An Analysis Of Global Alliances

An Analysis Of Global Alliances As a matter of survival, airlines within the current environment are constantly reviewing and altering their strategies. An important component of any airlines’ strategy to remain viable and maintain competitive advantage in today’s setting is to pool resources and share risk, known as an alliance. A broad definition of an alliance that occurs in the aviation industry is the â€Å"collaboration between two or more firms that retain their autonomy during the course of their relationship† (Kleymann & Seristà ¶, 2004). To that end, there are certain variations of airline alliance in vogue today, in particular the Global Airline Alliance. Starting with a synopsis and identification of these alliance groups, the discussion will move to a selection and analysis of benefits and shortcomings that can be associated with global alliances from a business and consumer perspective. From here, an appreciation will be gained of the major airline alliances and typical rational e of alliance strategies. Currently, the most popular forms of coalition in the airline business are the non-equity marketing alliances known as Airline Alliance Groups (Kleymann & Seristà ¶, 2004) or Global Multicarrier Alliances (Cools & Roos, 2005). At the present time, the main global multicarrier alliance networks are Star Alliance, One World, and Skyteam (UBM, 2010). These alliances are predominantly a massive global network of multilateral codesharing and joint resource Air Service Agreements (ASA’s) between carriers. This allows a central point of contact for the passenger to â€Å"ensure a convenient, smooth and efficient worldwide travel experience† (Star Alliance, 1997). Although individual airlines are aligned under the umbrella of a single corporate entity, distinct airline brand identities and cultures are retained. These alliances have set out to revolutionise seamless air travel for the international passenger from hub to hub and beyond. Additionally, the synergies created were only possible due to astute governance of previously implausible collaboration. To that end, airline conglomerates now understand â€Å"The best way to generate real business growth and expansion is by forging the appropriate strategic partnerships† (Borovich & Yeheskel, 2001). From an airline business perspective, membership in a global alliance has one distinct, instantaneous and strategic advantage. Almost overnight, all member airlines’ geographic route structures will have expanded without costly capital investment in infrastructure and assets. This allows airlines to service routes that were previously deemed non-profitable or inaccessible, albeit on other alliance members’ aircraft. This â€Å"complementary alliance† (Oum & Park, 1997, as cited in Chen & Ross, 2000, p. 328) has the flow on effect of generating untapped markets within the domestic environment and yielding higher load factors for all alliance members aircra ft operations. Henceforth, this produces larger revenues which in turn diminishes overhead costs and maintains more efficient airlines by lowering unit cost base (Doganis 2001, p. 76). While this contributes to diversification and larger profit margins for collaborating airlines, the traveller can be confident airfare cost will remain relatively reasonable assuming competition remains viable on any given route. This is a beneficial outcome for all involved, both airline businesses and the consumer. A comparable example where alliances between two airlines operating on the same route is however, considered anti-competitive (Chen & Ross, 2000, p 328). Here the competing airlines could strike a codeshare accord, typically after a tenuously long and protracted battle attempting to gain market share. This is routinely known as a â€Å"parallel alliance† (Oum & Park 1996, p. 190), however this is unfortunately likely to result in cartel type price fixing. This form of alliance gene rally benefits the airlines as it narrows competition and has a propensity to create a higher demand for a particular service, hence higher airfares (Chen & Ross, 2000, p 328). Conversely, the pre-alliance scenario utilising â€Å"capacity dumping† (NZ Parliament, 2006), where supply exceeds demand, only profits the consumer with ridiculously low and unsustainable airfares. This invariably serves to strengthen the dominant market leader’s position by financially eliminating the competition in the long term. These types of alliance are inherent of predatory behaviour with very little consumer benefit and require antitrust immunity (Bilotkach, 2005, p. 168). An example of this type of arrangement within the global alliance networks does exist, although on the exceedingly competitive North Atlantic route between Lufthansa and United Airlines (Kleymann & Seristà ¶, 2004, p. 23).