Strategic Alliances in the Airline Industry Paper Example

Introduction

Strategic alliances enable businesses to work together with the aim of achieving a common objective. In the corporate world, strategic partnerships occur among companies with similar interests. By pooling resources, firms can pursue specific targets, while operating as independent entities. The relationship and success of such agreements rely on mutual benefits for all the parties involved. An alliance is a valuable business tactic that changes the competitiveness of the market, boosts operation and eases entry and exit (Elmuti & Kathawala 2001, p.205). The airline industry adopted the strategy, and over time, they have changed the air transport market. Combining of resources has enabled major strategic airline alliances to control the sector. This paper analyses the strategic partnerships in the airline industry based on the macro, micro, as well as the SWOT aspects.

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The Macro Context

The macro perspective focuses on the large-scale scope and purpose of the three major strategic alliances in the airline sector. The analysis focuses on macroeconomic issues as a result of the relationships established between airlines. These issues include the global economic conditions, the rate of sales growth, and customer acquisition. The macro context takes into account factors such as international market trends, performance against competitors, and the global political environment's impact on business (Elmuti & Kathawala 2001, p.206). The external factors have a significant influence on profits or losses incurred. The Star, Oneworld, and SkyTeam alliances have shaped the airline sector.

External factors fuelled the need for alliance formation in the industry. Decisions to pursue strategic agreements relied on projections of uncertainties in future airline markets. Projected changes in the world economy informed alliance formation. The strategic partnership allowed companies to collect and share data necessary for monitoring profits (Mowery, Oxley, & Silverman 1996, p.79). The information revolution enabled airlines to modify types of fares available to clients. Incorporation of information technologies such as the computer reservations system gives the customers an opportunity to make price comparisons and bookings (Ito & Lee 2007, p.357). Ease of access to airline services has increased consumer traffic and eliminated the need for intermediaries.

Stringent rules governing ownership regulate the airline industry. Legal limitations prevent foreign nations and companies from fully owning airlines (Debbage 1994, p.192). The most practical market entry approach is through strategic alliances. Alliance formation allowed various airlines to have access to new international markets. Thus, companies were able to remain competitive on a global scale while incurring a little cost. The partnerships allowed firms to tap into foreign markets and acquire new clients. The coalition was necessary to overcome bottlenecks that hinder the privatization of government-owned companies or merger formation (Adler & Smilowitz, 2007, p.396). Hence, airlines adopted strategic agreements to benefit from the economies of scale associated with combining resources.

The Micro Context

The micro perspective focuses on the role the strategic airline alliances played in individual airlines. It is an analysis based on the specific impact felt by member parties. Issues analyzed include microeconomic changes that can affect sales volumes and profitability of a business (Kleymann & Seristo, 2017). For instance, a micro perspective takes into account the actions of rival competitors that can sway clients' preferences. The focus in this context is inward. Internal factors such as the business culture and marketing strategies are evaluated to determine performance. A micro perspective informs the management why the business performs in a particular way.

The airline alliances provided new entrants with vital resource and support on market operations. The existing companies had knowledge and experience of the commercial airline business. The companies understood market trends, customer needs, and preferences (Vyas, Shelburn, & Rogers 1995, p. 48). By joining forces, a small or new firm benefited, by learning from its experienced partners. Learning from the experience of others lessens the risks companies face when venturing into new territory. Smaller firms may lack the vast resources necessary to acquire essential information such as market statistics or enter a market itself. Joining an alliance saves a company capital by cutting costs.

Evaluation of a company's products and services can reveal weaknesses that affect profitability compared to other parties. For instance, variations in customization of services according to customer preferences determine customer loyalty and traffic. Custom tailored products and the quality of services offered dictate how frequently a client flies with a particular airline. Comparing products provided by fellow partners can help a business restructure its services to remain competitive (Liou 2012, p.60). Equally, evaluation of internal marketing strategies can help a business identify loopholes that limit consumer outreach. A company can learn from how other members' package and advertise themselves to boost their profit margins.

