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The Role of Global Airline Alliances in International Aviation
The air transport industry is one of the most restrictive and regulated industries in international markets. Domestic liberalization and deregulation have been developing at an uneven speed across nations, and liberalization of global markets has yet to come up with effective solutions to numerous issues. On the other hand, air carriers need to establish an extensive international network to attain economies of density and scope and to meet the demands of the customers. To achieve this, they have to acquire foreign partners. However, restrictions in ownership do not allow for out- country takeovers and mergers. As it follows, alliances have become and will continue to remain in the future, as they are the only key means to strengthen and expand airline international service frameworks (Bruckner and Spiller 332- 42).
Alliances have provided airline companies with a means for carriers to alleviate the challenged of bilateral policies, restrictions in ownership and control and licensing regulations. In effect, both the governments and the airlines consider global alliances to be a significant solution to free trade in global aviation (Bruckner and Spiller 332- 42). This paper will discuss the numerous roles of global airline alliances and the functions these alliances play in international aviation.
Global airline alliances have an essential role when it comes to regulating such elements as passenger revenue available seat miles and available seat miles for the customers. Airline alliances influence these elements mainly through cost and other advantages offered to customers by global airline alliances. There are few of the examples that influence both PRASM and CASM. Some of these include greater access to airline networks, seamless travel, extended access to lounge, transferable priority status and improved frequent- flier program. Wider route networks should attract the attention of passengers because of the preference of passengers for extensive airline networks. Consumer retention and consumer loyalty can be improved by offering services and product services collected through relationship networks, which collectively increase the offer’s value. Therefore, an airline should be able to offer extended value to its customers by extending it relationships network with other airlines. At the minimal, an alliance airline usually offers more itinerary options to its customers than non- alliance airlines of equal size (Bruckner and Spiller 332- 42).
An extremely well- known benefit of alliances is the idea of seamless travel. The current notion in the airline industry is that passengers require seamless travel when transferring to another airline from another. This is usually attained with code- sharing, in which case an airline joins its designator code to a service managed by another airline. Code- sharing is seen as customer- oriented. For instance, star Alliance, which allows member airlines to share revenues and profits through a system based on formula, offers broad code- share flight choices for its customers, promising convenient check- in processes and quick transfers. Oneworld is also another alliance that uses this method promising its passengers seamless travel through smoother transfer (Doganis 120- 67).
Furthermore, as transfers are associated with risks of losing baggage and missing connections, having flights that are coordinate in global alliances reduces the perceived risks and increases the levels of service. Additionally, if a customer decides to change plans of flight, he or she has an option to transfer to a range of routes, schedules and airlines of the alliance network. Therefore, there is flexibility for last minute alterations to plans of flight. This could be a significant advantage to consumers, especially when they are flying on long- haul flights that are indirect.
Airlines have usually given preferential treatment through priority check- in, reservation waitlist, baggage handling and airport standby in an effort to retain customers. For customers, priority status attained with one alliance member is usually extended to the other partner alliances, offering more access to priority advantages from a number of airlines (Doganis 120- 67).
Global alliances also stress on reciprocal access to lounges belonging to partner alliances as another advantage for the executive passenger with the priority status. Before the formation of global alliances, the priority passenger could only utilize the facilities in the lounge of the airline with which he was travelling. Currently, priority members have the ability to access to a larger number of lounges. For instance, Oneworld usually offers not less than 250 lounges and its competitor the Star Alliance gives access to its customers, access to not less than 500 lounges in their airline networks (Doganis 120- 67).
A recent survey reported that more than 94 percent of respondent belonged to not less than one enhanced frequent- flier program and then not less than 59 percent belonged to at least three programs. Traditionally, the benefits of the enhanced frequent- flier programs accrued within one program could not be transferred. With the formation of international alliances, it is now possible to accrue frequent flyer point and other advantages with any other airline so long as it is within the same alliance, something that eliminates the need for memberships to frequent and multiple flyer programs- unless the frequent passenger wishes to join other alliances. This is to mean that frequent- flier program members can attain priority status quicker by accruing or accumulating points under one flier program (Bruckner and Spiller 332- 42).
Additionally, with the expanded network usually offered by an international alliance, redemption of points for awards, are usually made with any member of an alliance for a wider destination variety. Furthermore, as frequent- flier programs become more indistinct and ubiquitous; the chance to redeem and earn points and benefits through international alliances is taken as an extra attempt to differentiate the many frequent- flier programs. This is also to mean that the passenger revenue available seat miles can be earned through these programs, as well as, cost per available seat miles. Frequent fliers get advantages on these elements too from points redeemed from loyalty programs offered by the alliances (Doganis 120- 67).
