International Cartel Of The Airline Industry Economics Essay

International Cartel Of The Airline Industry Economics Essay In laymans term cartel is an agreement between rival businesses or firms on not to compete with each other. They are kept classified and discussions take place informally. The most common aspect of cartelisation is price fixing. The other aspects are limiting productivity, hoarding, bid rigging, output levels etc. In economics terminology, cartel usually happens in an Oligopolistic environment especially in Collusive Oligopoly. Oligopoly refers to an industry environment where few firms dominate and recognise the rivalry and interdependence of each other. For every action taken by a firm there will be counter strategies by the other. Cartels generally operate in Collusive Oligopoly. In non collusive oligopoly a firm when devising strategies will use random or planned guesswork and calculations to handle reactions from rivals and consumers whereas in collusive oligopoly it is centrally commanded by a group of firms. OPEC is one of the best known examples of all cartels. They determine the costs for aircraft turbine fuel and other aircraft fuel essentials which are then transferred to the airline industry which then affects the end user. Cartels act as single firms to maximise profits. Paradox is the most common one word description by economists for the aviation industry. Ever since the advent of aviation it has always seen continuous and rapid growth in demand for services. Any business or industry will do their best to make hay when sun shines, however the airlines has always been marginally profitable. The low cost carriers, on the other hand, with a shaky start in the beginning seemed economically profitable as compared to the regular service providers. No- frills strategy is to deliver the core product. The core product for airlines would be to transport passengers from A to B. No major focus is laid on delicious food, seats that would normally come with a full serviced flight. The European airline industry is more popular with low cost brand names like Easyjet and Ryanair. The discussion further, is about a cartel that has been in operation in the no-frills European airline sector for the past 5 years. The objective is to discuss the factors that will end collusion amongst the members and to evaluate strategies that will keep the cartel from breaking apart. People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices or would be consistent with liberty and justice. Adam Smith, The Wealth of Nations, 1776 Cartel operations are always known to be short lived. The ever present incentive to cheat amongst the members of a cartel has always lead to withdrawal for firms, and eventually disbanding the cartel. Individual firms or oligopolist, in collusion will always have desire to cut down price or sell more than what the cartel has agreed. No frills airline have short haul flights and always had one class of service unless a flight more than two hours long may have two or more class of service. On a single class of service, cartel members may decide to have a standard price with minor disparities depending on whether the flight is at off peak or peak hours of service. At seasonal periods the unexpected huge rush may favour a particular airline that has better scheduling. This may incite or tempt the other competitors to join in the foray breaking all the informal agreements. This would be done by assessing past experience of company or could possibly be the counter measure for surprises thrown by cartel members. This would also lead to price discrimination for the consumer since a particular route frequented by several no-frills carriers are being charged exorbitantly high and vary from one service provider to another. And those airlines predicting misfortune that they have to fly empty seats may drop the prices all together ensuring marginal revenue resulting in further price conflict among cartel members. In an oligopolistic environment, few no-frills airlines that are not dominant will be a price taker because of small fleet size and low passenger load factor it will not have any major contributions to a particular routing. Reasons could vary from off peak routing to poor scheduling of flights. Even if it did make any kinds of additional revenue it will only equate to marginal revenue. This could lead for a smaller airline to pull out from the cartel. Game theory is sort of an umbrella or unified field theory for the rational side of social science, where social is interpreted broadly, to include human as well as non-human players. (Aumann 1987) The objective of game theory is to give everybody in the cartel equilibrium. It provides strategies for airlines from the host of options available to make the right choice for the optimum outcome. However, it can be highly unpredictable if an airline adopts a completely different strategy. This would jeopardise the entire decision making for the businesses and hence the cartel. In a cartel, at least one or two airlines will have better standing in terms of fleet size, support functions like baggage, ramp handlers etc and other such necessities to run an airline business. Big carriers like Ryanair will be able to get ground support services at cheaper prices since they provide larger contracts. In the event of a recession, established firms will try adopting one policy option or its dominant strategy that will be best suited for them against the interest of the cartel. They are able to do this because of the strong support units from vendors which allow them stay afloat with marginal