Strategic Alliances - Star Alliance of 1997 - Case Study Example

AIRLINE INDUSTRY ALLIANCE: THE STAR ALLIANCE OF 1997 BACKGROUND (INTRODUCTION) Strategic alliances in the business world have noticeably gained a high interest in the recent years. In the words of (Quinn, 198), Strategic alliance have been found to provide conducive commercial environment for maximizing profits while at the same time minimizing costs. This strategy, as is exemplified later in this paper, has helped, among others, the Airline industry. The alliance explored in this paper is drawn form the airline industry, which exemplifies the benefits of collaboration with different competitors in order to not only remain competitive but also to avoid extinction. In a bid to deliver a high sense of service and satisfaction to customers, airlines make strategic alliances in an attempt to increase destinations and flight frequency. As the business world kept on changing in the 1990’s onwards, the airline industry was pressured to develop more sophisticated business solutions to meet the ever rising demands among its customers. At the same time, increased usage of internet and globalization emerged and inevitably caused a lot of impact on travelling and the entire environment of the airlines. It was due to this that the Air Canada, Lufthansa, Thai Airways and united Airlines teamed up forces to come up with the Star Alliance of 1997 becoming a great revolutionary change to this industry which was previously becoming familiar with incremental changes as time passed. By bringing forth a network of airline company’s, star Alliance aimed at adapting to the changes in global mobility with the antidote of offering a faster and more convenient way of air travelling. MAIN DISCUSSION Following the creation of a network of airline companies, Star Alliance became the first airline alliance to manage to adapt to the change in global mobility and offer a faster and a more convenient way of traveling to its customers. Star Alliance at the actual start, invested a large amount of resources in order to establish themselves as an alliance that is based on partnership, trust and shared values. The members of this star alliance include the Thai Airways, Air china, Turkish airlines,Air New Zealand, Shangai Airlines, United Airlines, Singapore Airlines, The US Airways, Asian Airlines, South Africa Airlines, SpanAir, BMI, Swiss Air and Polish Airlines. Through the use of the "Move under one Roof" strategy, member airline companies try to improve their services at the same time as they put effort into creating synergies between the members and cut overall costs. The most recent move that has helped Star Alliance with cutting their costs heavily is the efforts put towards connecting passengers. Star Alliance has managed to increase the satisfaction among travelers by ensuring that passengers reach their flight in time. Since every passenger and every piece of luggage that misses a plane represents a great cost for the airline companies. By reducing the number of delayed customers and their luggage, Star Alliance has focused on saving about 10 million Euros per year. The alliance has also realized the importance of technology and has thus continuously tried to develop new and common technologies in order to improve internal communications as well as creating efficiencies for the airlines and the customers. Guided by the same strategy, Star Alliance is also successfully matching the expectations of their customers and thereby generating great benefits for travelers. One of these benefits encompasses the coordination of flight schedules between the allied members, which means that travelers will reduce the amount of time spent in waiting between flights. Furthermore, the frequent flyer programs enable the customer to earn points on the miles traveled that later work as a direct reduction in ticket costs for them. It is worthwhile to note the increased number of airport lounges affiliated with Star Alliance as well as the aforementioned benefits that relate to the efforts that the alliance has put in helping connecting travelers to get to their destinations in proper time. Owing to the fact that Star Alliance and its main competitors have strategies and goals that are intertwined, it is fair to assume that many airline alliances have been created for similar reasons. As stated in the article written by (Johnson et al, 23), there are three different organizational motives behind the creation of a strategic alliance. After further investigating which of the motives are most likely to be associated with each of the alliances, it became clear that this could not be entirely concluded as organizations and alliances have different types of focus over time. The environmental-based motive is strongly attached to Star Alliance, as they were the first to move quickly in a bid to adapt to the change in globalization and customer demand. However, because both Skyteam and Oneworld air alliances quickly reacted to the creation of Star Alliance, it is unfair to state that these did not form their alliances so as conform to the changes in the environment. A far honest assumption would therefore be that environmental motives play a huge role for any organization that attempts to join or establish an alliance. The next alternative is the capability-based motive, which is undoubtedly connected to Star Alliance since they explored new ways to better utilize their own capabilities by joining forces with other competitors and thereby generating synergies. Seeing that synergies call for the sharing of resources and capabilities between partners, there is a high probability that these synergies resulted in the overall increase in efficiency and load factors of Star Alliance. This motive is also connected to the other competing alliances though at a later stage considering that they first needed to adapt to the changing environment and create an alliance that could compete with Star Alliance before investing large amounts of resources in order to develop these synergies. In the light or the recent changes in industry regulations, security and customer traveling behavior, it is rational to state that all three alliances, at the moment, are driven by expectation based and/or environmental-based motives. In order to stay competitive and economically relevant, the large alliances are working towards adapting to the environment and finding new ways to get to customers, cut costs and achieve top-notch levels of efficiency. It has been proven that Star Alliance experienced a higher efficiency in terms of capacity in the aftermath of 9/11. Moreover, as Star Alliance has continued to recruit members to the alliance, this has made them grow in size thereby enabling them to make use of the capabilities and potential of their new members. Going by the views expressed in the article “The Five Factors of a Strategic Alliance”, in order for any alliance to be dubbed a strategic alliance it has to embrace at least one of three alternatives. A close investigation into the alliances in the airline industry clearly shows that there is evidence implying that all three alliances can regard themselves as being strategic. It would not be fair to say that these strategic alliances ‘block a competitive threat’ seeing that they offer their customers similar services and destinations. Although, the each of the three alliances is stronger in specific regions, the main factor that separates them from each other is the size of the alliance. However, even if past research differs to a certain degree in their conclusions, it is obvious that these alliances are both ‘critical to the core business success’ of its members as well as the ‘crucial to maintain competitive advantage and core competence’ in the industry. This statement is further strengthened by this study as it was observable that the members of Star Alliance, after only a few years, experienced a heavy increase in capacity efficiency. CONCLUSION Many factors affect the performance of individual carriers in a strategic alliance. The maturing nature of the airline industry has lead to further regulation of the providers whilst the consumers demanded lower prices and increases in customer benefits. Demands have forced airlines to embark on a price cutting endeavor by joining hands with competitors. Cooperation has of course produced something greater than the sum of all parts; and one of the most important of these are the steps made in use of existing resources and more specifically for load factors. The continued analysis and evaluation by the alliance players will provide information will assist in determining whether or not an airline should stay or join the star airline strategic alliance. REFERENCES Brueckner, J.K. & Whalen, T.W. (2000). The Price Effects of International Airline Alliances. Journal of Law and Economics, Vol. 43 (No. 2), 503-545. Brueckner, J.K. & Spiller, P.T. (1994). Economies of Traffic Density in the Deregulated Airline Industry. Journal of Law and Economics, Vol. 37 (No. 2), 379-415. Bryman, A. & Bell, E. (2003). Business Research Method. New York: Oxford University Press. Johnson, N. L., Kotz, S., & Balakrishnan, N. (1995). Continuous Univariate Distributions. Vol. 2, (2nd ed.). New York: Wiley Series in Probability and Mathematical Statistics. Miles, G., Snow, C.C. & Sharfman, M.P. (1993). Industry Variety and Performance. Strategic Management Journal, Vol. 14 (No. 3), 163-177. Star Alliance. (2007b). About Star Alliance. Retrieved May 13, 2009, from http://www.staralliance.com/en/meta/star_alliance/index.html 76 Wakeam, J. (2003). Five Factors of a Strategic Alliance. Ivey Business Journal May/June 2003: Ivey Management Service. Read More