Airline Companies Fight for Profits
Airline companies across the world are doing everything possible to cut costs and are taking other measures to ensure revenue increases. In Europe, German airline company Lufthansa is planning on expanding by overtaking Austrian Airlines. EC officials said that Lufthansa’s chances of attaining the regulatory approval it needs were fading because the company is failing to answer concerns that the merger might reduce choice and hike fares on some routes. The main concern with the merger is that the new company has the potential to become too powerful on certain flights. This is because Lufthansa is Germany’s largest airline company and Austrian dominates routes out of Austria.
This merger raises some other questions as well. Is Lufthansa making a mistake by striving for expansion? The company has put a bid not only on Australian Airlines, but on Brussels Airlines as well. Can the company afford being this big right now? From the global recession it is easy to see that big is not always better since many large companies filed for bankruptcy. Lufthansa officials are confident that expanding will be profitable for the company, but this will happen only in the case that they can provide excellent managerial services since it is harder to control the operations of larger companies which can lead to losses.
In the United States United Airlines made the decision to charge credit card processing fees to 28 travel agencies. These fees are usually 2-3% of the ticket cost and are currently paid by airline companies. The results of Unites Airlines’ decision are hard to predict. This shift of cost will save the company money; however, agents see the change as lacking logic and are disgruntled by it. A United Airlines spokesperson said that the change will improve travel agency performance and thus will be beneficial to the company as well. Only time will show whether this is the case, however Wall Street officials are expecting that the changes will be positive for United Airlines.
Asian companies have proven to have the best tactics in keeping their business going. Malaysian Airline Systems, for example, has learned that by preparing for the worst, they can open new doors, improve market positions, and accelerate into the next up cycle.
During downturns price becomes more crucial. Therefore, low-cost competitors find that they have more advantages. This is something airline companies are learning now and is expected to benefit the industry greatly as companies are doing their best to reduce costs.
For more information on the Airline Industry, check out our Industry profile of Aerospace & Defense.