Introduction
A strategic alliance is a partnership between firms in which resources, abilities and core competences of firms unite for achievement of the best result, “a credible group of individuals brought together to accomplish a specific goal or purpose which will benefit all members of the group in some way.”(Building Alliances 1999) In the field of airlines, British Airlines is a perfect example of a company that formed alliances providing both successes and failures. A member of One World alliance – “a global alliance that brings together ten of the world’s biggest and best airlines” (British Airlines 2008), British Airlines failed to have an agreement of an alliance with US Airlines (Evans 2003, p.340), ended a merger deal with Qantas airways(Foley 2008) and currently in planned alliance with American Airlines. This analyzes alliances in terms of benefits and disadvantages, particularly in the context of airlines business.
Purpose
The motivation for forming airline alliance was introduced in by British airlines where an analysis had been conducted to identify “the key driving forces shaping the world economy and in turn the airline industry” (Evans 2003, p.337). Thus, the motivation for forming was identified as the information Revolution, global economic restructuring and global completion.
In that sense alliances are formed with a purpose of extending networks, where “it is difficult for a single airline to create a truly global network” (Park 1997, p.181).
In that context, the alliance would allow more efficiency from teamwork, than could be reached by separate companies. Consolidation is an extreme measure to which the companies resort in a situation when all possibilities of efficiency increase in separate companies are already exhausted.
Another purpose for forming alliances could be viewed as avoiding “the limitations under the current legal regime on negotiating international air traffic rights on a multilateral basis” (Cheng-Jui 2007).
Benefits
The benefits can be divided between the company along with their partners and the customers. The benefits for the company and the partners involved can be seen in reducing the cost by coordinating activities (Park 1997, p.181) such as “sharing of airport facilities, technical cooperation, common purchasing, slot exchanges, code-sharing agreements, combined consumer reservation system displays, schedule cooperation, and integration of pricing” (Cheng-Jui 2007).
The benefits for customers can be seen through providing better routes, eliminate the need to retrieve baggage at transit locations and minimize waiting time between fights (Park 1997, p.181-182).
Disadvantages
The disadvantages of forming alliances mostly are concerned with their influence on the airlines’ market rather than the influence on the companies and their partners.
However, some disadvantages might occur in regard to the international aspect of the alliance where “it will be difficult for airlines to comply with different laws, procedures and policies, once various countries or regional authorities start applying their own anti-trust/competition rules to international strategic airline alliance activities and start implementing other measures to reduce anti-competitive impact” (Cheng-Jui 2007).
In regards to the influence on the market, it can be seen through the comments of Richard Branson, the head of Virgin Atlantic, on British Airlines and American Airlines alliance denouncing it as “a “monster monopoly” that would be bad for competition and for the American and British aviation markets.” (Maynard, 2008).
Forming alliances with will give regulations control to the partners involved forcing competitors to abide to the rules set by alliances where “the partners may increase airfares if they behave collusively and exploit their strengthened market power” (Park 1997, p.182).
References
- British Airlines. (2008). Airline alliances. Web.
- Cheng-Jui, A. (2007). The Cartel-like Practices vs. Application of Antitrust/Competition Law.
- Evans, N. (2003). Case Analysis in Strategic Management. In: Evans, N. Campbell, D. and Stonehouse, G. Strategic Management for Travel and Tourism. New Castle: Butterworth-Heinemann. p337-347.
- Foley, M. (2008). Qantas and British Airways end merger talks.
- National Association of Conservation Districts. (1999). Guidebook: Building Alliances.
- Maynard, M. (2008). American Defends Plan for British Airways Alliance. Web.
- Park, J. (1997). The effects of airline alliances on markets and economic welfare. Transportation Research Part E: Logistics and Transportation Review. 33 (3), 181-195.