AIRLINE GLOBAL ALLIANCES

Airline global Alliances



Airline global Alliances

Introduction

Globalization and the accompanying competition pressures have resulted in an accelerated growth of collaboration between independent firms. These forces have brought to the fore the realization that, in a globalized environment, no firm has all the resources needed to gain and sustain competitive advantage. In a rapidly changing global environment, firms' ability to achieve competitive advantage depends not only on their own resources and capabilities, but also on those of their allies. As industries globalize and competition intensifies, it has become strategically unwise for firms to “go it alone” where costs can be spread and risks shared among partners. Increasingly, firms are consolidating and developing strategic alliances as a means of sharing risk, reducing costs, and acquiring scarce resources (Wastnage, 2004, pp. 166).

In recent years, the competitive game in many industries has transformed from firm versus firm to group versus group, and it has been suggested that strategies must recognize this changing nature of global competition. Nowhere is this more evident than in the global airline industry, where competitive advantage can be derived from being a member of the airline alliance groupings. The global airline industry exhibits a pattern where competition has shifted from firms to constellations, as a firm's performance may depend on which airline grouping it chooses to join.

Discussion

The Evolution of Alliances in the Global Airline Industry

In 1944, 52 nations attended the International Civil Aviation Conference in Chicago, which was aimed at creating a competitive regime with minimum regulations on market access and frequency in the global airline industry after World War II. While the conference failed to achieve its overall goal to completely deregulate international civil aviation, it called on nation states to form joint organizations to operate air services on any routes or in any regions. It was argued that by joining forces, airlines would be able to enjoy economies of scale. Under the auspices of the International Air Transport Association, a tradition of cooperation between airlines was established, and on individual routes cooperation went as far as revenue pooling agreements between the airlines operating a route (Vaara & Seristö, 2004, pp. 1-35).

When the concept of deregulation of airlines took off after the U.S. Congress passed the Airline Deregulation Act of 1978, it was anticipated that this would serve as a springboard for governments to ease restrictions on cross-border cooperation among airlines paving the way for alliances to emerge. However, this has not fully materialized. The European Union followed the U.S. example by establishing the Single European Aviation Market (SEAM) in 1997, and since then, the forces of globalization and liberalization have advanced in the global airline industry as carriers seek new markets to achieve competitive advantage. The creation of the SEAM eased restrictions on cross-border mergers within the European Union. This meant that airlines could develop larger networks through mergers and acquisitions to help them compete in the global environment. However, governments around the globe often think and act locally rather than globally (Paik, 2005, ...