Airline Global Alliances

May 11, 2015

Table of Contents

Abstract 3

Introduction of Strategic Alliances in Airline Industry 4

Evaluation of Alliances in Airline Industry 4

Purposes of Alliance between Airlines 5

Disadvantage of Alliance between Airlines 6

Major Airline Alliances in the World 6

Alliances help Airlines to Achieve Comparative Advantage 7

Sky Team Alliance 8

Airline Alliances Enhance the CSR 9

Conclusion 10

References 12

Abstract

Now a days the term global alliance is widely used in every business, but its presence is more significant in airline industry. The strategic alliances in airline industry are global in nature. The past deregulation impacted on strategic alliances positively, industry is freer to set routes and cooperation’s, due to oil price hike the cooperation of airline firms was unavoidable. The alliances help generating traffic between an airline and other parties that are partner. The European alliances were threatened by US alliances; in such scenarios United Airlines and British Airlines came in contract to avoid threats from US airlines. The benefits of strategies alliances are to gain foothold in any country like many airlines did in Europe, while at the same time is to establish global presence. Strategic alliance and mergers of firms acts as marketing technique in airline industry. Many of the European airlines bought stakes from the Asian and US airlines by working on strategic alliances. In the airline industry there are three major alliances: One World, Star Alliance and Sky Team Alliance. The paper concludes that alliances are good to achieve betterment in things; the airlines may have better CSR responsibility and supplier’s behaviour under an alliance, moreover besides cost effectiveness much can achieve due to alliance.
Keywords: strategic, alliances, airline, industry, global, OneWorld, Sky Team, Star Alliance.

Introduction of Strategic Alliances in Airline Industry

Without an alliance airlines lack the connection in international territory, if US airlines do not have alliance with Greek airlines for instance, customers will not have purpose to go to that destination if airlines do not offer advantages. The Mileage Plus packages are offered to US citizens so that they can avail the long distance travel and be rewarded from their flights. These groups can help in increasing experience of customer and in some cases customers will be able to be rewarded with the same frequent flyer programs. One World is an alliance offering 12 airlines and 766 destinations. India’s Kingfisher, Japan Airlines, Cathay Pacific in Asia, Qantas in Australia is all examples of good alliances, which enhance their profit margin as well by providing assistance in alliances to OneWorld. Sky Team is more active in China, Russia, Italy, Span, and Kenya is important destination touched by Sky Team. Star Alliance is an alliance, which covers much of United States, New Zealand and South African airlines do have alliance with US. There are 27 carrier partners of Star Alliance. The seating’s, computer systems, and all other programs require something extra in order to come in accordance with the alliances, (McGinnis, 2011).) The strategic alliances are present in every business in modern day; it is merger and cooperation of two or more parties to meet the same objectives while staying in limits defined by rules and regulations of the mergers. Strategy alliance is such an expression which airline industry has adopted to extend their services, (Czipura & Jolly, 2007).

Evaluation of Alliances in Airline Industry

The mergers and acquisitions are prominent in airlines; the tendency of mergers has been increased since 2000.Air Berlin has greatest number of mergers since 2000. Air West, Air Jamaica, Air New Zealand, Air France, America West Airlines all have merged with some other airline in order to extend business profits and to reduce costs. The purpose of mergers is to reduce cost and to enhance core competencies whereas strategic alliances are giving more places in global market, (Gale 2011).

Purposes of Alliance between Airlines

Airlines are bound to use alliances for global purposes because passengers are global, international freights are there, while others operate ion and supplier companies are also international due to which global alliances are needed. Every airline tries to service customers present in Asia, Europe, USA, Japan, Australia etc, for this very purpose alliances are made globally and these impact the international rating of any airline. Phillips (1998) investigated that the benefits of strategic alliances are there from customer as well as producer point of view, customers feel greater network access and seamless travel. Transferable priority status is almost similar in all airlines now, for instance, bagging and checking time and formalities are similar all across the world. The operator feels more market access and economies of scales are best achieved, resources are best allocated and costs are reduced. On the other hand, there is an opportunity to reshape business and face such structure of organization, which becomes a barrier for new entrants. The schedules and prices of each flight are not cooperated by other partner airlines due to which business is quite successful from operator’s point of view.

