QUESTION 1
Which developments in the global airline industry made possible the creation of S.A. ?

The creation of Star Alliance had first been considered to remedee a situation of radical change in the airline industry’s financing sources. For decades, world governments overpassed the consequences of a substantial cash investment in their National Airline. At the time, State incentives to possess its own flag carrier were numerous. It was question of national pride as well as a sign of economic prosperity and power. But times have changed. As State capital investment became the norm rather than the exception, most of the developped countries had been able to run their own Airline, making it the norm. If governments had been burying their hands in the sands up to this point, they suddenly started

questioning the worthiness of the investment.

By cuting subventions, they would let airline companies face the harsh reality of competition. Both the government-owned carriers and those who had long been operating under a situation of false profitability filled for bankrupcy (i. e. Sabena, Swissair). Other, more solid carriers (i. e. Lufthansa, United, British Airways, American) were left with no other choice but to form alliances. 2

In addition, the phenomenon of deregulation forced leading carriers to take strategic decisions in order to avoid significant loss in market share. With the

signature of open skies agreements that liberalized the rules of the international aviation industry, new entrants were soon to make their appearance on the domestic and long-haul sectors. System inefficiencies would no longer be compensated, operating costs would be assumed to rise dangerously and price competition would take place.

Despite the urging threat of a free-market environment, leading carriers saw an opportunity to engage cooperative agreements with