revenue. Equilibrium for cartel firms will only emerge when all airline companies are happy with their present strategies based on what their rivals have adopted. For Airline industry profits have always been seasonal. This makes the predicting the markets continuously unstable. Cartels fear the potential entrance of new firms eating into the market share. There is a huge demand in the airlines industry which invites new players in the market. To avoid any further competition established firms or airlines would increase their fares to the highest price. This strategy, they believe, can charge their passengers without inducing new firms in to the competition. However, smaller players in the cartel are also at the receiving end of such a strategy. Other factors that also lead to the disintegration of cartel are low demand, competition outside the cartel, diversification into a full service or charter service, government or legislative restrictions etc. Government restrictions appear when low cost carriers may involve operations in more than one country. Weather is also one of the factors that may contribute for firm to break away from a cartel. The recent ash cloud crisis in the European aerospace resulted in $ 1.8 billion loss in revenue by the European carriers. This would mean a big impact for small carriers in the no-frills sector. The best interest for all players in a cartel is to remain in collusion. When they come together they will be able to maximise their profits in aviation industry. Cartels are able to last long provided they are effective enough. Collusion will be effective when there are few players in the market. Fewer airlines mean they can co-ordinate very well and reduce the level of uncertainty. The rivals in cartel will not have to worry about any surprises strategies by rest. They will be able to monitor each other very well since they share same airports. The ground staff is outsourced and most airlines will have the same vendor. The flight operations, scheduling will all be on the lines of the agreement. Collusion with fewer members will help them agree on price, market share, sales promotion and expenditure. Fewer firms also mean larger market share and high individual pay-offs. However if the cartel players are unable to restrict entry of new players the market share for individual players are reduced and cheating is back on everyone ones mind. Airlines industry does not always have a stable demand year round. The cartel industry needs to strategies operations in consultation with all cartel members on flight operations during poor demand. This would help all airline members to reorganise and replan, not just with better flight scheduling but also concentrating on other aspects like aircraft maintenance, crew trainings, product improvisation etc. The objective for firms to form a cartel is to limit competition and increase profits. Airlines would need to set a monopolistic agenda by restricting output and increasing price. They may set fewer flights in a particular sector and raise fares. This would help all cartel members maximise profits. Cartel members should operate the industry in equilibrium. Equilibrium must help the airliners increase fares among the profitable routes and at the same time allocating less profiting sector among all players fairly. It should also provide a methodology or mechanism to distribute the less profitable routes amongst all players. No-frills airlines may introduce an incentive structure that may reward based on monitoring each airline for their operations based on the agreed rules. They may also penalise to prevent any kind of cheating. Repeated interaction by the no-frills players for future collusive benefits may also deter cheating. Every cartel will have a major player. Major players in no-frills airline business like Ryanair are able to command a price because of the dominant position in the no-frills sector. This makes Ryanair the price leader in the sector. Collusion may take place informally by smaller players recognising the fares setters in the industry and will act as followers. This may help smaller airlines maximise their profits since they can be assured the fare hike is in line with the industry standards and justified. Cartels may also collude together and raise ticket fares simultaneously. Such a phenomenon is common in the fuel industry and also difficult to distinguish. At times a smaller airline may also be known to have good knowledge on pricing trends in the industry they will also be followed by other cartel members. It is known as barometric price leadership. Organisational mechanisms or structures can also be introduced in a cartel. The structure would be like those of any organisation. The mechanism should incorporate external fluctuations like environment, government restrictions, fuel prices etc. For no-frills sector costs need to be kept very low. Environment and fuel hikes leave major impact on revenue. The mechanisms could involve negotiations on cost of fuel which could be provided at subsidised rates to every airliner. No-frills airlines need to make significant investment in the development of organisational mechanisms and organisational skills so that it makes cheating a secondary issue and is deemed inappropriate future action by the members. Research says that some cartels last on an average of 5 years. However, variance in the duration is high for several other cartels. The no-frills airline cartels need to address problems of co-ordination, cheating and entry. Cartels that are able to introduce organisational mechanisms among the members are able to progress as successfully.

