The effect of code-sharing alliances on airline profitability

Code sharing and global alliances both have been increasingly adopted by airlines worldwide in recent years. A growing number of airlines, therefore, are embedded in networks of multilateral “coopetitive” (i.e., cooperative, but competitive) relationships that influence their product offering, pricing strategies, operating efficiency, market power, and their overall successes. There has been considerable research analyzing the benefits for airlines from joining global alliances, including bilateral code-sharing partnerships. However, the joint effect of code-sharing and global alliances on airline performance has not been fully investigated. In this paper, we study how the use of code-sharing strategies and their structural embeddedness into global alliances may impact airline performance. Using a unique dataset compiled from Flight Global and Airline Business's Annual Airline Alliance Report, the paper empirically investigates the joint benefits of code-sharing partnerships and global alliances on airline profitability. The results based on a group of 81 airlines during the 2007–2012 period show that the profit margin of an airline is positively associated with the number of code-sharing partners it has. Furthermore, the profit margin gains from code-sharing are greater when an airline has a higher proportion of its code-sharing partners in the same global alliance; i.e., allied code-sharing partners. Finally, we find no significant evidence that the percent of comprehensive code sharing partnerships to total partnerships has an impact on profit margin.     

Strategic airline alliances and endogenous Stackelberg equilibria

This paper analyzes the economic effects of the code-sharing alliances between an international and a domestic airline. If these two allied airlines and a separate unallied international airline endogenously choose the role of fare-leader or fare-follower, two types of Stackelberg equilibria exist. This finding suggests that the Stackelberg solution seems reasonable, and provides a guideline for the airlines’ role-choosing. Furthermore, although this complementary alliance improves the social welfare, it decreases the consumer surplus of the direct international passengers and may decrease that of the direct domestic passengers. The negative effects should also be considered when governments evaluate a complementary alliance.     

The effect of code-sharing alliance formations and terminations on firm value: The role of co-specialization and scope extension

This paper examines how alliance co-specialization and scope extension affect firm value at the time of alliance formation and termination, and whether value creation upon alliance formation also explains value creation upon termination. Building on the relational view of the firm, we develop predictions that are tested using event study methodology and data on code-sharing alliances formed, extended, and terminated between 1994 and 2008. The findings suggest that from a stock market perspective alliance formation and termination can be seen as two interrelated events and that it is difficult to reverse initial valuations past the alliance formation phase. They also suggest that the stock market reacts to alliance formation more critically than to post-formation decisions such as alliance scope extensions and terminations.     

Fifth freedoms and airline alliances. The role of fifth freedom traffic in an understanding of airline alliances

An analysis of fifth freedom operations in the Single European Aviation Market identified trends and patterns, which were found to be fundamental to understanding the rationale for airline alliances. Priority issues in achieving the sought after market coverage included the formation of alliances, the achievement of higher corporate strength levels and the quest for lasting and sustainable market positions. The development of a Route/Network Portfolio Management matrix permitted the exploration of strategies available to airlines for the creation of effective alliances towards these ends.     

Airline code-sharing and its effects on on-time performance

Although airline on-time performance has always received much attention, we are unaware of any empirical research that measures the on-time performance effects of domestic airline alliances. In this study, we empirically investigate the on-time performance effects of the largest domestic alliance—between Delta Air Lines, Northwest Airlines and Continental Airlines. We find evidence that code-sharing improves alliance partners' on-time performance and that the size of the codeshare effect on on-time performance depends on pre-alliance competition in a market, with the effect being larger in markets where the partners competed in prior to the alliance.     

Airline alliance survival analysis: typology,strategy and duration

Alliances have become the organization model of choice in many industries. This study uses data from the Airline Business annual surveys of airline alliances to test a proposed typology predicting survival and duration in airline alliances. The Rhoades-Lush typologies classified key activities of airline alliances by their level of complexity and resource commitment in order to suggest a series of propositions on alliance stability and duration. The results of our analysis indicate that alliances containing joint purchasing and marketing activities had lower risk of termination than alliances involving equity. Furthermore, alliances spanning more than two typologies showed lower risk of termination than one and two typology alliances. This is explained as the ‘strategy effect’ or in other words the tendency of alliances wide in scope to be more resistant to early termination.     

Airline alliances: cooperating to compete?

This paper examines the formation of alliances in the contemporary airline industry, comparing this with developments in business collaboration in industry generally. It identifies the main forces driving airlines into alliances, before considering the strategies that airlines are adopting in marketing joint services, and the policies that governments are pursuing in relation to the impact of alliances on the intensity of competition. One of the main arguments advanced is that alliances increase competition in through-markets via hubs, and that they can be expected to have pro-competitive effects in narrowing price-cost margins on long-haul services, something that can be traded against any lessening of competition in short-haul hub-to-hub markets.     

