Global Airline Alliances

Date: Nov 22, 2018

Introduction

In recent years the global airline networks has exponentially increased due to its benefits to all participating airlinesIt is not only safe, but has proven to be cost efficient, fast, and reliable. However, such networks were not formed earlier since this process required much time and effort. This would have really helped a lot of countries develop faster. Nowadays, when the networks are operating, every airline company wants to be involved. This issue is not common since the economies gained from such alliances are immense. In this case study, the paper seeks to identlfy the reasons, which caused the formation of airline alliances and their benefits to the individual member airlines. In addition, the paper analyzes the management of these alliances aimed at achieving their targets and objectives.

Critical Analysis

Strategic and Environmental Factors Responsible

It is a vital target for any major business entity to grow and increase its revenues as well as to be competetive in the global market (Burnett & Hutton, 2007). The airline business is not a different one. Most airlines aim to be the best service providers and the first choice of anybody planning to move from one point to another. Global expansion is a key factor to achieving such targets and has to be the major reason for emergence of the global alliances in the airline industry. It seems that it is easy to reach such levels, especially considering the fact that these airlines connect people from different parts of the earth, but that is not the case. The airlines industry is characterized by numerous entry barriers, and the existence of corporate culture makes it more complex, especially while forming the merges between airlines in different countries.

Due to such barriers many airlines face difficulties while achieving their targets to become financial super powers, hence the emergence of the global airline networks. With the global airline networks, even in the same alliance, all airlines remain competitive with each other, but they also work together. In addition, through multilateral cooperation they attempt to achieve global market coverage while meeting the needs of international customers.

The need presented by the customers for “anywhere to anywhere” transport system is another leading cause of the global airline network. It is impossible for any airline company to be able to meet such demand without any external help. It will require a lot of cost and resources, and the service will not be cost efficient for the customers. Moreover, factoring in the barriers is presented by the corporate differences. Then, the creation of a means connecting one traffic to another is the only process that can help satisfy the customer and to meet the targets of the airline company. Therefore, most airlines have all the barriers of working alone and the need to satisfy the requirements of the customer, joined in different alliances. The other advantage is that the airline company realizes greater efficiencies in operations which is reflected in the earned revenues.

Another factor is that the code sharing agreements provided better and higher quality to the consumer (Lamb, Hair & McDaniel 2004). Market airlines book seats for the passengers on flights provided by other airline companies but in the same alliance. In such a way, they tend to set joint fares which are usually provided at a low price. This proved to be very profitable for airlines since they could expand route networks without actually adding the flights.

Cross-border mergers are usually prohibited in most jurisdictions. Therefore, some airlines could not travel to the areas that are restricted to them, hence not meeting the needs of the customers. Global airline networks helped to deal with this issue completely since once a firm is in an alliance it can use the resources of other airline companies to its own benefit. An evident example is the code sharing agreement and interline. In such a case, the airlines business is not only expanded to areas that were restricted to it, but it can also access all areas covered by the particular alliance.

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Most airline companies realize that in order to provide seamless services on the markets between smaller cities, which require interline trip, they should cooperate with each other. It is required that the airlines work together while making profits since it would expand their customer base and increase the profits (Kapferer 2008). This was another reason for the formation of global airline alliances. Since most companies in different industries had started collaborating and it had proved to be efficient in those areas, the results could not have been different in the airline industry, if a well developed plan had been formed.

Benefits to Individual Member Airlines in Alliances

In order to join the alliance, an airline company must first consider exactly what it intends to gain from such an alliance. The most convincing benefit is an increase in revenue. An individual airline working without an alliance has more costs to cover than when in an alliance. In the alliance, the costs of operation are shared; therefore, the airline has more revenue to help expand it base.

Another benefit is an increase of the customer base. As an airline company without an alliance, a lot of barriers are experienced. There are restrictions preventing to access some prohibited areas, and the capital to get to some of those areas that the airline is allowed can be limited. The reason is that one airline cannot fully service the planes to transport customers to all places in the world or rather from “anywhere to anywhere”. This would require a unimaginable amount of capital, and the costs of maintenance would be too high and always rising. Therefore, the airline would have to increase their prices, which would only decrease the amount of customers since the lack of access to the restricted areas means there are customers the airline cannot access. However, the airline in alliance would enjoy the benefits of an increased customer base because they can use the resource offered by the alliance to gain access to the restricted areas. In addition, being in an alliance means there is growth of the route networks without even increasing the number of airplanes.