Airline agencies also influence the abilities of the executives to manage their own companies. Alliances do this through providing them with opportunities to restructure the structure of the industry and to raise barriers and restrictions to new entrants and by offering them market access to overcome limitations over access to routes and ownership of airlines imposed by national governments. There are a number of powerful company- based drivers of international alliance formation, notable, cost reduction, market access, opportunities and coordination to reshape the structure of the industry. In most case, these drivers are usually not designed to service the consumers although they can result to some benefits (Doganis 120- 67).
This poses a number of implications for the executives. How effective was the 70 million dollars spent By Oneworld alliance on its first marketing campaigns? Where should attention be directed in the future? Are their implications of policies, as well? For executives and operators there are several messages. The fact that such implications and messages are directed to the messages and not the alliance is a clear indication that global alliances do let operators manage their own carriers or firms, with added advantages for the managers from the alliances. Alliances usually have significantly minor roles in the functions and choices of a particular airline carrier (Bruckner and Spiller 332- 42).
There are two exceedingly common and renowned international alliances namely Star Alliance and Oneworld Alliance. Oneworld was founded in 1999 by five airlines, which include American airlines, Canadian Airlines, Qantas and British Airways. Oneworld alliance increased its members in 2007 when three more airlines joined permanently including Japan Airline, Royal Jordanian and Malev. Others like five of the Japan Airline subsidiaries, Dragonair, a subsidiary of Cathay Pacific and two of LAN’s subsidiaries joined as affiliate members (“An introduction to Oneworld” 1). On the other hand, Star Alliance is the world’s largest and first airline alliance located in Germany. The alliance was initially started by five airlines including Lufthansa, Air Canada, Thai Airways International, Scandinavian Airlines and United Airlines. The airline experienced its largest expansion between 2000 and 2003 with more than nine new airlines joining the alliance. The alliance has around 26 members and operates more than 21, 000 departures a day (Tagliabue 1).
Mergers and bankruptcies regarding the member airlines of an alliance can lead to reduced wages, job losses and airline labor alliances with less ability and efficiency than they were previously. In the past, mergers and internal growth were the key ways for airlines to take advantage of the market’s scales of economies and take a larger share of the market. However, with the increasing government concerns regarding consolidation of the industry, more mergers have become less likely and rare. Instead, most airlines are responding by expanding or increasing their networks and to attain at least some scales of economy in the current markets by forming global alliances and partnerships designed to offer customers and frequent fliers a set of standardized set of services and products and to indicate a unified image in marketing to consumers (Bisignani 2- 4).
The current economic climate has made it increasingly likely for airline firms to incur large losses and even to go bankrupt. Bankruptcy has a huge potential to reduce the profits of an alliance. Bankruptcy means loss of jobs, income and profits. If an agency were to lose one of its member airlines through bankruptcy, it could see a considerable change in its profits and income. Recently there have been a number of airlines filing for bankruptcy. Harsh financial conditions led to four out of the six carriers from US Legacy to file for bankruptcy between 2005 and 2001. These airlines included US Airways, Northwest, United and Delta. These four airlines were able to emphasize on cutting operational costs, downsizing and enhancing productivity in order to re- structure their firms. Despite the fact that mergers can lead to loses of profits and revenue, some mergers can be beneficial to an airline alliance. For instance, if a merger happens with a member airline with a non- member airline with a considerable competitive advantage and market share. In such a case, the merge would bring the alliance new business and enlarge its competitive advantage, as well as, its share of the market (Bisignani 2- 4).
Work cited
“An introduction to Oneworld – The alliance that revolves around you”. Oneworld. 2009. Web. 15 March 2011.
Bisignani, G. “State of the Air Transport Industry”. Address to the Annual General Meeting, International Air Transport Association. Vancouver, 2006. Web. 15 March 2011.
Bruckner, K. and Spiller, T. Competition and Mergers in Airline Networks. International Journal of Industrial Organization (1991): 323- 342. Print.
Doganis, R. The Airline Business in the 21st Century. New York: Wiley, 2001. Print.
Tagliabue, John. “5 Airlines Extend Limits Of Alliances”. The New York Times, 1997. Web. 15 March 2011.