Disadvantage of Alliance between Airlines

But there is disadvantage of it as well because the business is working more like cartel formation, and cartel’s formation are not good for customers. The alliance partners concentrate on their motives and the profits go quite up. The actual purpose of alliances is to reduce cost instead of allowing a making of cartel.

Major Airline Alliances in the World

According to intentional alliances between airlines it is noticed that intentional alliances are not developed since 1990. There are constraints present on mergers and these contracts are national in nature. The Star Alliance was formed in 1997 whereas OneWorld was formed in 1998 and lastly the Sky Team merger was made in 2000, since then no other significant merger has occur due to national issues. This is a time to rethink about the decision of mergers and alliances because there are various benefits of mergers and alliances between airlines. There is a big gap present between revenue and costs, Michael Schwad who is a CEO is star alliance services conducted this in an interview, when London airports are connected with other airports of the world then it will bring the cost effectiveness and increase in efficiencies. The alliances according to him can do much more than mere cost efficacies. According to the managers of star alliances the mergers have always given the tactical and strategically benefits as well besides the other benefits. Airlines are using alliances and cooperation’s since 1980s (Rajasekar & Fouts, 2009). The alliances help in developing quality of product, pricing strategies, capacity coordination and linkages. Usually the past studies related to the dynamic capabilities and core competencies of the airline are having a methodology of interviews and face-to-face interactions with officials and analyzing of official drafts of company

Alliances help Airlines to Achieve Comparative Advantage

The official website of Star Alliances and sky world state that both firms are together in order to achieve comparative advantage in cost effective solutions for the firm, the international airlines which are in merge such as Air France and KLM states that the procurement challenges are also brought to attention. The cost effective decisions are implemented in internal departments and external suppliers. Because both firms are together in the very same objectives, there is comparative advantage for both of them. The cost will be decreased because suppliers would be willing to target the firm whereas the product would rise because of mutual cooperation. There can be various possible suppliers of the firms. The invoices are accessed online on IATA and Supplier Invoice Portal. This adds a lot more to effectives and cross checking of things.

According to Sergio, (2008) the industry has shown very successive dynamic approach to the economic recession, trade liberalization of air transport, disposable income effect on short term and globalization since 2004. The external shock factors are no doubt opening new horizons for airlines, which are impossible to address without alliances. The economic crisis has opened doors to new technological ruptures, but the firm has successively gone through change behaviour. The traditional performance is not compromised whereas the behavioural approach has been made more realistic and flexible to external shocks.

The strategic analysis have shown that the industry has changed the term “suppliers to supplier”, this mean it is trying to achieve core competency by focusing on requirements and terms of each and eve supplier on individual basis. The corporate governance is more efficient and good than before and it is only possible because of alliances. Because international companies are involved with airlines, their suppliers are contracted under the rules and regulations of international labour organization to avoid conflicts. When two or more than two airlines have agreed for mutual audits to the supplier then it left a positive impact on the quality standards of firm.

Sky Team Alliance

According to Sky team the traffic has increased by 8 percent since 2013, but cooperation is also required besides alliance, which shows that alliances must further be extended. The bilateral relationships with other major alliances are the main purpose of existence of Sky World and other alliances. The small airlines have great scope to join this, because if the small airlines do not joy the group then it is really difficult to achieve the status. The bigger airlines can come in balance with smaller airlines to achieve comparative advantage; there are very few airlines that are really going good with alliances. It is not essential that all airlines must have alliance with other airlines, but the alliances also exist between airlines and food suppliers because customer food satisfaction is an important thing (Trivedi, 2000).

