The impact of airline alliances on partners' traffic

Abstract

Airline alliances have been dominating the air transport industry since the 1990s and by now the four strategic alliances, in which almost all of the major airlines participate, control the 56% of the world RPK. The thesis examines the airline alliance phenomenon in its entirety and more specifically, it examines the reasons and circumstances that have led to the formulation of these alliances and the impact these alliances have had on the participating airlines. A key parameter airlines use to assess their own performance and that of alliances is traffic. Thus, the present research examines alliances impact on the traffic of the allied partners by different types of routes (hub-hub, hub-non hub and non hub-non hub), different types of cooperation (FFP, code share, strategic alliance without and with antitrust immunity) and by the length of the route. In addition, the thesis analyses which alliance groupings, which type of airline and which geographical area have produced the best results from the alliances. To achieve these objectives, the thesis is divided into a theoretical and an empirical part. The theoretical approach starts with an industry alliance overview and then moves to the presentation of airline alliances, by discussing the reasons that have led to their establishment, the evolution of the regulatory framework around which airline alliances have developed, the definition of airline alliances, the different forms they have taken, their advantages and disadvantages; and finally, the past and current alliance groups. The empirical part focuses on the alliance traffic and analyses it around two different axes. The first consists of a survey in which the airlines participating in alliances were asked to assess their alliance participation and to quantify the impact of alliances on several parameters of their operation and performance and more specifically, on their passenger traffic. The second analyzes this impact on the basis of an econometric model that seeks to determine and measure any positive impact on traffic volume generated by alliances. The findings indicate that airlines are satisfied from their alliance experience as they have helped them achieve the main purpose for which they have resorted to alliances, that is to secure increased network coverage with little capital investment. Both the survey and the econometric model indicate that airline alliances have led to an increase in passenger traffic amounting to 10%. According to the survey, this traffic increase is mainly registered on hubhub routes while the econometric model indicates that this increase is evenly distributed on hub-hub and hub-non hub routes. The benefits result mostly from the marketing cooperation and appear within one or two years from the establishment of the alliance. Alliances may bring about cost reduction, but this depends on the level of integration among the partners. Almost all participants agree that alliances are the final stage of airline cooperation and that there will be no or very few mergers.