Alliances and the Airline Industry Essay Example | Topics and Well Written Essays - 1500 words

Alliances and the Airline Industry - Essay Example Deregulation of the airline industry in the United States in 1978 led to the formation of the alliance. The deregulation was the most notable event that brought about the radical changes within the industry. M. Potter claims that Alliances are a means to extend or reinforce competitive advantage, and not a sustainable means of creating it. Oum, Taylor, and Zhang (1993) offer a universal definition: a worldwide airline network composed of a group of related airlines that provide services to consumers. They do so through a common computer system, automatic baggage transfer system, fares and ticketing, joint marketing, code sharing of flights and coordinated flight schedules. This paper will discuss the extent to which alliances have become a characteristic of the airline industry. Why did airlines come about? Deregulation of the airline industry lead to the formulation of alliances. The effects of deregulation were quick to filter though it took almost a decade for the European countri es to follow. The airlines could now choose the ways they wanted to take and fix the prices as they found it fit without any regulatory interventions. It thus enabled airlines to work according to demand-supply and other market factors. Airlines gained their freedom, and they had to fend for themselves in taking careful steps in order to walk the paths of positive financial bottom lines. Globalisation has set in new rules and with Increased Competition for and from new markets, the ground markets have altered airlines to adapt slowly to these challenges. Alliances have contributed highly to solving such problems as described by Harrigan (1988, p.67). With the Privatisation and unpredictability of the new market and its inherent vulnerability to global incidences, the industry had to adapt itself to aliening with the privatised industries as a survival mechanism. From basic code-sharing agreements, these alliances have come along the way, and today involve a closer co-operation betwe en partners. They ensured they integrated with even the non-flying partners like hotels and credit card companies. The hotels and credit companies play an extremely significant function in the development of the global airline industry. Airlines had to integrate their flight Routes by flying from shared hub points and common terminals and coordinating their flight schedules. Thus, passengers who want to connect from one alliance partner to another can do so with little inconvenience and effort. Airlines in an alliance offer fares that favour a combination of alliance partners because they have an integrated route network in place. This includes fares around the world that display the alliance global network. It permits travellers to travel round the earth entirely using the members of a single alliance leading to the Low Cost Revolution. Member airlines have linked their mileage programs in order to satisfy the consumer craving for miles. This helps them to reward travellers for fly ing within the alliance network. M. porter says that Alliances are frequently transitional devices. They proliferate in industries undergoing structural change or escalating competition, where managers fear they cannot cope. They are an indication to uncertainty, and comfort provider. Strategy and airline alliances De la Sierra (1995) claims that in order to gain a competitive advantage in the global marketplace an alliance has to be internationally strategic. It must posses the following