Being involved in an alliance provides the airline organization with a chance to offer the customers low prices, especially for interlining passengers. If the airlines offering these service are not aligned, the processes of setting the fare usually involves each cooperating company to set the fares on the part of the route that they will be operating with their own craft.

In an alliance, an individual airline group does not feel the effects of operation costs when working alone. Tjis involves such costs as maintenance, fees for the airports facilities (check-ins, lounges), procurement policies, fees for staff training, connection services , sales, catering, and information technology. This means that an individual airplane organization reduces costs of doing business and increases its revenue. The organization, in this case, has the money to invest in other sources of revenues or even increase their aircrafts. This provides a sense of financial balance for the individual member of the alliance, which is the aim any business wants to achieve. With the money to get more investments and assets, the airline organization has a chance to negotiate extra volume discounts (Holt, Quelch & Taylor 2004).

Individual airline in alliances, especially the small organizations, gets their brand noticed and trusted since it gives the customers better perception, especially regarding safety and service. There is also improved frequent flyer program. The consumer earns miles, not only for the home airline organization, but also across the alliance (Henry 2008). Joining an alliance alone threatens the other regional airlines since the customers of higher value travel with such airline organizations. The airline organization is also able to use airports previously not accessible since it hascorresponding restrictions and access to some of the premium airport lounges.

Forms of Management

The International Air Transport Association (IATA) is an association of the world airlines. Its headquarters are in Montreal, Canada and that formed in April 1945 in Havana, Cuba as the successor of International Air Traffic Association (Kleymann & Seristo 2007). IATA was mandated with the establishment of coherent fare structures that avoided unfair and illegal competition. Its task was also to satisfy the interest of the customers. IATA possess full power over billing and mandate plans. Its objectives include safety of the people, proper service, security, simplifying the business and preserve the environment.

The International Civil Aviation Organization (ICAO) is another group that manages these alliances. ICAO is involved to ensure that there is safe steady and orderly growth of the international air transport. It is more engaged with the safety of air transport ensuring that the rules are not violated. It provides the blue print the alliances comply with in the case of an accident or if a plane flies to the restricted areas. It also oversees the development of aviation standards and recommended practices by the ANC. Every 28 days, the ICAO requires that every country updates its AIP manuals in order to provide them with definitive regulations and procedures relevant to airspace and airports.

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The civil Navigation Services Organization (CANSO) is the organization that provides air traffic control and duly respects all the interests of the Air Navigation Service Providers (ANSP). CANSO supports 85% of the world air traffic aiming at improving air navigation services (Vedder, 2008). Instead of controlling air traffic of the world, the ANSP monitors air traffic for a company, region or country. ANAP’s are usually government, state or privat organization.

These management bodies permanently check the alliances. In a more inside level, the alliances prefer to choose a management group, containing representatives from the individual member airline organization, to run events on behalf of the alliance and to ensure that all members are always checked to avoid rumbles within the alliance (Cameron & Quinn, 2011). Global airline alliances have provided the opportunity to the whole world, which is just waiting to be discovered. Unfortunately, when other market industries were allowed to form their own alliances, corresponding restrictions were posed to the airline industry, and they did not have this opportunity until the early 90’s (Ball et el., 2003). Therefore, the employment levels have increased in the whole world and it has challenged people to consider how to exploit such an opportunity to their benefit (Harrell & Kiefer, 1993). The safety of airlines in the alliances have also been improved since a defect of one plane is a problem of the whole alliance. The speculation will question integrity of the security of the whole alliance, hence spoiling reputation of the industry which service and safety must be a priority to its customers. Therefore, the global airline alliance was a global revolution.

Conclusion

In conclusion, the major reason for creating the global airline alliances is all individual airline organizations could increase their revenues and sell their brand globally. The advantages of being in a global airline alliance are that the company increases its revenue as well as its safety. It may be compared to the communities that help each other expand themselves financially and have the safety of being in a group. There is nothing negative against the formation of the global airline alliance since it has financial and economic benefits. The reason is that the airline becomes global and it helps build the airline organizations country since it attracts more investors, especially in very small countries under development. Being involved in a global airline alliance means that the prices of travelling are reduced, and more people move outside the country while others come, hence promoting tourism.

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