Multilateral airline alliances: Balancing strategic constraints and opportunities

This paper explores multilateral airline alliances through the lenses of structural holes and network closure. The structural holes theory sees network ties as opportunities linking together separate network segments through brokers and weak ties. The opposing view argues that network closure would generate superior “social capital” and thus superior “economic rent” as we would have more trust, reputation and cooperation within a closed group with strong internal ties. We discuss these theories in the context of multilateral airline alliances and argue that the two concepts in combination advance our ability to explain alliance processes in the airline industry.     

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.     

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.     

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.     

Airline alliances and partner firms’ outputs

This paper analyzes the effects of airline alliances on partner airlines’ outputs by comparing traffic changes on alliance routes with those on non-alliance routes. A theoretical model of an airline alliance is developed, and an empirical analysis is then conducted using panel data from four major alliances in North Atlantic markets during the 1992–1994 period. It is found that most of the partners have greater traffic increases on their alliance routes than those on their non-alliance routes, supporting a hypothesis derived from the theoretical model.     

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.     

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.     

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.     

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.     

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.     

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.     

Assessing the price effects of airline alliances on parallel routes

The impact of airline alliances on airfares on nonstop hub-to-hub routes is investigated. Analytical results suggest that the net effect on airfares is uncertain. Empirical evidence shows that the impact of two of three alliances (Star and SkyTeam) on prices on transatlantic hub-to-hub routes is insignificant after controlling for other factors. Routes between oneworld alliance hubs, however, have significantly lower business class airfares compared to other routes. These results indicate that the impact of alliances on transatlantic hub-to-hub airfares varies depending on the alliance; possibly due to the ability of an alliance to coordinate fares.     

Distinct features of lasting and non-lasting airline alliances

This paper seeks to uncover key differences between lasting and discontinued airline alliances by applying factor analysis. Several meaningful patterns emerge. First, alliances aiming at customer loyalty and operations integration are more likely to be long lasting. Second, bilateral code-sharing with serious financial tie-up through pooling agreement on revenue/costs is another distinct feature of lasting alliances. Third, the leading cause for alliance termination is expansion into non-core and non-customer-oriented activities. Finally, alliances engaging solely in code-sharing, joint operations, or joint marketing without other substantial commitment are likely to fail or only be short term. The paper concludes with a validation of key findings using logistic regression.     

Alliance strategy and the fall of Swissair

This paper argues that the Swissair Group's bankruptcy is a direct consequence of mistakes made in implementing its alliance strategy. While the strategy was sound, analysis of the relative resource-dependence between Swissair and its partners will show that Swissair did not need equity to bind its partners to it. Moreover, this approach to operationalising the alliance strategy undermined a corporate level goal to diversify risk beyond the airline business. Financial analysis will show that the airline investments were unprofitable, increased the Group's leverage and weakened its cash position. As a result, the Group did not have adequate resources to recover from external shocks.     

The impact on traffic,market shares and concentration of airline alliances on selected European—US routes

This paper examines the impact of airline alliances on traffic of the constituent airlines using an analysis of US Bureau of Transportation Statistics T-100 International Market Data on a monthly basis for five routes to the US from European hubs. The European hubs are Frankfurt and Paris. The period covered is January 1990–December 2003; a sufficiently lengthy period to enable the derivation of good time-series models before the ‘intervention’ of alliance formation and development. The alliances focussed on are Air France and Delta, part of the SkyTeam Alliance and Lufthansa and United Airlines, part of the Star Alliance. It is possible to distinguish code sharing agreements and then the subsequent immunity from US antitrust legislation. It is also possible to suggest some conclusions on the differences in alliance development in the more liberal open skies environments adopted by many European countries with the more traditional, stricter regulated bilaterals that exist in others such as the UK. Competition is examined using the Hirschman-Herfindahl Index so as to throw light on the impact of alliances on market concentration by route.     

Airline alliances—who benefits?

The advent of global airline alliances in the 1980s gave rise to concerns that increased monopoly power of major carriers would lead to large and sustained producer surpluses. These global alliances now enjoy dominant market shares in the industry. This review examines some 15 years of alliance experience and finds no conclusive evidence that alliance membership has yielded monopoly profits to the airlines. Improvements in terms of load factors and general productivity levels have, for the most part, been accompanied by fare reductions of similar magnitude, resulting in only modest gains to the carriers.     

A robust hybrid decision model for evaluation and selection of the strategic alliance partner in the airline industry

Owing to the cut throat competition and economic uncertainty in the market, airlines are focusing on strategic alliances for satisfying customer needs, especially in the current time which is dominated by global integration, demanding customer and fast changing technologies. This strategy is widely adopted by airlines. However, the selection of strategic alliance partner is a very decisive decision, and this selection process engrosses a number of complex processes which is result of compound reflection of associated various factors. In addition, the decision makers may be inconsistent in their views and preferences, arising due to imperfect information or intrinsic conflict between various departments. This paper presents a model based approach of an analytic hierarchy process (AHP) for evaluation of criteria and fuzzy technique for order performance by similarity to ideal solution (FTOPSIS) for the selection of strategic alliance partner. A case of Indian airline industry demonstrates the application of the proposed approach. Eventually, robustness of the model is demonstrated by sensitivity analysis.     

Intermodal alliance and rivalry of transport chains: The air cargo market

This paper examines the effect of multimodal integration on the rivalry between two transport chains – a forwarder–airline alliance and an integrator – under the economies of traffic density. An improvement in multimodal integration by a forwarder–airline alliance would increase the alliance’s output, while reducing the integrator’s output, not only in the multimodal market but also in other markets of the cargo network. It would further increase the alliance’s profit, provided the intermodal improvement is not too costly, while reducing the integrator’s profit, and would likely improve both consumer surplus and total surplus. We also find that an alliance in general leads to greater market shares for the firms involved than outsourcing.     

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.     

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.