Should Coastal Flight Airlines expand into Europe by forming an international airline alliance with major low-cost and ultra-low-cost carriers in the region? Original Answers Only

Management short response

A low-cost carrier (LCC) is an airline that often foregoes traditional airline services—such as few or no food and beverages—in an effort to keep flights low cost. Many times an LCC also relies on a single aircraft type to keep costs low. Classified as an LCC, Coastal Flight Airlines has been incredibly successful in carving out a segment of the US airline market for price-sensitive consumers belonging to both the business and leisure travel segments. Despite being among the largest US domestic airlines by passenger count, Coastal Flight Airlines currently has no international flights. Coastal Flight’s three predominant competitors—American Airlines, Delta Airlines, and United Airlines—each belong to one of the three major international airline alliances (American Airlines—OneWorld, Delta Airlines—SkyTeam, and United Airlines—Star Alliance).

In short, an airline alliance is a partnership among airlines where resources may be shared.1 These alliances have enabled Coastal Flight’s competitors to partner with some of the largest worldwide carriers operating predominantly outside of the United States. In Europe, this includes Lufthansa through Star Alliance, Air France through SkyTeam, British Airways through OneWorld, and KLM through SkyTeam. For the most part, the phenomenon of airline alliances in both the United States and Europe has not expanded to include the major low-cost carriers and ultra-low-cost-carriers (ULCCs) present in the region. In Europe, this includes companies such as Ryanair and EasyJet, who are the top two largest airlines based on number of passengers.2 In the United States, LCCs/ULCCs have also been excluded from the major alliances. In addition to Coastal Flight Airlines, neither Spirit Airlines (3 percent market share) nor Frontier Airlines (2 percent market share) belong to a major alliance.3 The rationale for this decision is multifaceted but could be due in part to differing quality standards between LCCs, ULCCs, and traditional carriers.

Unlike its peers in the LCC/ULCC space, Coastal Flight Airlines has consistently recognized unions and prioritized relationships with its employees. Coastal Flight has managed to maintain a company culture centralized on the concept of putting employees first. This is exhibited by the fact that Coastal Flight has never resorted to layoffs or furloughs to manage its budget. Approximately 50 percent of Coastal’s operating budget is related to salaries and wages, and benefits are Coastal Flight’s largest expense. Furthermore, Coastal Flight’s leadership is very pro-union, with the major unions including the Coastal Flight Airlines Pilots’ Association, Transportation Workers of America, and the International Association of Machinists and Aerospace Workers. In contrast to Coastal Flight, Ryanair’s leadership has consistently shunned unions and has created strife between itself and its employees based on this stance.4 It may be worth considering whether these corporate culture differences are reconcilable or not, and what degree of effort and financial cost may be required to mediate the differences.

One of Coastal Flight’s strategies has been to rely on a single aircraft supplier—Boeing. Advantages of this method include discounts on bulk purchases of aircraft, operational efficiency on maintenance and part replacement, and pilot training, among others. Coastal Flight has historically elected not to diversify its fleet with Airbus models. In the context of an airline alliance, this is a factor that should be considered as it may complicate or further contribute to economies of scale depending on the composition of alliance partner fleets. For example, while Ryanair has historically been heavily reliant on Boeing, EasyJet procures their aircraft predominantly from Airbus. While other suppliers do exist for aircraft, Boeing and Airbus account for a vast majority of market share. This duopoly is only somewhat challenged in the regional airliner space by the Brazilian firm Embraer and Canadian firm Bombardier.

Coastal Flight is well-known for their utilization of point-to-point routes to minimize turnaround time at the gate. A point-to-point system is characterized as flying into and out of two cities directly and stands in contrast to the “hub-and-spoke” model, which implies an airline has a central hub with connecting flights (spokes) going into and out of the hub.5 The point-to-point method has been one aspect of Coastal Flight’s service offering that is appreciated by its consumers. The method employed by potential alliance partners in Europe is another aspect worth considering, as it may align or misalign with Coastal Flight’s service-offering style in the United States.

The impact of cultural disparities between Coastal Flight Airline’s home country, the United States, and continental Europe is yet another aspect worth considering. Take, for example, France. A comparative analysis of the United States and France along Hofstede’s cultural dimensions indicates that the two countries have differences when it comes to the dimensions of power distance, masculinity, uncertainty avoidance, long-term orientation, and indulgence.6 These notable differences may impact which service offerings are provided by Coastal Flight in a number of ways. For example, France’s high score on power distance indicates a strong bias toward hierarchy in French society. Coastal Flight’s current ticket offerings in the United States do not include a first-class option. The existing “fly first” fare, Coastal Flight’s closest equivalent to first class, does not include a first-class lounge or additional seat room, but it does give the buyer advanced boarding privileges as well as refund flexibility, same-day changes, and more reward points. Will the current “fly first” service offering be enough to satisfy the gap in power distance expectations among French consumers, or is an adjustment needed in order to successfully enter a market like France?

The impact of COVID-19 on international travel dramatically reduced the feasibility of international expansion in the airline industry. However, increasing vaccination rates coupled with the recent announcement of a November 2021 repealing of the US–Europe travel ban once again ignites the debate of whether Coastal Flight should seek to increase their international offerings to Europe by means of an international LCC/ULCC alliance.

Should Coastal Flight seek to join an alliance, additional questions arise around the extent of the alliance. Common alliance activities include code sharing, shared ground facilities, joint marketing, maintenance, purchasing, and procurement, and virtual mergers of IT systems. However, a more comprehensive alliance leads to increased interdependability between companies, which may be viewed as a heightened risk factor. Due to the nature of the industry, governmental regulations around alliances, joint ventures, and mergers can be quite restrictive and should also be accounted for while undergoing the decision-making process.

Many airlines seeking to expand their US–EU operations have elected to pursue the route of a joint venture. It is important to keep in mind that joint ventures do not eliminate all legal risk. An example from American Airlines and Qantas in 2015 illustrates that the US Department of Transportation may push back against virtual mergers that would reduce competition and consumer choice, without producing sufficient offsetting public benefits.7 Due to the size of both Coastal Flight Airlines and Ryanair/EasyJet, any proposed joint venture between them may come under similar scrutiny from government bodies in both the United States and Europe.

So, what is Coastal Flight’s next move? Link to article

Questions to answer:

1. Should Coastal Flight Airlines expand into Europe by forming an international airline alliance with major low-cost and ultra-low-cost carriers in the region?
2. What identification criteria should Coastal Flight use when deciding what airline would be best for forming an alliance?
3. How does the formation of an alliance with European LCCs/ULCCs mitigate some of Coastal Flight’s current risks, and how does it generate new risks?
4. How might the service offerings provided by Coastal Flight Airlines change as a result of the new alliance?