Food safety

Time Is what causes and encourages humans to change. When one starts something they may not know everything about It until they actually begin to participate and lea run as they go. Over many years, people all around the world have developed different types of lie epistyles. Years ago, society relied on the hunted gather method to gather food. It later transitioned from farming and then into city life. This meant people were living much closer together, a Lowing asses to spread mostly from food not being properly preserved.This was different f room the farming lifestyle where the owner knew whether or not food was safe because he or s he was growing It themselves. Many did not expect this change because city life was new to t hem, something they had never experienced before. When society changes so fast, It takes a while for the people to adapt to new dangers. The importance of food safety became more bob loss with these changes in society.Over time, people became aware of all the di seases and sis uses that food causes humans. Once these diseases became more and more noticeable, individuals set out to solve the Issues. Many seeded ways to preserve food which ended up largely shaping and changing our world's society today. The shift from a rural lifestyle to city life allowed food safety to evolve with new inventions and discoveries causing the food industry to beck mom more sanitary and keep people from getting sick. Food safety Food safety has become a major concern these days for us, because many restaurants are diverging there focus from producing and providing good quality food towards the provision of food that does not require enough work and cost. Of the two approaches of enhancing food safety, the one that implies a stronger enforcement program by the local health department would be much more effective than simply making it mandatory for the restaurant employees to conduct training sessions for learning the techniques for food safety.The reason why the former technique is better is that even if the employees are trained, they would still not act the way we want them to due to the lust for profits and putting less effort. Whereas, if certain stiff rules and regulations are developed and implemented, all the restaurants would automatically start abiding by those rules in order to avoid penalties or bans. Such rules might include disposing off of food that smells or has become infected, washing hands b efore cooking, and keeping utensils and kitchen clean (Food and Drug Administration, 2010).The effectiveness or efficiency of any business or organization is deeply impacted by the ‘attitudes’ of employees. Attitudes are basically the judgments that are formed by a person regarding the characteristics or nature of any object, act, or event. It might be positive, negative, or indifferent. The attitudes of workers matters a lot in the business environment, since they are the main assets of a company who perform all the activities that might be interlinked with each other.Attitudes shape emotions and behaviors, so if the workers do not really care about the hygiene or safety of the food and carry on the methods the way they are, then the compromise would be done on the safety and quality of food. Whereas, if the workers have strong values, beliefs, and perceptions, then they would most probably be taking care of the safety and promoting others too to consider effective and safety methods when storing, cooking or serving. Answer – 2 Since the department has limited resources to overcome the issue of mosquito bites and illness; therefore, efficient and cheap methods must be adapted to fight with the problem.West Nile Virus results in the flu-like illness among the children who have regular immune systems. As far as the prevention of being bit by the mosquitoes is concerned, the best way to avoid being bit is to use insect repellent and emptying the standing water from buckets, open-floors, or flower pots. People can simply put on some insect repellent or oil on their body – face and hands – before going to sleep; this automatically keeps the mosquitoes away from biting.Secondly, to stay within the home at the time of dawn and dusk would protect the people from being bit by the mosquitoes, since they are very active at these timings (National Institute of Allergy and Infectious Diseases, 2010). And for the control of mosquito popula tion in the community, the best measure that can be adapted is to make people aware about the factors that lead to further enhancement in the population of mosquitoes. One sound method is to clean the stagnant water from various places such as, buckets, open-floors, garden, or flower pots.It is obvious that if there is no open water, it would not get contaminated, and hence would not result in the production of more mosquitoes. This strategy is quite effective and cheap as compared to the process of fumigation, which requires high costs and expenses. References Food and Drug Administration. (2010). Food Safety. Retrieved on July 28, 2010. From http://www. nlm. nih. gov/medlineplus/foodsafety. html National Institute of Allergy and Infectious Diseases. (2010). West Nile Virus. Retrieved on July 28, 2010. From http://www. nlm. nih. gov/medlineplus/westnilevirus. html

