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