesTheforeignownedairlinewouldonlyflyonthe'easymajorroutesthatanyairlinecanmakeaprofiton‘Argument:TheownershipofanewstartupairlineagainmakesnosubstantialdifferencetotheexternalmarketplacefactorsthatinfluenceallairlinesandtheirpresentoperationsQ4ReasonsQ4Reasons5.ProfitswillbeTakenOffshoreAllowingforeignerstoownUSairlinesmeansthatthey'lltakealltheprofitsoffshoreandsomehowharmtheUSeconomyintheprocessArgument:NoUScarrierismakingsomuchprofitthattransferringsomeshareofitoffshorewouldharmtheeconomyQ4ReasonsRealityTheU.S.lawlimitingforeignownershipofU.S.airlinesisconsideredananachronismbecausepeopledesiretobenefitfrommorecompetition,lowerfares,betterservice,andnomoretaxpayerbailoutsofold,irrelevantairlinesthatshouldbeallowedtoquietlyexpireanddisappearQ4RealityQ4Q5Q5Q5Q5Q5Ifafewlargeairlinesornetworkscometodominateglobalairservice……MoreconvenienceRiskreductionLowercostQ5IfafewlargeairlinesoQ5

Ifafewlargeairlinesornetworkscometodominateglobalairservice……UnderoligopolyconditionsHighpricesPoorserviceNospecialofferQ5HighpricesQ6TheAirlineBailoutManyairlineshaverecentlybeennomorethanmarginallyprofitable.Q6TheAirlineBailoutManyQ6TheAirlineBailoutAirlineisavitalindustry.Facilitateeconomicgrowth,worldtrade,internationalinvestmentandtourismGovernmentinterventiontoguaranteetheirsurvivalAirportsandairtrafficcontrolinfrastructureEmployeetrainingforpilots,mechanics,etc.Protectionfromforeignco