Scheduling issues and network strategies for international airline alliances

An efficient network structure with co-ordinated schedules is necessary to realise the potential of an international airline alliance. This paper considers the scheduling issues that particularly affect alliances including multiple hub operations, other interfaces between routes, airport slot and terminal allocations and the through working of aircraft. Key principles are identified and illustrated with examples from current airline operations. Comparisons are made of the effectiveness of the major alliance groupings in the European arena and strategies to optimise the coverage and connectivity of the combined networks are advanced.     

How company and managerial characteristics influence strategic alliance adoption in the travel sector

The purpose of this paper is to examine the role of company and executive characteristics in strategic alliance formation in the tourism sector of travel. A survey of Australian travel sector businesses was carried out and the results indicate a high level of interaction through alliances between various sectors of the Australian tourism industry. Top managers' characteristics (experience, ownership and risk‐taking attitude) were found to be influential in taking strategic decisions of whether to form alliances or not. These characteristics do not play an important role in determining the number of alliances an organisation has and their geographical location, as much as company characteristics do. The findings of this paper imply that company characteristics are important in determining alliance formation. Managers should thoroughly consider these characteristics when deciding not only to form alliances, but also the types of alliances that could help their organisations to be more competitive, given limited resources. Copyright © 2007 John Wiley & Sons, Ltd.     

The dynamics of airline alliances

This paper explains the dynamics of airline alliances. Using a system dynamic approach we shall first describe the driving forces behind the formation of alliances before going on to examine the inherent stability of alliances, both internally and externally. Understanding the dynamics of alliances can be useful in two ways. Outwardly, it can help in the thinking up of future scenarios which is something that is especially important to airlines that are looking for an appropriate alliance group but also for established groups looking for new members. Inwardly, such understanding is crucial as far as existing members of alliance groups are concerned when it comes to managing the alliance and achieving better performance.     

Best practice benchmarking: a route to competitiveness?

This paper examines the use of best practice benchmarking as an approach to performance improvement in the airline industry. The case study draws upon phenomenological evidence from the aircraft maintenance section of Britannia Airways. A range of benchmarking issues, which could be applied to different divisions of an airline are highlighted. In particular, inter disciplinary team building, employee involvement, relationships with other industry players and identification of `best in class'. Airline alliances and the global trend towards economically deregulated air transport are identified as factors likely to increase the adoption of benchmarking as a route to competitiveness.     

A comparative performance analysis of airline strategic alliances using data envelopment analysis

As “open skies” agreements became more common among different countries and thus began to open up international routes to further competition, the global airline industry has undergone accelerated structural changes for the last two decades. These changes include the consolidation and expansion of airline strategic alliances throughout different regions of the world. Though airline strategic alliances are generally perceived to be a major driver for enhancing the operating efficiency and the subsequent competitiveness of participating member airlines, the concrete evidence supporting such a perception is still lacking in the literature. This paper is one of few attempts to evaluate the comparative efficiency of the strategic alliances among global airlines and then assess the managerial impact of airline alliances on the airline's comparative performances.     

The impacts of the Asian Economic Crises on Asian Airlines: short-run responses and long-run effects

The optimism shared by agencies such as IATA and the Air Transport Action Group on the growth in the demand for air travel has been temporarily derailed by the Asian economic crisis which appears to have dimmed the prospects for growth of many Asian carriers. Prospects for growth and expansion appeared to be excellent and were the driving force in setting the agenda for privatization, liberalization and the formation of new airlines. This paper discusses responses by Asian airlines with respect to redefining the scope of operations, capacity decisions, cost competitiveness, alliances and service decisions. It concludes with an argument that economic crisis appears to have shifted air transport policies in the direction of greater liberalization.     

Strategic alliances between airlines and airports—theoretical assessment and practical evidence

Strategic alliances are now widespread. This paper shifts the focus from alliances among airlines toward strategic alliances involving passenger airlines and airports. Following a conceptual path analyzing motives, potential benefits and problems, potential fields of cooperation are identified along with three basic classes of airline–airport alliances. Capacity-based, marketing-based, and security based cooperation models are assessed with regard to benefits for the participating airline and airport partners. This expands the existing literature that has largely neglected the airline–airport relationship and its potential for developing their respective competitive strategies. The case of the alliance between Lufthansa and Munich airport serves as an illustration.     

