The identification and analysis of the critical success factors of strategic airline alliances

Abstract

Since the beginning of the decade, the structure of the industry has been changing
\nrapidly as airlines from various parts of the world have been forming alliances. These
\nalliances transcend the traditional types of co-operation which have always existed in
\nthe industry and constitute a strategy designed to give the partners a competitive edge.
\nHowever, many of these alliances are failing. This can be attributed to a poor
\nunderstanding of the managerial and operational characteristics of airline alliances.
\nThis research attempts to correct this deficiency by identifying and analysing the
\nfactors which are important to airline alliance success.
\nIn order to set the background of the research, the various ways in which firms have
\ntraditionally been linked are reviewed. The evolution of co-operation in the airline
\nindustry in the US, Europe and Asia is traced and the forces which have driven airlines
\nto adopt the alliance strategy are identified. The various collaborative strategies of
\nairlines are described.
\nThe definition of alliance success is critical to this research. Various definitions are
\nexplored and the ones considered most appropriate for this study are taken as alliance
\nstability and alliance operational performance. The issues to be considered in ensuring
\nairline alliance stability are qualitatively analysed. Among the most important ones are
\na pragmatic and careful approach in the formation process of the alliance, an
\nunderstanding of the relationship between the partners with particular importance given
\nto commitment and the generation of trust, and recognition of the evolutionary process
\nof alliances as the priorities of the partners change over time.
\nThe operational objectives of airline alliances are identified and classified as either
\nmarket-related or production-related. Market-related objectives include economies of
\nscope and density, and market power. Alliance performance is mathematically
\nmodelled using linear and logit regression techniques. The results of the analyses point
\nto the following: network size and network complementarity, network integration,connection quality, the type of flight (on-line, code-shared or interline) and alliance
\nfrequency of service as important alliance success factors. The reaction of competitors
\nis also found to determine the benefits of airline collaboration.
\nOn the production side, the objective of allying is to decrease unit costs and increase
\nefficiency by combining certain operational areas. A case study of Austrian Airlines is
\nperformed to identify the cost and productivity areas which have benefited from
\nalliance formation. Graphical analysis shows that benefits were reaped mostly in the
\nareas of labour productivity and aircraft utilisation. This implies that these are the areas
\nwhich should be targeted when making use of the alliance strategy. Unit costs were not
\nfound to be greatly affected by alliance formation.