SWOT Analysis

Strengths

The airlines' alliances shaped the market by establishing a steady customer base and developing unique, reliable brands. Consumers could easily recognize specific brands. They formed preferences based on the reputations of the alliances. Thus, companies enjoy the advantage of an existing status. An established client base and reputable brands grant businesses a competitive edge (Liou, 2012, 61). The coalition also offers access to crucial resources at relatively low costs. Reduced expenditure results in reduced cash outflows. Hence, companies can afford to give clients fair rates.

Weaknesses

The alliance takes away the element of autonomy and flexibility to some extent. By agreeing to work together, companies give up partial control. Consideration of all parties involved requires a little compromise (Kleymann & Seristo, 2017). The structure of the agreement ensures that everyone benefits. Mutual benefit is achievable through regulation of operations. Such restrictions that guide the alliance can limit one member from exploiting some opportunities. The element of competition overlap among the parties involved also poses a challenge.

Opportunities

The coalition offers increased market share by facilitating entry into new markets. Broader market access means increased sales volume due to an extensive market reach. The possibility of nations outside the triad joining alliances presents an excellent chance at tapping into the newer markets. Involvement in the agreements can position a company to benefit greatly. The coalition also offers a unique opportunity for members to access improved information technologies relevant to the sector (Gudmundsson & Lechner, 2006, p.155). The innovations in computer systems applicable to air transport significantly impact customer experiences and quality service delivery.

Threats

Partners involved can falsely represent their contributions to the alliance. In such cases, failure to meet set objectives negatively impacts all the other members. The poor performance of one partner may compel others to step up and take responsibility. Smaller companies suffer the most in such instances. Businesses with proprietary strategies may lose their competitive advantage in the process of sharing with others (Kale, Singh, & Perlmutter, 2000, p.218) The aspect of learning from the experience of others may lead to the divulging of trade secrets.

In conclusion, strategic alliances positions companies for success. They form when independent organizations' interests align. Parties involved reap benefits such as economies of scale, scaled up operations, and shared risk factors and cost. The airline alliances offered members strategic advantages such as learning from the experienced partners. Smaller companies were able to gain entry into very competitive markets. Hence, the partnerships enabled companies to manipulate the market to serve their interests and increase profitability.

Reference List

Adler, N & Smilowitz, K 2007, Hub-and-spoke network alliances and mergers: Price-location competition in the airline industry, Transportation Research Part B: Methodological, 41(4), pp.394-409.

Debbage, KG 1994, The international airline industry: Globalization, regulation, and strategic alliances, Journal of Transport Geography, 2(3), pp.190-203.

Elmuti, D & Kathawala, Y 2001, An overview of strategic alliances, Management Decision, 39(3), pp.205-218.

Gudmundsson, SV & Lechner, C 2006, Multilateral airline alliances: Balancing strategic constraints and opportunities, Journal of Air Transport Management, 12(3), pp.153-158.

Ito, H & Lee, D 2007, Domestic code sharing, alliances, and airfares in the US airline industry, The Journal of Law and Economics, 50(2), pp.355-380.

Kale, P., Singh, H & Perlmutter, H 2000, Learning and protection of proprietary assets in strategic alliances: Building relational capital, Strategic Management Journal, 21(3), pp.217-237.

Kleymann, B & Seristo, H 2017, Managing strategic airline alliances. Routledge.

Liou, JJ 2012, Developing an integrated model for the selection of strategic alliance partners in the airline industry, Knowledge-Based Systems, 28, pp.59-67.

Mowery, DC, Oxley, JE & Silverman, BS, 1996, Strategic alliances and interfirm knowledge transfer, Strategic Management Journal, 17(S2), pp.77-91.

Vyas, NM, Shelburn, WL & Rogers, DC 1995, An analysis of strategic alliances: Forms, functions, and framework. Journal of Business & Industrial Marketing, 10(3), pp.47-60.