Airline Alliances. Basics & Bypassing Barriers


Seminar Paper, 2013

16 Pages, Grade: 1,0


Excerpt

Table of Contents

1 Introduction

2 GeneralAspects oł Airline Alliances
2.1 Present Airline Alliance Environment
2.2 Motivations and Benefits Leading to Alliances

3 BypassingMerger Acquisition Regulations
3.1 Regulations
3.2 Nationality

4 BypassingBilateral Agreements

5 Summary and Outlook

6 Appendix
6.1 List of Abbreviations
6.2 Bibliography
6.3 Images
6.4 Tables

1 Introduction

illustration not visible in this excerpt

The formation of modern airline alliances has been a key process and prominent tradition in the airline industry since the last three decades. The characteristics of these alliances vary in scopes and extend from branding or franchising of low density feeder or regional routes to the creation of global airline networks conducted by the world's most powerful carriers (Oum/Park/Zhang 200f, p. 219). Due to various reasons airliners prefer the amenities of acting co−operative rather than competitive relationships. Overall, it is undeniable that the formation and the rapid growth of alliances has been a central topic of the airline industry. Meanwhile it is scientifically proven that the economical bene- fits and opportunities for airlines prevail possible threats and disadvantages (Shaw 2007, p. ff0 J.). 3

With the participation in an alliance airlines pursue well−considered targets and strategies. For years the extension of international route networks has become an important strategic objective of the largest carriers. Global alliances allow operators to access parts of the world where it may not be economical to do so on their own, or where there may be a lack of authority to operate their own flights. Unfortunately air transport industry is still one of the most regulated industries in international trade (Oum/Yu/Zhang 200f, p. 57). The regulatory environment of the international air transport is not comparable to any other service sector. Restrictive bilateral air service agreements and limiting rules concerning mergers and acquisitions (MA) are continual obstructions for the big aviation companies. Because of these reasons air carriers often try to bypass the bilateral air service agreements and merger regulation to increase their influence and get access to new markets (Debbage f994, p. f90; Doganis 2006, p. 99).

This project paper intends to give a detailed description of present alliance landscape and competition connected with chosen statistical data in the beginning. Furthermore the key competitive effects and motivations leading the formation of alliances are described and act as basis for this project paper. This is followed by a concise overview about the mentioned regulations relating to bilateral air service agreements and MA in aviation industry.

Based on that we will describe how the participation in an airline alliance can help to circumvent several constraints imposed by the current regulatory system.

Finally the paper is closing with a critical look at the question whether airlines are airline alliances are the really the second best solutions or even sometimes intentionally chosen by the operators.

2 GeneralAspects oł Airline Alliances

2.1 Present Airline Alliance Environment

illustration not visible in this excerpt

Since the emergence of the first modern airline alliances in the mid f970s many alliances appeared and disappeared on the worldwide aviation market due to various reasons. The early alliances varied in scope and expansion, but they all hadn't the distinctions of long enduring partnerships (li 2000, p. 65 J.; Doganis 2006, p. 74 JJ.). The memberships of the current global groupings have largely been negotiated since the end of the last century in f997 (Oum/Park/Zhang 200f, p. 2f9). It was the foun- dation year of ”Star Alliance”, followed by the two big competitors ”oneworld” in f999 and finally 4

Skyteam” in the year 2000.

Within the past f5 years a substantial increase in size and depth of these airline alliances in international air transportation can be recognized. Nowadays the formation of airline alliances is not only limited to the passenger services. In the meanwhile an increasingly number cargo airlines have been drawn up to several freighter alliances as well to provide more integrated cargo services due to existing regulatory barriers and foreign ownerships (Zhang/Hui/l eung 2004, p. 84).

From the size perspective the individual alliances have recorded a rapidly growth of members since their foundation. This can be reflected in basic transportation statistics. For example, in the year 2008 the three key alliances carried about 59 percent of the roughly 2.2 billion airline passengers in common. From the depth perspective, the members of all three global alliances obtain increasingly more freedom in coordinating different aspects of combined operations, including pricing and scheduling decisions, as well as the right to establish revenue−sharing partnerships in international markets (Bilotkach/Hüschelrath 20f2, p. 76).

In the following table we will provide an overview and comparison of the present alliances market dominated by the three major passenger carrier alliances. The latest publications of the airline networks are used as basis for this statistic (Skyteam 20f2; Star Alliance 20f3; Oneworld 20f3).

illustration not visible in this excerpt

TABLE 1:STATISTICS AND SHARES BY AIRLINE ALLIANCES

As shown in Table f, we can currently distinguish between the mentioned three remaining major global alliance groups. As of the end of 20f2, most of the world's leading 50 airlines are incorporated to one of these three alliances, as were their innumerable subsidiaries. However, a number of major airlines remain outside these global alliance groupings, including Southwest Airlines, Emirates or Virgin Atlantic. For example Emirates Airlines prefers to maintain its independence and strong position, especially on the Middle East market, instead of being constrained to follow the rules of a membership (Shaw 2007, p. fff).

illustration not visible in this excerpt

Additionally Low Cost Carriers (LCC) like Ryanair, Easyjet and Virgin America do not participate in one of the global alliances at present. The reasons for their absence from are structured grouping is based

on the incompatibility of products (seamlessness) and IT connectivity, while many carriers simply do 5

not see a value in belonging to an alliance (Airline leader 20ff, p. 38).

Despite not being a member to a particular alliance group, many of the mentioned airlines have established own partnerships with individual airlines beside different global alliance groups. However, as the global reach of the main three mature networks improves, the number and extent of ”side (tactical) alliance deals” will decrease rapidly over time (Oum/Zhang 200f, p. 289).

Nonetheless it is undeniable that international alliances in their existing manifestation are confronted with an increasing competition caused by LLC and the Gulf carriers represented by Emirates, Etihad and Qatar Airways. The following table contains some key figures for each of the major alliances in comparison to LCC segment and the Gulf airlines to illustrate the upcoming pressure (Matei 20f2, p. 76 ; All Nippon Airways 20f2, p. 7).

illustration not visible in this excerpt

TABLE£: GLOBAL AIRLINE ALLIANCES VS.LCC VS.GUL¢CARRIERS

Without a doubt these numbers show airline alliances have high market shares especially on intercontinental routes, such as the connections between North America and Europe. Additionally Image f on the next page displays very clearly the power ratio on the European aviation carrier market. Nevertheless Table 2 also depicts that especially LCC have a noticeable market share and play an important role in airline industry. This conclusion leads to the next paragraph and the question whether it is useful to form an alliance and what are the benefits for the respective members.

[...]

Excerpt out of 16 pages

Details

Title
Airline Alliances. Basics & Bypassing Barriers
College
University of Applied Sciences Wildau  (Wildau Institute of Technology)
Course
Corporate Finance
Grade
1,0
Authors
Year
2013
Pages
16
Catalog Number
V214125
ISBN (eBook)
9783656425625
ISBN (Book)
9783656435891
File size
659 KB
Language
English
Tags
Airline Alliances, Luftfahrtallianzen, Allianzen, Luftverkehr, Strategische, Alliances, M&A, oneworld, skyteam, Star Alliance, Mergers and Acquisitions
Quote paper
Diplom-Kaufmann Sebastian Wagner (Author)Richard Friedrich (Author), 2013, Airline Alliances. Basics & Bypassing Barriers, Munich, GRIN Verlag, https://www.grin.com/document/214125

Comments

  • No comments yet.
Read the ebook
Title: Airline Alliances. Basics & Bypassing Barriers



Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free