FOM Fachhochschule für Oekonomie & Management Frankfurt

University of Applied Sciences

Master of Business Administration

First Semester

Module: Economics

Assignment Two:
Economics of Alliance Airlines

Prof. Dr. Andreas Löhr
Author: Boris Olarte Arque
Student id: 252547
Frankfurt am Main, 16th July 2010

Table of Contents List of Abbreviations III List of Figures IV 1 Introduction 1 2 Capital Investment 2 2.1. The Airline Market 4 2.2 High Cash Flow 9 3 Liberalization 10 4 Conclusion 11 List of references 14 Internet Sources 14 Further Literature 14 Appendix 15

List of Abbreviations
ASM: Available Seat Mile
OAG: Official Airline Guide
IATA International Air Transportation Association
ICAO International Civil Aviation Organization

List of Figures
Figure 1: Demand Curve….………....…..................................................................3
Figure 2: Supply Curve……………………….………….........................................4
Figure 3: One World airline members ……………………......................................5
Figure 4: SkyTeam airline members ……………………........................................6
Figure 5: Star Alliance Statistics…………………………………………….……..7
Figure 6: Market Share of the Alliances…................................................................8

1 Introduction
The airline industry is classified in the third economic sector the same as services because that is what is about. Airlines perform their services according to the customers’ need, transporting them and their belongings from one point to another point for a defined price. For this reason, the airline business is similar to the services of the bank, restaurant, consulting, insurance companies, etc. The service is intangible; there is no physical product for the price paid by the customer however this service is stored in a