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In-Class Activity 4: Supplemental Case Study Discussion:
Flying into Trouble—the OneWorld Alliance and Antitrust Laws (see following page)

Activity Overview:
This activity asks students to apply chapter concepts to a case study.

Time Limit: 30 minutes

What to Do:
1.In advance, make copies of the Supplemental Case Study on page 1-19 of this Instructor’s Manual and distribute them to students.

2.Divide students into groups and ask them to read the case and answer the questions in their small groups. (15 minutes)

a. Why would large airlines want to join alliances such as OneWorld, Star, or SkyTeam? What are the potential advantages and disadvantages?

b. Why do you think Virgin Atlantic refuses to join an airline alliance?

c. So you think the government should have a role in overseeing these alliances? Is it good for competition for the government to keep intervening?

d. Does it make sense to have several government departments involved in antitrust regulations?

1. Once students have answered the questions, discuss their answers as a class. As students discuss their answers, make sure they touch on the following points: (15 minutes)

a. What role should any government play in regulating an industry?

b. If the government prevents expansion of global airline alliances will this force smaller, non-aligned, airlines out of business?

Answers will vary; though there will be much debate about the whether there should be government intervention in business.

HANDOUT: SUPPLEMENTAL CASE STUDY

Flying into Trouble—the OneWorld Alliance and Antitrust Laws

Over the last number of years airline alliances have become an increasing reality in international travel. The Star Alliance is currently the largest of these with twenty member airlines including Lufthansa, Continental Airlines, United Airlines, British Midland International, Singapore, Air China, and U.S. Airways. Another significant player is the OneWorld Alliance that has eleven member airlines that includes British Airways, American Airlines, Cathay Pacific Iberian, Finnair, and Royal Jordanian. SkyTeam is the third main grouping and includes Air France, Delta Airlines, and Aeroflot.

The U.S. Department of Justice, however, does not always think these alliances are good for business. In a recent ruling against given members of the OneWorld Alliance including British Airways and American Airlines, the Department of Justice indicated that OneWorld’s third proposal to expand their alliance could result in “competitive harm” on six transatlantic routes. As a compromise the Department of Justice proposed that OneWorld give up some of its lucrative slots at congested airports including London’s Heathrow Airport.

To make matters more complicated, it is the Department of Transportation, not the Department of Justice that has the final say on airline regulation in the United States. OneWorld points out that the Department of Transportation overruled similar concerns from the Department of Justice to approve a Star Alliance proposal earlier this year. As a result, OneWorld have indicated that they will issue a “robust response” to the Department of Justice recommendations.

In Europe the European Commission has also expressed reservations about the OneWorld proposal. In addition, Virgin Atlantic, which isn’t a member of any alliance, has repeatedly called for the Department of Transportation to reject OneWorld’s anti-competitive application.

Source: Doug Cameron “Justice Department Objects to OneWorld Extension” the Wall Street Journal, December 21, 2009

DISCUSSION QUESTIONS

1. Why would large airlines want to join alliances such as OneWorld, Star, or SkyTeam? What are the potential advantages and disadvantages?

2. Why do you think Virgin Atlantic refuses to join an airline alliance?

3. So you think the government should have a role in overseeing these alliances? Is it good for...
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