Ceja Vineyards Marketing Analysis Essay

eja Vineyards’ Decision to Directly Market to the Hispanic Community Analysis The Case Study, â€Å"Ceja Vineyards: Marketing to the Hispanic Wine Consumer?† by Armand Gilinksy Jr., Linda I. Nowak, Cristina Santini, and Ricardo Villarreal deSilva (2010) outlines a critical decision a small, family owned winery in California is facing. The winery, Ceja Vineyards, is located in the Carneros region and is equally owned by four Mexican born immigrants of farm workers. Amelia Moran Ceja, President, and her husband Pedro Ceja, Artistic Director, along with Pedro’s brother Armando Ceja, Winemaker and Vineyard Manager, and his wife Armando Ceja comprise the ownership team. Amelia, Pedro, and Armando grew up working in the Napa Valley vineyards, and in 1983 purchased fifteen acres in the Carneros region to begin their own vineyard. They planted their first grapes in 1986, and had their first harvest in 1988. From 1989 to 2000 they purchased additional plots of land and planted a variety of grapes. Their wine grape growing company is named Vina del Sol. They produce enough grapes for 65,000 cases of wine per year. In 2001, the company took another large step and began producing their own wine, under the branded name Ceja Vineyards. Their wine is made using their own grapes grown by Vina del Sol. In 2002, Ceja Vineyards was named â€Å"Winery of the Year† by a panel of ninety wine writers. Now it is 2007, and their wine production has doubled almost every year to the current amount of 10,000 cases a year. Problem Identification The key issue in the case study is whether or not they should make a concerted effort to target Hispanics in their marketing efforts. They see the potential of marketing to Hispanics due to the influx in Hispanic population in the U.S., and the continued projected increase. Their main concerns, are that they will have to change their marketing strategies, and incur substantial promotional expenses. They also will not lower their wine prices just to market to Hispanics. Amelia wants the company to focus on direct sells to the consumer so they don’t have to depend on the current distribution system. Analysis To understand the present situation Ceja Vineyards is in and to best recommend a course of action, three analysis techniques were employed. These three are the SWOT Analysis, Porter’s Five Forces, and Value-Chain Analysis. SWOT Analysis A SWOT Analysis was applied first to the situation to assess the internal Strengths and Weaknesses, along with the external Opportunities and Threats. Ceja Vineyards has a multitude of Strengths. Their ownership knowledge is based on a lifetime of real world experience. They grew up picking grapes, and control every aspect of the company guaranteeing top quality. They have a unique history, in that they are Mexican immigrants and the company is family owned. The vineyard is in a premier location. Carneros was the first wine region based on climate rather than political boundaries. Their wine is estate grown using grapes from their wine growing company, Vina del Sol. The company is debt free from years of solid investing and planning. They implemented a wine club, to be able to sell directly to the consumer. Ceja Vineyards is not without its weaknesses. Their small production amount limits their marketing strategies due to not being able to compete head to head with the mega-wineries. They also have limited distribution due to their size, though the emergence of Boutique distributors and their wine club has helped. As for external factors, Ceja Vineyards looks to have a plethora of Opportunities to increase their demand. They could target the ever growing U.S. Hispanic Market. There are currently forty million Hispanics in the U.S., 20% who earn more than $100,000 per year. They are also projected to be the fastest growing population for the foreseeable future. In 2006, they had to turn people away from a wine tasting in Los Angeles because of the demand. Hosting more of these events could be beneficial. Their wine club members receive a discounted retail price, but Ceja Vineyards could introduce a â€Å"Rewards Program† for recruiting new members. The wine market has exploded in the 2000s, and has produced quite a few Threats for Ceja Vineyards. Competition has become fierce recently as the number of wineries grew by 26% from 2004-2007. The â€Å"three-tier system† for distribution does not favor small  wineries. It places a different tax rate dependent on state, and the â€Å"Big Five† distributing companies hold 52% of the distributing market. Boutique distributors are not able to operate in all states, and are always at threat of being purchased by the major distributors. Ceja Vineyards has done well for itself so far, but there is always the threat of growing too fast, without the required demand. The SWOT analysis shows a very high amount of strengths and opportunities that would suggest an aggressive strategy if not for Ceja Vineyards personal business strategy of slow growth. Porter’s Five Forces Porter’s Five Forces was next used to determine the competitive environment. The Five Forces method is used to determine a company’s profit potential for a particular industry.  