COVID-19 and its long-term effects on activity participation and travel behaviour: A multiperspective view

This paper discusses possible long-term effects of COVID-19 on activity-travel behaviour. Making use of theories and concepts from economics, psychology, sociology, and geography, this work argues that lasting effects can be expected, and specifically that peak demand among car and public transport users may be lower than if the pandemic would never have happened. The magnitude of such effects at the aggregate level in terms of the total travel time of all inhabitants of a country or state is likely limited. Such lasting effects imply that additional infrastructure extensions to reduce congestion on roads and crowding in public transport might have a lower benefit-cost ratio than would be the case without these impacts. The paper discusses avenues for future research, including work on the role of attitude changes, the formation of new habitual behaviour, new social norms and practices, well-being effects, and the role of Information and Communication Technologies (ICT).     

Evolution of global airline strategic alliance and consolidation in the twenty-first century

Global airline strategic alliances have emerged since the late 1980s, and their number has slowly risen through the years. Will the number of such alliances continue to proliferate? Or will airlines consolidate with one another to form mega-carriers? In this paper, the likelihood of various airline consolidation and alliance development possibilities was examined based on a number of high-level trends and forces. The most probable near-term industry alliance and consolidation structure is described, accompanied with a probable path of evolution. These predictions have important implications for managers of strategic alliances, carriers who are currently in an alliance as well as carriers who are planning to join one.     

Code-share connectivity within global airline alliances – How much potential is utilized?

This paper analyzes the code-share connectivity of carriers from the three global alliances: Star Alliance, Sky Team and oneworld. We generate 2-leg online and code-share connections to evaluate the existing connectivity. Additionally, we generate all potential interline connections between members of the same alliance that are not yet supported with existing code-shares and analyze what share of the potential connectivity remains unused. We find that code-share connections account to about one-fourth of the total number of international connections offered by alliance members. 73% of those code-share connections are with partners from the same alliance, 6% with carriers from competing alliances and the rest with other carriers, which means that airlines seek partnerships not only within their own global alliance but even with members of competing alliances. At the same time, over 25% of the total potential code-share connections between members of the same alliance remain unused. This connectivity potential is better utilized within the network of Sky Team and oneworld than within Star Alliance. American and European carriers show a higher degree of code-share partnership with their alliance partners than Asian carriers. Overall, code-share partnerships are strongly driven by strategic decisions on bilateral airline level. Many airline-pairs fully utilize their connectivity potential (almost half of the total existing code-share connections) but some cooperate only on selected routes or not at all. Over one-third of the remaining code-share connectivity potential within alliances is attributed to airline-pairs that don't partner at all.     

Freight industry attitudes towards policies to reduce congestion

This paper presents an analysis of the perceptions held by for-hire and private trucking company logistics and operations managers about the impacts of congestion on their operations and the feasibility and effectiveness of actual and potential congestion mitigation policies. Responses to an extensive survey of nearly 1200 California-based or large national carriers are examined using confirmatory factor analysis. The method applied facilitates both the grouping of congestion relief policies into classes and the identification of characteristics of companies which lead them to favor one set of policies over others. This research comes at a time when California government leaders and transportation policy analysts are struggling with key resource allocation issues that will impact the short and long term future of goods movement in the state. To the greatest extent possible, insights of commercial vehicle operations users of the transportation network should be included in the policy analysis process.     

Integrating frequent flyer programs in multilateral airline alliances

Forming branded alliances has become a common strategy in the airline industry. These can be defined as ‘multilateral alliances’ as opposed to bilateral alliances. Limited attention has been paid to assessing the impact of multilateral alliances on complex sub-networks, such as distribution networks, cargo alliances and frequent flyer programs. These sub-networks are ‘derivative networks’ within multilateral alliances. These derivative networks create several dilemmas as they evolve causing airline managers to confront fundamental questions regarding harmonization, conflict resolution, and organizational structure.     

Supranationalist Alliances and Tourism: Insights from ASEAN and SAARC

This paper examines the influences of international free-trade alliances/regional trading blocs on tourism development. While relatively few of these coalitions mention tourism specifically, most of them deal with issues that are directly pertinent to tourism, such as environmental conservation, flows of people, regional promotion, infrastructure and transportation and trade in goods and services. This paper scans these issues in the tourism context as they pertain specifically to the Association of Southeast Asian Nations (ASEAN) and the South Asian Association for Regional Cooperation (SAARC). While the paper argues primarily that such alliances have potential for positive outcomes, their negative effects are also considered and many of the roadblocks to achieving successful multilateral regional blocs are highlighted.