Looking Back: Was AirTran Making a Strategic Move?

Earlier this year, a Washington, D.C. law firm filed a lawsuit against AirTran Airways and Delta Air Lines, insisting that they engaged in anti-competitive behavior when they each implemented a $15 checked baggage fee.


In October 2008, neither Delta nor AirTran had implemented baggage fees however both airlines were certainly considering the idea at the time. During a phone call with analysts, AirTran Airway's CEO Bob Fornaro mentioned that AirTran did not want to be a first mover on the baggage fee because of the intense competition with Delta in Atlanta. He stated however that if Delta were to add a $15 baggage fee, AirTran would "strongly consider it."

This is where the lawsuit comes into play. The law firm argues that Fornaro's statement was a signal to Delta and therefore the airlines colluded on the fee increase. Now, why would AirTran and Delta do such a thing? To increase revenue of course. According to an article posted in USA Today, in Q2 2009, both AirTran and Delta each more than tripled their baggage fee revenue from the previous year.

So now the question is whether or not AirTran's CEO was intentionally making a strategic move by hinting to Delta that AirTran would match a checked baggage fee. Given the huge increase in revenue, it seems that might indeed be the case. What do you think?

http://blogs.orlandosentinel.com/business_tourism_aviation/2009/05/lawsuit-alleges-airtran-and-delta-unfairly-colluded-on-baggage-fees.html
http://www.usatoday.com/travel/flights/2009-09-24-airlines-fees-revenue_N.htm

Airline Pricing: A Classic Prisoner's Dilemma

Before business school, I worked in sales for a software company. I typically traveled at least once a week, flying around the U.S. to various companies to pitch our software product. Living in Atlanta, Delta Air Lines was normally my airline of choice because I liked accumulating the SkyMiles. On many occasions, I had to visit a company in Cincinnati. To get to Cincinnati, I had two options: fly between Atlanta (ATL) and Cincinnati (CVG) or fly into Dayton (about a 45 minute drive from downtown Cincinnati). Tickets to Dayton (DAY) were often as low as 1/3 the price of those to Cincinnati! Why? What could cause such a difference? Answer: Prisoner's Dilemma.

ATL-CVG: only Delta flew the route so they could charge as high a price as passengers would pay
ATL-DAY: Delta & AirTran compete; result was lower ticket price, explained by Prisoner's Dilema

To explain what I mean, consider the game table below.


If there isn't an Airline #2, Airline #1 will select 'High Price' to maximize their revenue. Once Airline #2 enters the picture, the competitive equilibrium is for both airlines to select 'Low'. The only way the airlines can reach the higher payout is by colluding on prices, which of course is illegal.

Given this dilemma, it's no surprise that the airlines struggle to remain profitable!

Decision to Unionize: How does Voting Method Impact the Outcome?

This morning I came across an article discussing Delta Air Line's recent merger with Northwest Airlines and the struggles the airline is facing in getting past the union vote. Historically, Delta's employees have been relatively non-union where as Northwest's employees were mostly unionized.

http://www.ajc.com/business/union-issues-still-vex-199500.html

Recently, a change was announced in the voting method for the union vote. Instead of requiring a majority of 'yes' votes from those eligible to vote, the decision on whether or not to unionize will only be made on those that actually vote. The article states:

"A switch in the election rules to a “yes-no” vote as proposed would mean that instead of needing approval from a majority of those eligible to vote in order to unionize, unions would only need a majority of those who actually vote — which generally is a far smaller number."

This brings up the concept that the voting method selected greatly impacts an individual's or group's strategy for strategic moves. In this example, Delta does not want to have unionized workers. In the past, the company has encouraged it's employees to tear up the union voting forms as a protest against the union. However, with the change in the voting method, Delta now needs all of its eligible employees to vote against the union. As this requires a big change in behavior, it's unclear if the airline will be able to motivate its flight attendants and ground workers to vote.

So the big question is: Will what was supposed to be an 'easy-win' for Delta become a battle between management and employees simply because of a change in the voting method?