Question

Your airline has been offered the opportunity to partner with a major carrier at your regional hub. This carrier is a profitable company with a history of good passenger service and safety. As a dual-designated carrier, you would share your flight schedule codes with your partner so the codes could be listed in its computer reservation system and published schedules. You would thus become the spoke operation for smaller communities. Although a feeder carrier sacrifices some autonomy, sales increase.

Currently, you routinely hold your outgoing runs from your hub until the major carriers have brought passengers into the hub. However, they do not delay their departures for your connecting passengers. The major carrier you are discussing dual designation with has stated they will work closely with you on both departure and incoming flights. Examples of these types of agreements in the industry are numerous. They include Delta Connection, American Eagle, United Express, QantasLink, and Air Canada Express.

The vice president of marketing feels the move would be an excellent opportunity and one that would assure the future of the airline. The president knows some of the stockholders would prefer not to give up the image, name, and autonomous operation of the firm. The director of planning has expressed concern about the contractual ability of the major carrier to control scheduling and route structure. The VP of finance countered this objection with “I don’t think there’s a future for independent airlines without some type of connection with a major carrier. If we pass this up we may not get the same opportunity again with a carrier of this stature. I think we should accept or we will slowly be squeezed out by other carriers who have taken advantage of aligning with a major carrier.”

The carrier you are negotiating with asks that you repaint your fleet with their colors and insignias at a cost of $30,000 per aircraft. (This cost will be allocated over the next 10 quarters.) You may need to rename your airline to indicate your connection with the carrier. Your schedules will be dictated by the schedule of the major carrier. There may be some change in your routes. The options are:

1. Accept the offer. The successful firm(s) will be notified next quarter and any costs will be charged automatically at that time.

2. Make a counteroffer to become an informal feeder for the major carrier’s operation but retain your name and right to schedule routes. If another firm agrees to accept the offer (option 1), it is unlikely the major airline would accept this counteroffer.

3. Investigate the possibility of merging with another commuter airline to provide the financial and fleet strength to become a strong independent regional airline.

4. Continue as an independent operation using computer-aided scheduling techniques to optimize your ability to connect with major carrier flights.

Answer 1

The second option seems the best option in which two things can happen at once. If you present counteroffer become an informal feeder for the major carrier’s operation but retain your name and right to schedule routes and another major carrier accept that then you would win the negotiation but if they do not accept that then you would have opportunity to look into another airlines to provide the financial and fleet strength to become a strong independent regional airline.

If you would accept the offer then you would lose you autonomy and brand identity by the major carrier in business. you should try hard to convince the major carrier to accept the counteroffer also try to look into another airlines which can give as many best deals as they can as compared to this major airline.

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