The Threat of New Entrants – High. Despite the high start-up costs, and that vineyards and wineries are a long term investment, it has not stopped people from joining the market. In 2006-2007, 12,000 new brands were introduced to the market. The number of imports in the U.S. market has also grown. Most noticeably, imports priced above ten dollars, that would compete with Ceja Vineyards, have grown â€Å"44 percent annually from 2005-2007† (Gilinksy Jr., Nowak, Santini, and Villarreal deSilva, 2010, p. 15). The Bargaining Power of Buyers – High. The main buyer of wines from wineries are supermarkets and warehouse stores. These location account for 80% of wine retail sales. Another factor that is increasing the bargaining power of buyers is that there are few key buyers since the, â€Å"retail sector witnessed considerable consolidation in the early 2000s, due to mergers of both supermarkets and liquor store chains† (Gilinksy Jr., et al., 2010, p. 14). The Bargaining Power of Suppliers – Low. Suppliers in this instance, mean small market suppliers. Gilinksy Jr. et al. (2010) states, â€Å"The top ten wine companies in the U.S. controlled 82 percent of all shipments,† so while the larger producers may have some bargaining power, it doesn’t allow any for smaller quantity producing entities. The Threat of Substitute Products and Services – Low. Ceja Vineyards location is its greatest strength against the threat of substitute products and services. While there are other wine products, and other companies that sell even the same type of wine as Ceja Vineyards, there are only so many that can produce it using Carneros grapes. In the wine industry, the quality of your grapes are your biggest asset, and each location produces a distinct flavored grape. People who prefer Carneros grapes will only have so many options due to its limited size. The Intensity of Rivalry among Competitors in an Industry – High. As stated previously, the wine market is growing each year, both domestically and internationally. As is the number of wine producers which is outpacing the market growth. This combination makes it harder each year to create a demand for your product with so many options available to the consumer. Value-Chain Analysis To understand if a company has a competitive advantage or not, a Value-Chain analysis can be performed on the company’s business model. For this report, we will only focus on the primary activities of the Value-Chain analysis Inbound Logistics. Ceja Vineyards is classified as an estate-grown winery, because it is located in the same place the grapes are grown. The vineyard that grows the grapes, Vina del Sol, is owned by the same group so this makes this portion of inbound logistics ideal. Being located in California, also helps with the inbound logistics of bottles, corks, and bottle labels because California has the largest number of wineries per state in the United States. This is going to mean any supplies needed for wine making will be readily available. Operations. The four owners consist of two married couples, and each has an equally weighted vote in any decision. They are also family, and live nearby each other making communication easy, in theory. They also grew up around vineyards so all have a deep understanding of what is needed to run the business. The quality remains high because according to Pedro, â€Å"we’ve done quality control over every aspect, from growing to the cork that goes  into the bottle† Gilinksy Jr. et al. (2010). The only improvement to the operations side would be if Pedro quit his day job and focused his full attention on the winery. Outbound Logistics. This is the area that is the main issue for the Ceja’s. The industry is set up to cater to the mass producing wineries. To mass distribute their product they would have to use the â€Å"three-tier system†, which would only pay them 50% of the retail value of their product. Other options are the boutique distributors, but they can’t distribute to the entire U.S. This is why Amelia wants to sell directly to the consumer through their wine club, and tasting room to cut out the middle man and increase their profits. Marketing and Sales. The grape producing side of their company, Vina del Sol, is doing terrific. The demand for it is very high as it already has five companies on the waitlist to buy grapes. While, Ceja Vineyards sales have doubled each year since introducing their branded wine it is hard to judge the ceiling. This is mainly because