After 40 years of regulatory protection, in 1978, the U.S. government decided to deregulate the airlines. This happened because the economists concluded that without any regulations, the airline industry would be close to perfect competition (Marcus et al., 1991). In the first years of this deregulation reform, companies differed in their strategies, choosing various ways to manage people in their structure, create routes, and regulate planes issues. In the late 1980s, globalization started to impact the strategies elaborated by the airline companies, making them create new routes worldwide (Donohue & Ghemawat, 1989). Throughout the first ten years of deregulation, the airline industry in the United States experienced consolidations through merging and acquisition of small companies to larger ones. For instance, Delta and Western firms formed a single organization under the name of Delta (Donohue & Ghemawat, 1989). At the same time, Allegheny (in 1979, changed the name to USAir) and Piedmont consolidated into the USAir.
From my perspective, the company that was the best in managing the first ten years of deregulation became USAir. To begin with, this company was created by two airlines: Allegheny (changed name to USAir in 1979) and Piedmont. Then, according to Donohue and Ghemawat (1989), in the 1980s, in the time of globalization, the company “pursued the strategy of steady growth,” which turned in operating profit every year (p. 11). Moreover, the USAir posted the highest margins in the airline industry at that time, which also can be the indicator of a firm’s success. The USAir increased the labor costs, purchased larger planes, employed a “bypass strategy,” according to which the company decided to fly to “secondary cities and avoid competition with trunks” (Donohue & Ghemawat, 1989, p. 12). Thus, all the mentioned facts demonstrate the success of the USAir in the first ten years of deregulation.
The Usage of Firm- and Use-Specific Commitments by the USAir
To begin with, the clear separation of firm-specific and use-specific commitments should be made to further discuss their usage by the USAir company, which was decided to be the most successful. Firstly, as it was claimed by Ghemawat and Del Sol (1998), firm-specific resources are very costly to be separated from the firm that possesses them. For instance, advertising expenses spent to promote the firm’s brand name or a logo represent firm-specific resources. Therefore, this particular cost to reject firm-specific expenses causes a commitment to a company’s strategy. Secondly, usage-specific resources restrict a firm’s way of positioning itself in a product market (Ghemawat and Del Sol, 1998). As it was mentioned in the paragraphs above, the USAir adopted a “bypass strategy” while elaborating its routes, which can be referred to as both firm- and use-specific commitments, from my point of view. This strategy allowed the USAir to fly to and from Charlotte, Dayton, and Baltimore with very few competitors (Donohue & Ghemawat, 1989). In other words, the USAir company was recognizable in these places, and flights to these destinations were tied with the company’s name.
Challenges Posed by Airlines Alliances
Alliances became a central part of the U.S. airlines’ development in the 2000-the 2010s. Such alliances created some challenges for the Middle East region, for Israel in particular. In this region, airlines just erased Israel from their route maps because they did not recognize this state (B.R., 2017). Particularly, this policy was adopted by the firms of Saudi Arabia, United Arab Emirates, Kuwait, and Qatar, because of their attitude towards Israel. However, the author of the article, B.R. (2017), claims that there may be other possible reasons for the exclusion of Israel from the route maps, such as anti-Semitism for the airlines’ representatives. The author claimed that there is a correlation between the number of anti-Semitists in the state and its airlines’ decision to fly to Israel (B.R., 2017). Moreover, this conclusion also stands that the food provided during the flights of Saudi Arabia, United Arab Emirates, Kuwait, and Qatar airlines include a wide variety of food, but not those for suitable Jews (B.R., 2017). This notion may indicate the presence of anti-Semitists passengers of mentioned states’ flights.
Concerning the relationships of the U.S. airlines with those from the Middle East discussed in the paragraph above, some challenges may be defined. As it was put by B.R. (2017), the meaning of maps go beyond the representation of geographical units and cartography itself; they also unlock the hidden meaning. In the case of Middle East airlines, the meaning is clear: they not just exclude the state from their routes, they show their attitude to Israel by not recognizing it. Thus, there might be those companies that oppose such a view and do not support it. For instance, there is Delta company, which is an airline of the United States, that claims that Saudia (the firm that excluded Israel) is its partner at the “professional” site (B.R., 2017). Despite such an attitude and respect to Saudia airline as a professional business, Delta does not support its attitude towards customers (B.R., 2017). Therefore, some challenges to the relationships between airlines (including Delta, United, and American) and the formation of alliances may occur due to the different attitudes towards route strategies and customers.
References
B.R. (2017). Why some airlines remove Israel from their online route maps. The Economist.
Donohue, N. & Ghemawat, P. (1989). The U.S. airline industry 1978-1988 (A). Harvard Business School, no. 390-025, 1-22.
Donohue, N. & Ghemawat, P. (1989). The U.S. airline industry 1978-1988 (B). Harvard Business School, no. 390-026, 1-19.
Ghemawat, P., & Del Sol, P. (1998). Commitment versus flexibility? California Management Review, 40(4), 26-42.
Marcus, A. A., Dubnick, M. J., & Gitelson, A. R. (1991). Airline deregulation, business strategy and regulatory theory. Public Policy and Economic Institutions, 325-350.