Now day’s global alliances in firms is considered an important element to gain success of any kind. The dynamic capabilities of any firm are understood by the external and internal changes that a firm make against any changing environments. It is a flexible nature of organization that how much it can alter, modify and extend depending on the market. The short-term competitive advantages are more focused in dynamic capabilities instead of focusing on long-term goals. The particular airline like Delta Airlines, Air France, KLM and all those which are having alliances, have comparative advantage on other airlines because of their flexibility to deal with external and internal factors by focusing on core competencies. The resource based view and bridge between profit and evolution are great ways out of the company. The core competence on the other hand is specific factors, which a firm more focus upon according to work and employees division. There becomes the central argument and attention of firm. Core competencies are result of technical knowhow and pooled filtered knowledge. The technical know how airlines increase whenever there is an increase in the alliances and mergers. According to Jean-Cyril Spinetta the chairperson of the merger between Air France and KLM, this alliance will help save 300 million Euros and it will climb up every year whereas there is a room for comparative advantage (Swelba, 2009).

One airline has received core competencies with procurement sector due to merger. The lavatory water suppliers are recently selected by mutual concerns of all airlines. The water supply is complement by the lavatory refresh programs. The firm is further looking into external and internal factors, which can impact on quality improvement of the firm. The strategic analysis of firm comes from strategic goals. The firms want to sustain its awards and standards by showing maximum resistance to external and internal shocks (Wakeam, 2013).

Airline Alliances Enhance the CSR

Airline industry and global food retailers are performing corporate social responsibility in environmental friendly manner. The biodegradable factors in food serving and wastage concerns are especially noticed now days. The media issues have also bound airlines to take care of environment. The environmental impact of food processing and production is debated now days. The food processing, production, and distribution impact on the environment adversely. On the other hand the wastage of food in another issue, environmental responsibility is a claim of very second firm now days; every firm wants to focus on protection on environment. According to my research the airlines, which have alliances, are actively involved in corporate strategies, for example to focus on environment issue as the result of their activities. The CSR issue of Airline Company is very much similar to those of Global Food Retailers. Often airlines want to enhance such corporate issues as well which deal with food wastage, freshness and quality food to customers while travelling. The food wastage is also there in airline companies. The raw material consumption, carbon emissions and over all pollutions are environmental degradations performed by aviation industry. According to a survey the aviation industry will be releasing 6.1 million tons of pollution in 2025 whereas it is realising 2.5 million tons in current time. Such global food retailers which match the CSR practices are more deserving for the room provided in airline industries. This is the way to enhance good in the market. The food companies are also triggered under environment responsibilities. These responsibilities will be well realized when the alliances exist (Shifting Airline Alliances, 2015).

Conclusion

Air passenger industry needs alliances. There are three larges alliances present in the world at present; these are Sky Team, One World and Star Alliances. Most of the airlines are integrated with Sky Team alliance. The air cargo alliance can surely add extra value to the airline firm whereas majority of firms only focus upon passenger alliances. According to the famous alliances of airlines there are multiple elements into a system that work differently and rate a product. According to the Sky Team and One World, synergies add benefits to business and so have happened in case of passenger and cargo alliance. Due to Sky Team Alliance, the motive of firm is to develop a high rate savings without compromising on quality and product services. No doubt alliances can provide benefit to customers as well as airlines.

This type partnership is one of the biggest and smarter strategies in the business, most people do not realized that this union involves everybody. Alliances connect the entire world, from the food industry, to the airport workers, to the common people. This is possible because an airline works with long lists of workers, partnerships and people; and when two or more airlines make an alliance the business and their markets triplicates. In my opinion, an airline alliance is one of the biggest strategies airlines are taking now a days; the business and the economy increased at a bigger level than everyone before thought. This is the perfect example on how airlines are doing businesses, when companies think their market has reached their maximum capacity, can grow and link markets and customers in a much bigger and international way.

References

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