the company has grown slowly, and been vigilant of growing too fast. The company realizes though, they have to decide on exactly how to market their product though if they want to continue increasing demand for it, and that is the issue we are trying to solve. Alternate Solutions The Ceja’s have multiple options they could take, and still be successful. The easiest option would be to change nothing. They have increased their revenue and profits each of the past three years according to their income statements. Also, they stated they had doubled their wine sales each year, and were ranked number 2 in Wine Business Monthly’s Hottest New Small Brands. With the growing wine market and critic accolades, they would probably continue to grow without changing anything. They could decide to target the entire Hispanic population, and market heavily. This mass marketing strategy would reach the most people, but would be very expensive. It would require an understanding from all the  owners that it could produce significant losses during the transition period. They could look at Round Hill Vineyards & Cellars as a blueprint. They did an ethnic outreach program in 2004 to target Hispanics and Asians. Their total case sales increased 400 percent from 2005 to 2006. Ceja Vineyards could work directly with their current Wine Club members, asking them for feedback on what made them join. Offer the members rewards for purchasing so many cases a year, or recruiting new members. Currently, half of the wine clubs 1000 members are of Hispanic descent. They could speak directly to this portion of the group to try more of a grassroots marking campaign. Ceja Vineyards could also market to only a portion of the Hispanic community. Since they refuse to lower their prices, they could market to the nine percent of Hispanics that make up the â€Å"mostly acculturated† percent of the Latino population. Wine consultant Sandra Gonzalez stated, â€Å"these Hispanic wine consumers are 96 percent more likely to spend $20 or more a bottle than non-Hispanics.† (Gilinksy Jr., et al., 2010, p. 14). Recommendations Ceja Vineyards in the enviable position of being a growing company with no debt in a growing market. After analyzing Ceja Vineyards’ business model and the state of the external environment, Ceja Vineyards should market to the Hispanic population. As of 2005, there were 12.5 million Hispanics in California alone. This is an enormous untapped market that if tapped into would allow Ceja Vineyards’ to rely less on the big distributors and more on direct to consumer sales. Ceja Vineyards’ should continue to grow their Wine Club through the use of promotions and a reward system, while also reaching out to the â€Å"mostly acculturated† percent of the Latino population. They should also look into the marketing strategies Round Hill Vineyards & Cellars employed to attract Hispanics and Asians to their brands.

Taking a Look at the Ogasawara Archipelago - 1452 Words

The Japanese volcanic island arc known as the Ogasawara Archipelago enjoys a warm, marine subtropical climate and is free from the industrial overpopulation of mainland Japan. These islands are situated in one of the most highly active volcanic regions of the world, part of the Pacific Ring of Fire, and formed by the subduction of the Pacific Plate and the Philippine Sea Plate boundaries. The islands themselves were formed by eruptions of lava due to undersea oceanic plate convergence over fifteen million years ago. Nishino-shimas coordinates lie at 27.247 °N / 140.874 °E, and is one of the youngest islands, believed to be only ten thousand years old, with the last active vent erupting in 1973. The Ogasawara Islands are known in English as the Bonin Islands, about 600 miles south of Japan, visited by a ferry ride from Tokyo. Only the two largest islands, Chichijima (Father Island) and Hahajima (Mother Island) in this chain are inhabited. [Nunn, 2009] Niijima is born On November 20, 2013 at 10:30 A.M., black smoke was first seen billowing forth from the sea, directly off the west shore of Nishino-shima. Volcanologists and scientists observed a new island measuring 600 feet across, gushing a basaltic andesite lava. [Kurtenbach, 2013] The Japanese government hastily named their newest island Niijima, meaning the new one, while scientists were still unsure if the island surface would remain above sea level as the lava cooled and hardened. Recently formed volcanic formationsShow MoreRelatedComparison Between Japan and Russia13811 Words   |  56 Pagesisland chain between the North Pacific Ocean and the Sea of Japan, east of the Korean Peninsula Area: total: 377,915 sq km country comparison to the world: 61 land: 364,485 sq km water: 13,430 sq km note: includes Bonin Islands (Ogasawara-gunto), Daito-shoto, Minami-jima, Okino-tori-shima, Ryukyu Islands (Nansei-shoto), and Volcano Islands (Kazan-retto) Area - comparative: slightly smaller than California Country name: conventional long form: none conventional short